The extended retail value chain has been using category management as its marketing and merchandising backbone for nearly 30 years. It launched hundreds of new careers on both the retail and brand sides, spawned dozens of consulting and technology firms and generally shook up the world of retail. 2018 will see the start of a new approach, Total Store Optimization.
The industry has long needed to reevaluate the old, generic category-by category approach because it restricts the ability of trading partners to understand and satisfy shopper needs while reaching sales and profit goals. Other important considerations are that category management in its current form doesn’t allow for efficient support of ecommerce or the implementation of an integrated approach to personalization.
To move to the next generation of category management, the industry needs to support an approach that systematically deploys enhanced shopper-driven insights that are attainable with today’s technology solutions. This methodology needs to go well beyond product and category optimization to be customer-centric for the entire shopping experience. And, it must take into account a total store, cross-category technique to marketing and merchandising.
By deploying Total Store Optimization, retailers will directly translate actionable shopper insights into price, promotion and assortment actions that make sense for categories across channels of engagement. Some categories are better at driving price perception and volume, while others are more suited to driving revenues and profits, so retailers will adopt a portfolio approach that enables them to achieve their varied objectives while better satisfying the needs of different customers. The key is to balance all activities between the store, categories and individual products, with the aim of satisfying shoppers’ needs across multiple elements of the retailer’s offering.
Retailers and their trading partners will deploy Total Store Optimization to collaborate on decisions across price, promotion, assortment, space and shopper marketing, aligning the resources of the supplier community with the specific needs of the shoppers in the retailer’s specific stores rather than applying a generic, cookie-cutter approach. They will take competition into consideration and adjust prices to improve value perception. For assortment, they will determine which categories need more depth and breadth to satisfy shopper needs. For promotions, they will adopt a three-pronged strategy to identify which promotions are not working (and stop running them), which can be fixed (by changing the promotion mechanics to improve shopper engagement) and which can be slanted (towards loyal customers to minimize cherry picking).
Total Store Optimization allows you to optimize merchandising and marketing decision across the entire store for all categories simultaneously, the same way your customers shop the store, helping you reach your overall comprehensive sales and margin goals.
With the shopper at the center of your strategy, it helps you define and operationalize category roles by using advanced analytics to understand customer behavior and recommend a balanced set of actionable shopper-driven price, promotion, assortment and personalized marketing recommendations across your category and customer portfolio.
Some retailers will want to take a big-bang approach to Total Store Optimization and embark on transformational change; others will opt take a phased approach, starting with Crawl (make the most impactful changes and build momentum), then move on to Walk (tailor category targets and objectives and implement total store price, promotion, assortment and personalized marketing decisions) and finally Run (evolve the organizational structure, roles and responsibilities to be shopper centric). Moving from a category focus to a shopper focus delivers rapid and meaningful results while laying the foundation for longer-term sustainable competitive advantage; having visible buy-in from the management team and collaborating with trading partners increases the speed to value and magnifies the overall impact.