Retail Operations and

Store Management-II UNIT 9 CATEGORY MANAGEMENT

Structure
9.0 Objectives
9.1 Introduction
9.2 What are Categories
9.3 The Concept of Category Management
9.4 Relationship of Different Goals with the Category Management Process
9.4.1 Example of Different Goals for a Retail Business
9.4.2 Category Management as an Independent Function
9.5 Influence of Category Management on Other Functions
9.5.1 The Category Management 8-step Process
9.6 Need and Benefits of Category Management
9.6.1 Who Benefits from Category Management?
9.6.2 How is Category Management Used?
9.7 Let Us Sum Up
9.8 Keywords
9.9 Answers to Check Your Progress
9.10 Terminal Questions
9.11 Further Readings

9.0 OBJECTIVES
After going through this unit, you should be able to:
● discuss the concept of Category Management;
● discuss the category and Their Definitions;
● analyse the relationship of Different Goals with Category Management;
● discuss the influence of Category Management on Other Functions of Retail; and
● describe the Need and Benefits of Category Management.

9.1 INTRODUCTION
Category management has become an important concept in the current scenario. You
must be witnessing that a small retailer has to deal with many different products with
different characteristics making the task further difficult for the retailer. Retailers have
to handle retail categories at many different levels like product class, product categories,
sub-product categories, styles, brands, SKUs. Further at the level of strategic management,
group level, country and regional level, and finally at individual store level. Moreover, at
each of these levels, the categories need to be analysed on several parameters to reach
a meaningful decision on the fate of the concerned category in the store. Though it may
seem at first glance that retail category management is similar to product management
in manufacturing and marketing companies. It is not so, when one looks at the environment
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and conditions in which these categories are to be managed. In the year 2007 the Indian Category Management
retail market size was estimated at Rs 1330000 crores with an annual growth rate of
10.8%; of this the share of organized retail sector was estimated to be about 5.9% at Rs
78300 crores. For the year 2010 organised retail sector is estimated to be Rs 230000
crores, constituting 13 per cent of the total retail market. With such growth prospects
for the retail sector, category management and related strategic issues assume tremendous
importance for every stakeholder, practitioner and player at all levels in the retail sector.
In this unit, you will learn the concept of category management, its definitions, its
relationship with different goals, its influence on other retailing functions, and above all
its benefits.

9.3 WHAT ARE CATEGORIES

Let us try and understand how category is defined. The Partnering Group has defined
category as “a distinct manageable group of products or services that consumers perceive
to be inter-related and /or substitutable in meeting a consumer need”.
For example in a broad product class Women’s Clothing the different product categories
could be Dresses, Jeans, Trousers, Skirts, etc. In this example Dresses, Jeans, Skirts
are referred as categories because each of them refers to a distinct grouping of items
which has similar characteristics and appeal to a distinct kind of target consumers who
have more or less similar likings.
But as Levy & Weitz have explained that each retailer and their suppliers may define
the categories with respect to the consumers’ preferences and situation pertinent to a
given store. For example Shampoos and conditioners may be allocated under different
categories like Hair Washing and Hair Conditioning respectively, or may be combined
under a single category called Hair Care; similarly paper towels may be assigned to
‘Paper Products’ category or ‘Napkins’ category based on the purchasing behaviors of
consumers and importance of a given category to consumers.
Generally it is being observed that higher the importance of a given product in terms of
either sales volume or sales value or in terms of profitability in rupee value the chances
are that such a product may be identified as a separate product category or may be
combined with another product of similar type and characteristics. For e.g., Parallel
Jeans and Narrow Jeans may be combined under the ‘Jeans’ category. A product may
be combined with another product or with group of products if it is found that such
products individually do not contribute much to the profitability or to sales volume but
needs to be there to satisfy a certain class of consumers then such a product may be
classified under a broad product category; for e.g. Jeans and Trousers may be classified
under a broad classification ‘Bottoms’ category.
Some retailers may define categories in terms of brands. For e.g. Louis Phillipe may be
a separate category and ‘Park Avenue’ may be another. This may be necessary as the
taste of consumers of Louis Phillipe are different than those of Park Avenue; and hence,
needs to be displayed in a particular way so as to reflect the given brand personality.
Where brands represent separate categories all the products of a given brand are grouped
in the brand-wise category and all such brands will be further grouped in a broad product
class for the purpose of analysis.

