6 Category Management ideas for small business at Christmas
Courtesy www.milehightreefarm.com
The third in the series outlining the 10 ways small businesses can beat the supermarket gorillas at their own game, by aggressively executing on category management.
Read the first here, the second here.
What better time is there for small businesses trying to make a mark with consumers and those key gatekeepers, retailers, than Christmas?
The 5 rules that normally apply to category marketig still do, but in the heat of the season, the quick and the smart can find a bit of extra leverage.
Any time of change is a time of opportunity, and Christmas ranging is one of the biggest changes retailers go through in the manner in which they allocate their shelf space, as they seek to maximise their seasonal sales. Doesn’t matter what market retailers are in, from fashion to food, car accessories to handbags, pre Christmas sales are critical to the annual numbers.
Meeting customer needs, and maximising the value of the retail shelf -space is what category management is all about.
Just think about the space supermarkets allocate to hams from the beginning of December. Where does that space come from? How do they allocate it across differing brands, sizes and types of ham? and if you are a ham producer, how can you get a slice, and if you sell some of the products that give up shelf space, to hams, how do you make up for the lack of shelf exposure?
6 simple strategies to employ to maximise sales:
- Know the relay schedule, and if possible be involved in the planning discussions. Most chain retailers, particularly supermarkets will have a lead supplier who has the inside running because they have all the data, and better access to the decision makers, but that doesn’t mean you cannot participate.
- Understand the volumes and margins of all products in the category, and manage your recommendations to the retail buyer with his objectives in mind, maximising the absolute margins that come from the shelf space, rather than just concentrating on your margins. Retail buyers are not there to look after your margins, only theirs.
- Understand the sales that come from differing shelf positions, and the impact of differing placements for differing Sku’s. Eye level is always best, but is high better than low? What about the type of shelf grouping, by size, brand, flavour, which combination is the best for you, and the retailer? Retailers will generally have a layout in place, but are often willing to experiment, from which you can both learn.
- Recognise the importance of the retailers profit model, particularly for bricks and mortar: Volume X Item gross margin = gross profit. Going one step further, dividing by the shelf space allocation gives a return on the space, and being really fancy, you can weight the value of the shelf space for a number I call RRRE. (Return on Retail Real Estate).
- To some degree, the discipline of the planogram that covers the other 11 months of the year will be put aside in favour of the short term outcome, knowing once the Xmas frenzy is over, they can revert to the plan, it is a great opportunity for those who can grasp it. Encourage field staff to be creative, a stack of bananas or Christmas pudding near the custard, French mustard next to the hams, dried fruit into he flour category with some cake recipes, A scarf from next door with your handbags, the potential for cross selling at Christmas is limited only by imagination.
- Christmas is a terrific time of the year, family, friends, social opportunities on steroids. At the same time, as the pressure comes off a bit because all the key decisions have been made, it is a great time to work on the relationships, plant the seeds that will deliver next year, and build your category management profile with your customers. After all, your competition is probably at the bar thinking the game is over. Whoops.
When you think that perhaps some external wisdom might be useful, lets have a chat.
Category management steroids
This post goes back to mid 2012. A conversation yesterday with a colleague brought it to mind, as we were discussing the the opportunities to monetise Intellectual Capital of the sort represented by the 1200 odd StrategyAudit posts. “You know more about category management that almost anyone”, he said, “You almost invented what was then Trade Marketing 30 years ago, there must be a bob here somewhere”.
Perhaps self indulgently, I agree.
Category management steroids
Data mining as it is evolving in retail is a fascinating exercise in identifying behavior characteristics that apply to very small percentages of the shopper population, and doing something with them. Progressively retailers are getting better at leveraging the data, and as the penetration of cards increases past a critical mass, so will the effectiveness of the marketing and promotional programs. Of course, consumers are well aware of this, and have well developed “relevance meters” built in.
Consider the category management of potatoes. Pretty dull stuff? no, fascinating stuff. I am making these numbers up to illustrate the point, but consider, of 100 customers using their cards at the checkout, perhaps 10% have potatoes in their trolleys, and 10% of that 10% have a particular variety, and of that 10% (now down to 0.1%), they also have sour cream and chives in their trolley. Pretty reasonable guess that the potatoes will be cooked in their jackets, with sour cream and chives garnish, particularly if the shopper is single, no kids, and also buys steak. An opportunity to offer the consumer a deal on a bottle of red wine on her way out of the shop, or in the associated retailer across the way? Multiply that by 5 or 6 million cards, and you have a pile of data to mine.
The gold standard of retailer card data mining is Dunhumby, now owned by UK retailer Tesco. They did such a great job in the development stages of the Tesco loyalty card, that the retailer bought them to keep their competitors away from them. In a move that recognises the future, Dunhumby is now crowdsourcing ideas via Kaggle, a fascinating startup that turns data mining into a competition for data nerds.
This is Category Management on steroids, and represents a monumental change in the skills needed by FMCG suppliers deal with dominant retailers. In the Australian context, very few FMCG suppliers have any idea of the power of the data tsunami coming at them, and how this will impact on their brand marketing strategies. It is also the realisation of the vision of category management the few of us who were playing with this stuff 30 years ago had when the data was warehouse withdrawals, we had a bit of U&A consumer research, and managed it all with calculators.
Category management and demand chains.
Demand chains are a representation of the drivers of “flow” through a supply chain, a concept familiar to those engaged in “lean” initiatives, when the motivator to the flow is demand rather than an ability to produce for inventory or against a forecast of sales.
Category management is a process of welding the drivers of demand, the consumer preferences and behavior to the supply of their preferred products, whilst maximizing the returns to the retailer, and others in the chain, as well as delighting the customer.
Few who claim to engage in category management would see the explicit link, as they are typically engrossed in the numbers, but it is there nevertheless, and the successful exponents recognise the link, and leverage the numbers for the sake of the outcome of the entire chain, not just for one link who happens to hold the power.