Category Management and Cognitive Computing

“Without the foundation of Category Management,” declare analysts from the Category Management Association, “shopper marketing is ‘a tale full of sound and fury signifying nothing’.”[1] They explain, “Category Management is the primary platform from which CPG brand owners interact with retailers. Category Management provides the language, process framework, and metrics for communicating all strategic and tactical recommendations to the retailer.” They believe too few companies provide enough of the right resources to category management. “The central message,” they insist, “is that brand owners need to give the Category Management function more and different resources, because several accelerating trends within the CPG marketing ecosystem are increasing the importance of category-based thinking.”

Defining Categories

Category-based thinking begins with defining categories. Sally Martin (@sallymmartin), a marketing analyst and consultant, writes, “If you define your product category well, you lay the foundation for successful analysis. If you don’t, your analysis can be misleading or useless.”[2] Defining a product category seems straight forward enough; but, Martin explains, the reason it’s not easy is because customers, retailers, company executives, and ratings companies all have their own idea about the category into which a particular product should be placed. She writes:

How consumers define your category. A shopper-centric category definition would include all the products that meet a similar consumer need. Ask yourself “for a particular usage occasion, what might a consumer choose instead of my product?” If you sell toothpaste, that’s pretty easy. If you sell popcorn, it’s a lot tougher to decide what products to include in your category. Should I include both microwave and ready-to-eat popcorn? What about other salty snacks? What about other relatively healthy snacks like yogurt or granola bars? You can see how this may not be as easy as you first thought!

How retailers define your category? For retailers, in-store location is a major factor and may override how consumers view a category. For example, consumers might see refrigerated orange juice and frozen orange juice as substitutable (I know I do!). But retailers usually break those into two categories which are managed by two different buyers.

How does your management define your category? You may have specific internal reporting requirements. You need a data structure that can deliver on those requirements.

How do IRI/Nielsen define your category? This factor is crucial if you are buying a syndicated database or ad hoc (aka one-time) reports. You must check their categories (sometimes called product modules) to make sure your items and key competitor items are there. Don’t assume anything from the IRI/Nielsen category name!

Since more and more decision making relies on large databases, making sure you understand those databases is critical.

Brand and Retailer Collaboration

Symphony GOLD recently released the results of its third annual Category Management Survey, which found that retailers and manufacturers often have competing category management strategies. “Although manufacturers globally report that 49% of retailers are demanding SKU rationalization and new product introduction,” the Survey’s authors write, “48% of manufacturers globally would prefer to do opportunity gaps assessment and advanced trending analysis. Overcoming this division requires both parties to collaboratively review category strategy in order to transform collective insight into timely and actionable planning that is focused on delivering profitable category growth.”[3] Both parties are driven by the same objective — improving sales and profits. A lack of collaboration and disagreement about what collected data is telling them will be detrimental to both manufacturers and retailers. According to the Survey, there is a lot of room for improvement when it comes to collaboration. It found, “US and UK respondents were more likely to describe the retailer-manufacturer relationship as mostly collaborative (46% and 40% respectively), while in mainland Europe this number drops to around 25%.”

One of the obstacles to better understanding is not recognizing that consumers living in different locations have different preferences. The Survey found, “Globally, 31% of manufacturers report that assortment and space recommendations are made at total retailer level.” The Survey’s authors believe (and I agree) more granularity is needed to achieve better sales for both brands and retailers. They note that manufacturers are expected “to provide assortment and space recommendations to retailers, but that those recommendations need to reflect “different retailing landscapes.” Granularity can increase the complexity of data analysis which is why the latest analytic platforms need to be leveraged.

Category Management and Cognitive Computing

Category Management and Cognitive ComputingThe Symphony GOLD Survey concluded today’s analysis is often too slow for the speed at which business is conducted. “The majority of manufacturers, 27%, report spending three to five days consolidating data to support category insight, with a further 26% spending five days on the task. Consequently, actionable insights are elusive and organizations are unable to respond quickly to market and consumer needs. A cloud-based category management solution enables retailers and manufacturers to assimilate data from multiple sources and create a single access to the truth, which will become more imperative to speed time to decision in the future.” A good place to start improving category management is to employ a cutting-edge cognitive computing platform, like the Enterra Enterprise Cognitive System™ (ECS) — a system that can Sense, Think, Act, and Learn®. Cognitive computing platforms are capable of performing advanced analytics (at computer speed) on both structured and unstructured data and providing the “single access to the truth,” recommended by Symphony GOLD analysts.

A cognitive computing platform can help deal with the complexities of today’s category management environment. Analysts from Kurt Salmon explain, “Today, successful category management encom­passes a broader set of capabilities than in the past, including: category role and strategy, macro space allocation, financial budgeting, assortment planning, planogramming, price optimization, private brand development, promotion and event planning, and joint business planning with vendors.”[4] They go on to note, “Enabling all this will, in most of today’s retailers, require changes to processes tools and organiza­tional structures. It also means better connecting existing processes, and bringing together disparate parts of an organization like never before to deliver a seamless customer experience.” In other words, both manufacturers and retailers could benefit from leveraging cognitive computing capabilities.

Summary

The Category Management Association has stated, “Category management is one of the most successful business processes of the 20th century. It is used by virtually all major consumer packaged goods (CPG) retailers and manufacturers around the globe.” Cognitive computing capabilities can bring this successful process into the 21st century. Kurt Salmon analysts note, “Many are now defining this work as spanning from the initial development of the category strategy and role, through to the completed reset of the store shelf and online assortment. This is a much wider view of the world than what category management traditionally included, and creates a big part of the challenge.” That kind of complexity requires capabilities like those found in cognitive computing platforms.

Footnote
[1] Category Management Association, “Category Management,” CPG Matters, April 2013.
[2] Sally Martin, “How to Define Your Product Category (And Why It Might Be Harder Than You Think),” CPG Tip Data Sheet, 21 January 2013.
[3] Symphony GOLD, “Symphony GOLD Category Management Survey Finds Retailers and Manufacturers Divided on Assortment Priorities,” Yahoo Business, 6 February 2017.
[4] Staff, “Seven Facets of Modern Category Management,” Kurt Salmon.

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