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Retail Operations and
Store Management-II 9.3 THE CONCEPT OF CATEGORY MANAGEMENT
Category management has, for the longest time, remained hidden in the realm of product
management, considering that the latter concept has been used more commonly, especially
in the context of manufacturing and marketing, by FMCG companies, where this
responsibility rests with a product executive or manager. Product manager is usually
responsible for coordinating with other functions such as sales, marketing, production
and administration so as to ensure the right placement of the product in the market – at
the right price and at the right time, with necessary support on the marketing and promotion
fronts. With the advent of large format store retailing in the past decade, the concept of
category management began taking roots with its own theory and practice.
There are various definitions of ‘category management’, some of which need a closer
look in order to understand the concept clearly. It is a process by which a particular
product group/sub-group is managed against various or selected dimensions (various
product or category features like price range, product content or material used, product
usage, etc.) so as to achieve right stock levels vis-à-vis actual sales and, thereby, achieve
the desired profitability goal.
Category management is essentially a retailing concept in which the total range of products
sold by a retailer is broken down into discrete groups of similar or related products
known as product categories.
Examples of grocery categories may be: grains, soaps and detergents, oil and ghee,
toothpastes, etc.
For an apparel seller the major categories would be men’s apparel, women’s apparel
and kids’ apparel.
These categories can be further broken into sub-categories as per the consumer buying
trend or grouping of products under certain features or dimensions.
The idea is to run each category like a “mini business” in its own right, with its own set
of turnover and/or profitability targets and strategies. An important facet of Category
Management is the shift in relationship between retailer and supplier: instead of the
traditional adversarial relationship, the relationship moves to one of collaboration, exchange
of information and data and joint business building.
The focus of all planning and discussions is centered on achieving higher turnover of the
total category and not just the sales of the individual products therein. Suppliers are
expected to suggest only the product ideas or promotions which will ultimately benefit
the concerned category and the shoppers of the said category.
“Quite simply category management involves organizing and managing promotions,
merchandising and distribution activity around the way consumers view and buy a
product”.
Another definition of Category Management is “the distributors’/suppliers’ process of
managing categories as strategic business units, producing enhanced business results by
focusing on delivering consumer value”.
Category management has emerged as a strategy to aid retailers in successfully competing
in each retail category to enhance shoppers’ loyalty and profitability.
As a cornerstone of efficient consumer response (ECR) initiatives, category management
is designed to help retailers with the right mix of products, at the right price, with the
right promotions, at the right time, and at the right place.
212
As it is understood from the above definitions, one needs to be clear about the dimensions Category Management
on which a category needs to be analyzed so as to understand the sales trend of a
category against a particular dimension and thereby help the category manager in
managing the category as per the desired profitability target or category management
goals.
Talking about dimensions on which to analyze the sales trends brings us to the concept
of better understanding of consumer needs. This becomes of foremost importance in
order to reach at the objective of profitable management of categories. No one can
deny that for any business to succeed in to-day’s fierce competitive environment correct
understanding of consumer choices and buying trends is of utmost importance see
Figure9.1.

Figure 9.1: Relationship of Consumer Needs and Buying

Trends with Category Management

9.4 RELATIONSHIP OF DIFFERENT GOALS WITH

THE CATEGORY MANAGEMENT PROCESS
As explained in Figure9-2 the process of Category Management or its goals are influenced
by Business Goals, Financial Goals, and Consumer Needs in that order which in turn
have influence on Profitability Goals and Consumer Satisfaction. The regular review of
Profitability Goals and Consumer Satisfaction Goals leads to review of Category
Management process and its goals in turn. We shall briefly explain each of these goals
as follows:
a) Business Goals: These goals determine the direction the category would take in
order to fulfill the business purpose.
b) Financial Goals: Based on the business goals company determines the financial
goals it would like to have for itself in order to satisfy the stakeholders’ interest, like
that of shareholders/investors, employees, vendors, etc.
c) Consumer Needs: Based on the Business and Financial goals company may
decide what needs of the consumer it may try and satisfy. Sometime it could be
other way round too; whereby the company may first decide what type of consumer
need it should satisfy based on its market survey, and then decide which business
goals would suit its long term interest both financially and business-wise.
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Retail Operations and d) Profitability Goals and Consumer Satisfaction levels: These are the
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consequences achieved based on the category management process followed by
the company. Hence these act more as measurement criteria for the performance
of the company against the above mentioned goals.

Figure 9.2: Relationship of Different Goal with the Category Management Process

9.4.1 Example of Different Goals for a Retail business

For retail business of beauty products the Business Goal can be defined as “to get walk-
ins increased by 20% as compared to that of last year”.
The Financial Goal for this business could be “to achieve a sales turnover of Rs 50 lacs
during the current financial year and a net profit target of 5 percent of the overall sales
of a particular category”.
Consumer needs for beauty products could be defined in terms of certain features as
demanded by the consumers, so for beauty products “the consumer need could be for
certain hair care product which are suitable for dry hair in the price range of Rs 50 to
60”.

