Category Management: serving the world of retail for over 20 years

In the early 90s, in America, Brian Harris developed and promoted the model of category management, paving the way to a new concept of retail business, based on the improvement of the performance of the product category, and always increasing attention to consumer needs.

In the early ’90s, when Brian Harris introduced the guide lines behind this new concept of management for commercial businesses, through his ‘Category Management defined: What it is and why it work’, the large-scale USA retail was going through an era of deep changes: the multiplication of distribution channels, increase in size and the same type of products, advent of new technologies and the ever-changing consumer buying behavior, passing from an approach that was ‘basic’ to one that is ‘pro.

This led distribution companies to review their approaches, launching a reorganization process that would allow them to reach sales objectives and, at the same time, generate profits.

In 1992, Nielsen defined the new concept as the model that “identifies strategic business units in product categories that have as their fundamental objective the satisfaction of consumer needs and the achievement of adequate economic goals at the business level”. It’s a new approach which was first applied in the first half of the ’90s, thanks to the choice of several distribution and industry realities to invest in the application of individual projects of Category Management.

As thought out by Harris, in the light of the first variations of the model, it goes beyond a simple organizational change of the product categories and rather implies an active role of managers (the category) in the definition of the same, above all – in the words of S. Castaldo and C. Mauri – “those on which the retailer decides to focus on when building a brand image and to differentiate itself from the competition.”

In this viewpoint, the retailer will act on multiple levels, from the assortments to the shelves, to the sales points themselves, which will be adjusted and rationalized so that a category manager can dedicate himself to pursuing the most cost effective method and, at the same time, meet consumer demands and create a pleasant and satisfactory shopping experience. An approach that had found its first origins in the USA, but in our country, it was met with acknowledgment and validation thanks to the fact that it had been able to better anticipate the times. And if we speak of pioneers, it would be well worth mentioning Italy’s Esselunga. Years ago, its late founder, Bernardo Caprotti once said, “stores must be realized with the customer in mind: that is why we create them in the same manner, having over the years codified procedures, patterns, equipment, and materials”, which – we would add – are always equal for every sales point of the network and, above all, different from those of the competition.

The 2000s

At the turn of the new millennium, Category Management entered a new phase. The break came with a publication of a methodological guide by ECR aimed at supporting anyone involved in the daily management of retail business. The goal? To change the approach towards the Category Management of organized distribution managers; in fact, up to that point, the concepts introduced by Brian Harris had found an application that was limited to individual projects in partnerships between industries and distributors. From that point on, through the ECR methodology guide, the stakeholders in the retail world were shouting at key players of production and distribution, stating that Category Management could become structural within a commercial organization. It became the solid genesis of a new method of approaching daily management and the market itself.
In the vision of the new millennium, although it was taken into consideration from the outset, the importance of the fundamental component at the base of Category Management must be observed: the Consumer. In order to be successful, a Category approach could no longer overlook all the knowledge of his Consumer. The Category must be aware of what he thinks, feels, idealizes and searches for in stores. It’s the approach that Nielsen defines as ‘Consumer Centric’, which aims at growing a business through more effective and efficient management of product categories and based on consumer needs.

Critical issues and opportunities

Despite the fact that Category Management is now of ripe age and has a fairly linear approach, both in terms of understanding and application, there is still diverse resistance today to its adoption by a number of operators, such as distributors or representatives of the production of consumer goods.

But what are, specifically, these inhibitor items? They are to be found in each of the six fundamental components of the Category itself: Strategy, Business Process, Organizational Capacity, Commercial Relations, Information Technology, and Performance Measurement.

They become stagnant in the fragility of commercial relations between the industry and distribution, or in the continuous/frequent modification of existing contract agreements, or in the long-standing difficulties in the exchanging of information or data, or in the difficult realization within sales points in accordance to what had been previously defined in commercial agreements between manufacturers and retail. All these aspects are only part of the reasons that have held back in recent years the development of retail management, especially in a context such as Italian.

According to an analysis recently conducted by Nielsen, of all the possible reasons for the non-adoption of Category Management, only 20% regarded the Category itself, while the remaining 80% depended on external factors, which still interfered and nullified the final results. Industry and distribution often take action as unrelated entities, each with their own skills and abilities. Category Management offers them the possibility to put together their resources and achieve results which are certainly more significant, both in terms of sales volume and Consumer confidence. It’s a matter of approach. If in the future, industry and distribution fully share the intentions behind the project itself, then they will achieve a common goal that is fulfilling and rewarding. As with every method of innovation, Category Management has had to do a lot of elbowing over time in order to be successful. The difficulties that still persist in different companies represent, for us and our partners, a gap which must be essentially remedied and, at the same time, a unique opportunity to allow the key players in the retail landscape to achieve the best possible results in the relation between Supply and Demand.

SOURCES
Definition of Category Management – Category Management Association website
Category Management – GS1 Italy website
Sandro Castaldo e Chiara Mauri – Store Management – Il punto vendita come piattaforma relazionale, Franco Angeli Editore, 2005
Category Management – Il modello operativo per il Sistema Italia – PDF
Nielsen – Celebrating 90 years of innovation
Bernardo Caprotti – Falce e Carrello. Le mani sulla spesa degli italiani, 1ª ed., collana Gli specchi del presente, Marsilio Editori, 2007

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