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In the mid-1990s, retail brick-and-mortar stores began witnessing shrinking margins in the neighborhood of around 1.5 percent, an endless proliferation of new products, and more diverse consumer groups who were very demanding. New trading formats like warehouse clubs, retail supercenters, which combined the traditional general merchandising format with full-line retail grocery

store format in one roof began its rapid domination of the traditional retail brick-and-mortar business. Retailers began to wonder how to reconnect with their customers, meet their customer needs, grow sales, and guide against the erosion of retail sales margins.

Foresighted retailers began to query transaction data collected from point-of-sale (POS) systems. What actionable insights could be gleaned from these data source? What did these data reveal about what the right product assortments a retail store should stock? What actionable steps could retailers take to customize their in-store shelves in line with customer buying habits? Could significant insights about profitable product assortments and niche markets be gleaned from POS transaction data? The answer, as discovered by The Partnering Group (TPG), a leading global retail strategy and general management consulting firm (www.thepartneringgroup.com) was in the affirmative. TPG postulated an 8-step category management process that gradually became the retail industry gold standard. The 8-step process consists of:

1. Category definition: define each product assortments that perform same or similar functions as a category.
2. Category role: assign a customer-centric role to each product assortment category.
3. Category assessment: periodically assess the performance of each product assortment category.
4. Category scorecard: determine the scorecard for grading the performance and profitability of each category.
5. Category strategies: treat each product assortment category as a strategic business unit (SBU) and design a strategy for it, with clear objectives.
6. Category tactics: craft appropriate tactics for the execution of each product assortment category strategy
7. Plan implementation: implement category strategy with the aid of the pre-determined category tactics.
8. Category review: carry out a periodic review of each category performance, making and tweaking and aligning strategies and tactics in line with what the transaction data says about each category strategy and tactics.

The original adopters of this 8-step process included retail giants like Safeway, Kroger, Best Buy, and a few others. Soon, other retail chains joined. With time, it became clear that the original one-size-fits-all 8-steps category management design process was too complicated, cumbersome, and unwieldy, that it required too many details, and had many moving parts that needed to be coordinated for successful execution.

The Role of technology in category management.

In today’s retail world, technology has been and continue to play a vital part in the streamlining and customizing the original 8-step category management process. There are now many proprietary software vendors that can be deployed for the management of both offline and online category management process. Some retailers have equally rearranged and or reduced the number of steps in line with the peculiarities of their business formats and the goals they desire to prioritize. Category management is no more a one-size-fits-all process. Data is still the key that unlocks hidden business insights. Data analytic tools have become invaluable in retail category management. For instance, a retailer can use data to determine whether to focus on setting financial goals first, then product assortments and the appropriate gross margin per assortment in a category, before all other steps of the category management process.

The Role of the Consumer

The needs and wants of your consumers should inform and drive customization of your category management design process, and the product assortments in each category you carry in your retail store. Your customer is the source of your retail transaction data. The role the transaction data you generate plays in your decision-making process must be informed by what your customers' wallets tell you about them and this must be the primary product assortment driver for you. As a retailer, to understand your consumer buying behavior, you must pay attention to the actionable insights the demographics and psychographics that your data reveals about your customers buying behavior. It is your consumer who should decide your category management assortments. Using transaction data, segment, target and stock accordingly. By so doing, you will get a fair share of their wallets. Know their peculiar buying and consumption pattern. Are customers everyday low-price shoppers? Are they upscale premium buyers?

Your Role as the Retailer

Though the consumer is the purpose of your category management design, it is you who decides what your key objectives for market share will be, the appropriate store format that will deliver the market share, your financial goals and the appropriate product assortments for attaining these goals and objectives. It is you who will set your store strategy and the appropriate tactics for execution. Your transaction data should assist you in deciding whether to be an everyday-low-price retailer, a niche market segment operator? An upscale premium market segment player?