9.4.2 Category Management as an Independent Function

Another strong concept that emerges from the above definition of the Partnering Group
is that of viewing Category Management as a strategic business unit, which entails that
Category Management should not be viewed as a part or sub-unit of other Retail
Management activities or functions but should be treated on par with other independent
functions like Marketing, Accounting & Finance, Planning & Strategic Operations, HRD
& Training, Warehousing Operation, Vendor Management & Purchase, and Information
Technology; or as a major component that needs to be understood and managed with
respect to other interfaces of the retail operation, see Fig 9-3. It is the category
management process which determines the efficiency and effectiveness of the retail
organization and thereby profitability of its operation, and thus a deserving recognition
as an independent function in its own right.

214
 Category Management

Figure9.3: Category Management as an independent function

Generally it is observed in many books on Retail Management, category management
is shown as sub-part of Merchandising and Buying Operation, but the proposition made
here is that, ‘merchandising and buying should be treated as part of the overall category
management function, as it is only when the assortment planning is done under the
category management process then only one can go ahead with the buying process
based on the budgets and financial goals decided for a given category or group of
product categories’.

Check Your Progress-A

1. Briefly comment on the following statements.
a) Category management has emerged as a strategy to aid retailers.
............................................................................................................
............................................................................................................
............................................................................................................
b) Consumer buying categories can be further broken into sub-
categories.
............................................................................................................
............................................................................................................
............................................................................................................
c) Focus of all planning and discussions is centered on achieving higher turnover.
............................................................................................................
............................................................................................................
............................................................................................................
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Retail Operations and
Store Management-II d) Suppliers are expected to suggest only the product ideas.
............................................................................................................
............................................................................................................
............................................................................................................
2. Fill in the blanks with the appropriate word given in the brackets
a) Consumer choices and _________ trends is of utmost importance.
(Buying / Selling)
b) Shampoos and conditioners may be allocated under___________categories.
(Different / One)
c) _____________management is a process by which a particular product
group/sub-group is managed. (Category / Marketing)
3. State whether the following statements are True or False
a) Category management is essentially a retailing concept.
b) Category Management is not the process of managing categories as strategic
business units.
c) Idea to run each category like a “mini business” in its own right

9.5 INFLUENCE OF CATEGORY MANAGEMENT ON

OTHER FUNCTIONS
In fact, when you analyze the category management more deeply it will be realized that
it is Category Management which influences the other major functions in some way or
the other as shown in Figure 9.4.
We have briefly given description of the influences exerted by category management
process on each of the functions as given in Figure 9.4.

Figure 9.4: Influence of Category Management on other functions

● Category Management influences IT by deciding the dimensions on which the

data needs to be captured and analyzed, thus influencing the way the logic for the
said software to be developed. The merchandising and allocation processes defined
in the IT algorithms are determined by the category managers based on the sales
216 trends and patterns observed for the categories.
● Category Management influences Purchase and Vendor Management the most by Category Management
deciding on which brands to be purchased in what packages and quantities and
varieties. Category Management specifies the frequency and quantities to be
delivered to the retail stores. Thus, it indirectly specifies the terms on which the
vendors are to be selected and managed for better results.
● Category Management influences warehousing operation from the point of
quantities need to be bought against various products and brands and packages,
and hence necessitating the need to maintain inventory management process to
avoid over-stocking as well as under-stocking in any of the products/brands as per
their importance in the category management goals. Further the items stocked will
need to be grouped as per the categories defined and stocked according to the
frequency with which they are to be delivered to retail stores and to be replenished
by vendors.
● Category Management influences the HRD function from the point of deciding the
competencies required at various levels amongst the personnel of the category
management function, thus deciding on the recruitment and the training needs of
the personnel. Each category need certain expertise and experience in handling
the category and hence, right selection of the category management team becomes
utmost important.
● Category Management influences Marketing by specifying the requirement of
promotions for different products and brands based on the performance of various
product categories or brands within the categories on financial and consumer
satisfaction parameters. Similarly, advertisement plans need to be closely determined
in consonance with the category management team to determine the time and
frequency with which advertisement of the items needs to be done to achieve
better sales result.
● Category Management influences the financial and accounting goals by deciding
on the purchase budgets for various product categories based on the profitability
goals for the given product categories or for the given space in the retail store.
Sometimes based on the profit margin goals, company may have to compromise on
the credit policy and other payment policy features like discounts etc. Also the
determination of mark-ups and markdowns are done based on the sales patterns
observed for a category.
● Category Management process influences Strategic Planning and Operation
Function too when the management has to review the performance of Category
Management process on various financial and consumer satisfaction goals, and
decides on new goals based on the past performance. While deciding on strategic
issues and operational parameters the management do have to take into consideration
the characteristics of the category in terms of its attributes, sales trends, consumer
behavior vis-à-vis category, and so on.

