Monthly Archives: October 2013

How Good Is Your Category Management?

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HOW GOOD IS YOUR CATEGORY MANAGEMENT SOLUTION?

The results of over 300 category management initiative studies, shown in the table below, can be somewhat discouraging. Our clients, who are pretty good at this, generate a win-win solution only 15% of the time. They only improve their own product’s sales a third of the time and some of that is to the detriment of the category.

catman table

Why aren’t we seeing better ideas being tested? There are a number of reasons. Let’s split these initiatives into two groups, assortment initiatives and shelf layout changes.

When we look at assortment studies that haven’t worked:

  • Some have clearly cut too deep. While lots of categories are ripe for trimming, there’s a limit to how low you can go.
  • Some have been based on unrealistic assumptions. A common failure is to assume that when you SKUs from the mix, you will retain your space and just get more space per remaining product. That’s usually not true, and when we test reducing SKUs and reducing space, the brand usually loses sales.
  • Some have been based on flawed assortment models. There are lots of assortment models available to you – not many have been validated. Use a weak model and you can get a weak solution.

When we look at shelf layout studies that have failed to produce good results:

  • Some have relied on market structure analysis or purchase decision hierarchies that turn out to be flawed. While researchers have lots of different methods for creating structures or hierarchies, it is (a) unclear that shoppers think like the structure or hierarchy dictates and (b) different methods have been shown to produce different results.
  • Some of our studies had structures and hierarchies improperly translated into the shelf set. It’s one thing to create structures and hierarchies; it’s another thing to make that obvious to the shopper. For example, a lot of retailers like the Good/Better/Best approach, although some go from top to bottom and some go from left to right. Setting your category this way assumes you have a definition of Good/Better/Best that resonates with the consumer. We have lots of examples of where this doesn’t, where the retailer and/or manufacturer’s definition of what is in each segment is not what the shopper thinks.
  • Sometimes it just doesn’t matter to shoppers. Category managers often assume that there are layouts that make it easier for the consumer to shop or that manipulating adjacencies will make certain comparisons more obvious and tilt purchasing in their favor. This isn’t always true, especially in categories where brand loyalty runs high or categories that are deal-driven. Other factors than location or base price can come into play.

At the same time, we’ve learned some things you can do to improve the odds of a good solution. Assortment changes respond well when we:

  • Maintain real variety and reduce redundancy. This means a couple of different varieties of canned field peas, but not seven or eight.
  • Consider all the value coming from an assortment change. Are category sales higher? Are out-of-stocks reduced? Is the retailer making a greater profit? Is there a good use for reduced space?
  • Consider the shoppers’ reaction to the change, not just a modeled solution. How valuable are those shoppers who leave the category because you’ve taken away their favorite product?

Shelf layout successes are harder to predict, in part because there is no theory of setting a shelf. We’ve seen success when:

  • The logic behind the layout has some face validity – you can explain it to someone and they go, “oh, okay, I get that.”
  • The logic is obvious to the shopper. You’d be surprised how often we have to be told the logic of a new set because, even with all our experience, we can’t figure it out. We like the “MOM” test; show it to your Mom and if she gets it, you’ve done well.
  • The logic is relevant to the shopper. A branded set is less relevant to someone who shops by flavor or form. Similarly, a flavor set is difficult for someone who shops by brand.

It’s not easy to produce a winning category management solution. The 4D Shopper virtual reality research system was designed to test category management solutions quickly, easily, and inexpensively. Look smarter when you take your ideas to retailers and show them what a solution can do for them.

To learn more, call Steve Needel at +1-404-944-0248, write us at moc.l1506202605iamg@1506202605lsaev1506202605etsrd1506202605,  or visit us at www.advancedsimulations.com .