Your Role in Setting Strategy

Your role in setting your assortments category management strategy should be dictated by the following strategic elements:

• Traffic building: you will need to devise a strategy to drive traffic into your store and through the aisles. Your front store environment and window display tactics should play a vital role in drawing the attention and interest of shoppers. Once your shoppers have accessed your store, the quality of your store atmospherics will determine how long they stay, and whether they make purchases or not.
• Transacting building: the product assortments you carry in each category and their price points, together with the promotional items on display will be reflected in your transaction data. Convenience products assortments could be your source of traffic building.
• Cash generation: convenience products and brands are good sources of cash generation. The product assortments you stock as part of your convenience category management strategy should play an important role in helping you generate cash, but not necessarily profits. This is so as convenience products are usually everyday use product assortments that are purchased without much thought and efforts.
• Excitement generation: the quality of products and the price points you display is one element that is capable of creating excitement. Poundland in the UK and Dollar Shop in the US have perfected the use of everyday low prices of convenience product assortments in creating in-store excitement. Your store atmospherics is another key element in generating excitement in your store. Marks and Spencer in the UK leverage on its in-store atmospherics as an instrument for generating shopper excitement.
• Image enhancement: decide on what props, shelves arrangement, lighting, floor staff comportment that will enhance the image of your store. Remember that the quality of products you stock and their price points have direct effects on your store image.
• Defending your turf: what products assortment do you stock in each of your categories? What are their price points? How do they stack up against the competition? These are some of the questions that will provide you answers for the generation of strategic action-steps for the defense of your turf in each of your category assortments.

Retail data analytics

Today customer loyalty is fickle, inconsistent, and nit-picky. To thrive, you need data. Retail store transactions generate tons of data. The data comes from in-store POS transaction, your store’s website, social media sites, trade journals, and from big data vendors. Data analytic software is available for many sizes of retail businesses. You may opt to drill down on data using an Excel spreadsheet. Whether in-house or outsourced, you need descriptive, predictive, and prescriptive data to make informed actionable decisions about the right blend of product assortment that will drive your market share and products’ margins.

Who is the Final Decision-Maker in Your Retail Business?

As the CEO or the chief marketing officer (CMO), or the chief information officer (CIO), or store manager, you must commit to the mastery of the category management process. Categories are best managed as independent business units for best results. Use the category management process creatively. Use data to drive decisions in each category. Manufacturers and or their representatives may possess valuable data that can be of help. However, in the final analysis, you must take responsibility for what is best for your customers. You will need vision and clarity about the key performance metrics you want to measure. And these metrics should be those that drive market share or share of wallet, profit margin, customer total experience, and others you consider pertinent to the profitability of your category management process.

Partnering with Your Manufacturer or Supplier

Whether you decide to stick with the 8-step category management process as advocated by TPG or opt to customize the process to suit the peculiarities of your market and consumer habits, you will, in some way and at some time work with either the direct manufacturers of some of your products’ assortments or their representatives. Manufacturers or their sales reps can provide valuable information but you should lead because you have the vision and clarity about your target market and customers. Though they have deeper insights about their products and its appropriate use, there is always the temptation for them to push their own biased agenda. You should lead the process for the following reasons:

• As a retailer, you know your objectives. Perhaps one of your key objectives is everyday low price, or an upscale premium retail player, or a fully brand-diverse product assortment retailer, or even an organic food retailer.
• You know your product and marketing strategy. You must, therefore, focus on your category strategy first before your brand assortment strategy. Part of your strategy may call for increased traffic at low prices. This may entail a focus on convenience goods first, much to the subordination of premium products at premium prices with its attendant low foot traffic.

All said and done, you should invest in understanding category management. You should align it with your aisle management. You should use your knowledge of both in designing an effective sales promotion program. You should understand the concept of impulse buying and how to deploy it in the management of both your categories and store’s aisles. Lead with data. Use descriptive analytics to understand where you currently stand. Use predictive analytics for your tactical planning process, and use prescriptive analytics in planning your retail store overall strategy.