Category Management (CM) And Its Scope In Improving The Performance Of Retail Organisations - Essay Example

? Category management (CM) and its scope in improving the performance of retail organisations Table of contents Introduction………………………………………………………………………………….p.3 Scope of category management in improving the performance of retail organisations…….p.3 Conclusion…………………………………………………………………………………..p.9 References…………………………………………………………………………………...p.10 Appendix…………………………………………………………………………………….p.11 Table of figures and tables The category management process figure………………………………………………….p.4 Category management framework………………………………………………………….p.5 Weekly Schedule……………………………………………………………………………p.11 Weekly dashboard…………………………………………………………………………..p.11 Introduction The introduction of scientific management principles has brought huge changes in the organizational world. Many of the existing organizational principles have undergone drastic changes along with the entry of new business principles. Basuroy et al., (2001) pointed out that Category management (CM) aims at improving a retailer’s overall performance in a product category through more coordinated buying, merchandising, and pricing of the brands in the category than in the past”( p.16). Earlier, product manufacturers have assigned the duty of selling a particular product to the product manager. However, the evolution of CM forced the organizations to create a new post; category manager. Earlier organizations give more importance to product managers whereas modern organizations give more importance to category managers. This is because of the fact that marketing of a category of product is easier than marketing a particular product. For example, smartphones are conquering the market at present. It is easy for Samsung or Apple like smartphone manufacturers to market tablets along with smartphones since both smartphones and tablets almost belong to the same category. In short “CM helps category manager to sets the prices of all brands in the category so as to maximize total category profits” (Basuroy et al., 2001, p.17). Moreover, it enhances the interactions between between retailers and wholesalers and helps them to reap more profit (Kulikova, 2012, p.67). This paper analyses how category management can improve the performances of retail organizations. Scope of category management in improving the performance of retail organisations CM starts from the definition of category and ends in the category implementation. Between these starting and end points, CM travels through other steps such as identification of category role, category assessment, category scorecard, category strategies, and category tactics. The figure given below explains various steps involved in CM. (Basuroy et al., 2001, p.17) After category implementation, organizations review the success and failures of CM. The category review process helps organizations to identify the strengths and weakness of existing CM and modify it to restart the CM process in a more efficient manner. In short, CM helps organizations to polish or fine tune the existing business strategies all the time and manages the selling of a particular category of products in an efficient manner. A typical category management framework is described in the following illustration. Category management framework (Effective day-to-day category management, 2011, p.3) From the above illustration, it is evident that market insight elements such as consumers, trends, economy, competitors and suppliers help an organization to formulate company goals related to customers, strategies, finance etc. Identification of goals helps a company to formulate strategies necessary for the promotion of a specific category of products. Only after the implementation and follow up, the company recognizes the loopholes of the category strategies, which will help them to revise the strategies. A leading trade journal states that “Category management’s ultimate objective ought to be to increase total store sales” (Progressive Grocer, 1995, p. S4). Similarly, another report maintains that “Category Management represents a significant and results proven opportunity to achieve substantial business improvements” (Category Management Report 1995, p. xvii). Annual, monthly and weekly schedules and dashboards are formulated by the category managers to manage the selling of a particular category of products in an efficient manner. A typical weekly schedule and dashboard of CM are illustrated in the figures given in the appendix. Weekly schedule helps the managers to compare the progress of sales in the present week against the sales in the past week. Same way, annual and monthly schedules help the category managers to assess the progress of sales in monthly and annually. According to Basuroy et al. (2001), “one retailer’s adoption of CM increases its average unit price of the category and reduces its sales volume and revenues. However, this retailer can still enjoy an increase in its gross margin profits as competing manufacturers’ wholesale prices fall in the process” (p.16). Imagine a situation in which Apple Inc. is trying to sell its tablets and smartphones using the CM principles. This strategy would help Apple Inc. to increase the unit prices of tablets and smartphones. However, increase in price always creates less demand in the market and hence the sales volumes and revenues of this category of products may decrease a lot. On the other hand suppose Samsung is trying to manage the sales of smartphones and tablets using the traditional marketing principles. In traditional marketing principles, each product is sold separately with the help of unique marketing strategies. Thus Samsung was forced to sell its tablets and smartphones with the help of separate advertising and sales promotion activities. Thus, the sales promotion expenses on each product may increase and hence the profit generated by these products may decrease a lot. In short, marketing of similar products under one category is more profitable to organizations than marketing of similar products using different marketing strategies. Kurtulus & Toktay (2011) have divided CM into two categories; retailer category management (RCM), where the retailer determines product prices and category captainship (CC), where a manufacturer in the category determines them”(p.47). The ultimate aim of CM is to increase the prices of a specific category of products as much as possible. The manufacturer of a particular category of product tries to increase the wholesale price in CC whereas the retailers try to increase the retail price in RCM. Wholesale price cannot be increased beyond certain limit if competition is tough in the market. In other words, “CC depends on the degree of product differentiation, the opportunity cost of shelf space, and the profit sharing arrangement in the alliance” (Kurtulus & Toktay, 2011, p.47). It