Category Management E-Commerce

Category Management: The Magic Sauce

for Retailers and E-commerce platforms
Ever wondered when you go to a retail store or purchase anything online why you end up
purchasing more than what you actually wanted to buy?

It is not exactly your impulse purchasing behavior that instigates you into buying those
additional biscuits or soaps or Maggi packets, it is a good example of category management
and visual merchandising which results in you buying more than what you came to buy for

This doesn’t mean you are buying products which you don’t need, because of good category
management you end up buying more products in that particular category which you needed
but didn’t have on your shopping list.

The best example is when you go to a retail store with the idea of buying a shampoo, you end
up buying a conditioner, a face wash and maybe a few soaps as well, this is because a good
category management strategy knows what a particular user ( in this case a buyer of a
shampoo) wants or would buy in addition to the product he was looking for.

Similarly, on the digital side, e-commerce websites suggest you as to what other users who
have purchased a particular item also buy and that induces you into adding more items into
your cart.

In stores both offline and online you’ll notice that products of the same type, providing more
or less the same benefit to the user but of different brands are placed together. These are
basically called categories and arranging them into these categories helps these stores get more
sales, better vendor relations and enhanced competitive positioning.

In other words, segregating different products into groups based on consumer trends and
purchase behaviors is known as categorizing and that is a critical part of category management.

Category Management is the collaborative process of seeing different categories as individual

business units, aimed at providing business results by focusing on delivering value to the
customers. With category management products that customers want are kept where and when
these customers want them by placing them in categories according to how consumers purchase
these products.

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Each category has its own profitability targets, sales targets and is all
aligned with the overall strategy of the firm.
But Why Category Management?

The 3 Most important reasons for category management

1. From the retailer’s point of view, not all items in the store are of
equal importance, there will be some items that have low demand
but have high margins, some with high demand and low margins,
hence the need to categorize these items into relevant sub-groups.
2. It is a myth that price negotiations can increase profits, the best way
to increase profits is through more sales and category management
is one of the best ways to go about achieving good sales
3. Collaboration with supplier will improve building the category itself
as their expertise can be used to develop the category

But before defining categories the following should be ensured

1. Categorization should be done to provide ease to the customer, not

on the retailer’s convenience
2. The categorization should induce multiple purchases for the
customer
3. Everything should be customer-centric and aim at improving
relationship with the customers
4. The division of category should be based on product response, space,
time and profitability

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Category Management E-Commerce

8 Steps in the Category Management process

Category Management isn’t a simple process and needs to be done in 8 steps

1. Category Definition

The first stage is defining the category, here the retailer classifies various products in the
department based on usage by the customers, based on their customer purchase patterns and the
decisions they make, for example, users who buy Sunscreen lotions are more likely to buy
moisturizers and serums and hence these products fall into one category.

2. Category Role

Here the retailers have to decide the role the category is playing in their retail store in
comparison with other categories, for example a category like watches may have a premium or
luxury image among certain consumers and household essentials like soap, detergents etc might
have a low-priced image among consumers, based on this and the value that category has to
the retailer, allocation of resources need to be decided.

There are 4 types of category roles

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1. Destination
2. Convenience
3. Seasonal
4. Preferred or Routine
3. Category Assessment

In this stage, a thorough analysis of the category is done in terms of sales, turnover, profits by
reviewing consumer, supplier and market information of the subcategories of the category.

The strengths, weaknesses, opportunities, and threats of the category are looked into and also
the checks are made to see if the categorization is done right and if any category requires
additional effort to gain profits

4. Category Performance

Like mentioned before that each category is treated as a separate business unit, here the retailers
set targets and benchmarks for these categories in terms of sales, profits, turnover, and ROI.

Based on these numbers a category scorecard is made to determine the overall performance of
the category and it’s relevance to the overall business

5. Category Strategy

Category strategies are made to ensure that the category meets the targets set and attains a good
enough score in the category scorecard. Also here the retailer tries to see a gap where they can
position their own brand along with the national brands.

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Few of the category management strategies are

A) Traffic Building
This is mainly done to attract consumers to the store or a particular aisle, and low priced
goods which require frequent purchases are made part of attractive deals which then lures the
customer towards a particular aisle in the store

B) Transaction Building
In this strategy, larger purchases are inculcated among customers by incentivizing customers
to purchase in bulk in order to avail discounts

C) Profit Generating
In this strategy, subcategories which contribute more profits are given more focus by keeping
the prices within competitive range

D) Excitement Generating
Here products are kept in such a way to create a sense of urgency among the users to buy the
product, For example, terms like “Seasonal, Limited Edition, Latest Arrivals “ induce an extra
sense of need among the customers to purchase that product.

6. Category Tactics

Category tactics are made to define the optimal pricing, promotions, assortments, shelf
penetration, SKUs to ensure the strategies are right on track.

It is the onus of the supplier to do proper value addition based on the role of the category and
while doing this he must also ensure the type of retail store he is entering into.

7. Category Implementation

Now that the plan is there, the retailer should decide what, where, when and how these tasks
and strategies need to be implemented.

8. Category Reviews

A simple review system where continuous analysis needs to be done and the results need to be
reviewed on a live basis with changes being suggested and implemented all with one goal to
achieve a good score in the category scorecard.

To conclude a retail outlet or e-commerce platform with the right category managers having a
perfect understanding of the categories they are operating in, tend to have better customer and
vendor relations and hence is the key ingredient or magic sauce in the recipe for a successful
business.

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