should be noted that Apple Inc. ruled the smartphone market until recent times. They were able to fix the wholesale and retail prices of their smartphone models in the market until recent times. However, the entry of Samsung and Nokia in the smartphone market forced Apple Inc. to reduce the wholesale prices of its smartphone models. CM is problematic for retailers that sell thousands of products across hundreds of categories (Gooner et al., 2011, p.18). It should be noted that immense resources and capabilities are necessary to manage all categories of products in an efficient manner. Only MNC’s have such resources and capabilities. Small retailers may struggle to manage all the category of products in an efficient manner. Under such circumstances, small retailers, forced to picking one supplier to be a 'category captain'. For example, it is difficult for a small retailer to manage all the smartphone brands equally well at a particular period of time. Some retailers select iPhone as their CC whereas others select Samsung or Nokia as their CC. It should be noted that these retailers are selling all brands of smartphones even though they have a particular CC. According to Pepe et al. (2012), it is necessary for retailers to focus on all brands within their respective categories and not over-emphasise a private-label brand focus (p.154). Market trends are changing day by day and nobody can claim a monopoly in the current heavily globalized market. Yesterday’s leaders will be mere followers today and today’s followers may become leaders tomorrow. For example, Nokia was the leader in mobile phone market until recent times. At present they are far behind Apple Inc. and Samsung in terms of market capitalization. On the other hand, Apple Inc. was on the verge of destruction in 80’s and 90’s. However, the introduction of “I” series products such as iPhone, iPad, iPod etc changed the destiny of Apple Inc. They are the most valuable technology in the world at present and second largest company in the world in terms of market capitalization. The case of Samsung is also not much different. They are challenging Apple Inc. in every business segments and many people believe that Samsung may expel Apple Inc. from the top spot in near future itself. In short, no company can keep its supremacy for longer periods in the heavily competitive current market. Under such circumstances, it is logical for the retailers to focus on all brands within their respective categories. Pepe (2012) pointed out that Category management seeks to enhance the overall performance of product categories as measured by profitability. In his opinion, “Private label brands have dramatically increased in recent years in supermarkets with a key objective of improving category profitability” (p.513). It should be noted that when iPhone entered the market, it was a new product. Until the entry of iPhone, no mobile phone manufacturers thought about the potential of touchscreen phones in the market. However, the huge success of iPhones forced competitors to introduce touchscreen phones of various types in the market. Even small mobile phone manufacturers are currently testing their lucks in the market. Plenty of cheap smartphones from China are currently available in the market. These companies are actually trying to capitalize the image created by Apple and Samsung like companies in the smartphone market. Based on the case of Bouygues Telecom Company, Piris & Miquel (2012) provided the evidence that category management could be a relevant approach to better sell services in a multi-brand store. They examined the question of joint management between a mobile telephone operator brand (a service provider) and a telephone brand (a product) and concluded that the only difference with usual category management approach is the key role played by the salespeople and the information at their disposal at the store level (p.73). It should be noted that Vodafone and reliance like big Telecom Companies are currently helping Samsung and Apple like smartphone manufacturers. The association between the service provider and a product manufacturer is strengthened at present because of the evolutions of CM principles. Conclusion Category Management or CM helps retailers to improve the revenues and profits. It helps retailers to reduce advertising and sales promotion costs and to improve the overall efficiency of the sales management. CM helps retailers to assess the sales generation on a weekly, monthly and annual basis. Such assessments help the retailers to identify the loopholes in sales management and make changes in the marketing strategies. At the same time, CM is problematic for retailers that sell thousands of products across hundreds of categories and hence retailers forced to assume one supplier as the 'category captain' or CC. However, it is impossible even for the prominent brands to keep their market leadership for a prolonged time. Changes in market leadership may create problems to retailers who assume CC to a particular brand. References Basuroy, S., Mantrala, M.K. & Walters, R.G. 2011. The Impact of Category Management on Retailer Prices and Performance: Theory and Evidence. Journal of Marketing Vol. 65 (October 2001), 16–32 Gooner, R. A., Morgan, N.A & Perreault, W. D. 2011. Is Retail Category Management Worth the Effort (and Does a Category Captain Help or Hinder)?. Journal of Marketing. Sep2011, Vol. 75 Issue 5, p18-33 Category Management Report (1995), Grocery Manufacturers of America. Washington, DC. Effective day-to-day category management. 2011. Insight White paper. [Online] Available at: http://www.bearingpoint.com/en-uk/download/BENO1167_CatMgmtWP.pdf [Accessed 02 April 2013] Kulikova, T. 2012. Category Management as an Important Management Tool for Performance Enhancement of Rural Trade Enterprises.. Economic Science for Rural Development Conference Proceedings. 2012, Issue 28, p67-72.  Kurtulus, M & Toktay, L. B. Category Captainship vs. Retailer CategoryManagement under Limited Retail Shelf Space. Production & Operations Management. Jan/Feb2011, Vol. 20 Issue 1, p47-56 Pepe, M. 2012. The Impact Of Private Label Sales Penetration On Category Profitability. Journal of Business & Economics Research.Sep2012, Vol. 10 Issue 9, p513-519 Pepe, M. S., Abratt, R. & Dion, P. 2012. Competitive advantage, private-label brands, and category profitability. Journal of Marketing Management. Feb2012, Vol. 28 Issue 1/2, p154-172. Progressive Grocer (1995), “Will Category Management Kill the Supermarket?” 74 (8), S5–S9. Piris, Y. & Miquel, C. 2012. Category Management As A Strategic Tool In Selling Services In A Multi-Brand Point Of Sale: The Bouygues Telecom Case. Decisions Marketing.  July 2012, Issue 66, p73-81. Appendix Weekly Schedule (Effective day-to-day category management, 2011, p.8) (Effective day-to-day category management, 2011, p.7) Read More