9.5.1 The Category Management 8 Step Process

The industry standard model for Category Management is the 8-step process, or 8-step
cycle developed by the Partnering Group. The eight steps are shown in Figure 9-5
below; they are:
1. Define the Category: This is defined in terms of what products are included/
excluded so as to be either inter-related or substitutable in meeting consumer need.
The definition should ensure that product falling within the category have a common
feature on which they can be grouped or aligned together.
217
Retail Operations and 2. Define the role of the category within the retail store: The role could be
Store Management-II
defined as niche or staples, or fill-ins. There could be other roles of a category like
being a destination, or preferred, or convenience, or occasional or seasonal buy.
3. Assess the current performance: Here you need to understand the existing
performance of the category on certain factors like sales, billing value per customer,
number of units purchased per bill, footfalls, conversion ratio, and category
profitability, and so on.
4. Set objectives and targets for the category: Once you have information on the
current performance the next step is to determine the targets for the coming season
or period against different parameters as mentioned in point no. 3.
5. Develop an overall Strategy: It is not enough just to decide on targets, but now
you have to identify what strategies or actions we shall plan in order to achieve
various targets on different parameters of performance.
6. Develop specific tactics: The strategies need to be implemented by adopting
various tactics which are short term in nature. For e.g. to achieve high footfall
would be a strategy for increasing sales, but to achieve this we may adopt a tactic
of providing significant price reductions on certain days of the week on select
items.
7. Implement: Unless you act upon our plans you would not be able to judge the
performance, and hence you may have to draw upon the action calendar including
milestones for achieving results on different parameters and taking suitable steps.
8. To undertake review of the above steps: This takes you back to step 1, as
unless you review the performance of the category on regular basis, you shall not
be able to reach an optimum level where you know the category has started giving
the desired results.

218 Figure 9.5: Category management Eight Step cycle

The current industry trend is for supplier or retail companies to use the standard process Category Management
as a basis to develop their own more streamlined processes, tailored to their own particular
products.
Market Research company Nielsen has a similar process based on only 5 steps : 1.
Reviewing the Category, 2. Targeting consumers, 3. Planning merchandising, 4.
Implementing strategy, and 5. Evaluating results.

9.6 NEED AND BENEFITS OF CATEGORY

MANAGEMENT
Category Management is the central focus of any strategic plans for the retail store or
organization. Many retail organizations after they have firmed up on their Business and
Financial Objectives have to get into the nitty gritty of Merchandise Purchase Plan, that
leads to Merchandise Assortment Planning or in other words Category Planning.
Through Merchandise Assortment Plan the retailer or Merchandise Manager decides
on how much to buy of what category, which is in essence a part of the merchandise
management or more specifically the Category Management process. In some of the
earlier books on retailing, category management used to be referred as merchandising
management, which can be deciphered from its definition, “Merchandise Management is
the process by which a retailer attempts to offer the right quantity of the right merchandise
in the right place at the right time while meeting the company’s financial goals”.
One may think from the superficial level that the decision on what to buy and how much
to buy is easy, but once we get into a deeper level of the buying process or decision
making we realize the complexity of buying and the need for category management.
Now visualize buying for women’s clothing retail store. Retail stores are normally
constrained by the amount of money available for merchandise and the space in the
store. “They must decide whether to carry a large variety of different kinds of clothing
(i.e. categories) – for example dresses, blouses, and jeans – or carry fewer categories
but a larger assortment of more styles and colors within each category. To complicate
the situation they need to decide how much back up stocks to carry for each item. The
more back-up stock, the less likely they are to run out of a particular item. On the other
hand, if they decide to carry a lot of back-up stock, they will have less money available
to invest in a deeper assortment or in more categories”
Hence, we can sum up some of the important benefits as follows:
● Category Management helps the retailer not only in finalizing the financial and
merchandising objectives of the retailer for a particular merchandising category
but also in reaching the goals through intelligent monitoring and control of the category.
● By having a Category Manager to manage the category we are able to fix the
ownership for a category thereby making one person responsible for the failure or
success of a category.
● Another reason for using Category Management is to maximize profit. For e.g. in
a breakfast cereal case there are different vendors like Nestle, Kellogs, J&J, local
brands and so on. Now the Category Manager cannot purchase all the different
varieties of cereal from every supplier nor can he keep all the different available
packages in different sizes. If he does that he will have overstock in one category.
Thus, the Category Manager will have to choose among different brands based on
the choice of the customers and decide on which brand of cereal in what variety
and packages to be maintained in the given limited space for the ‘Cereal/Baby
Food Products’ category, so as to give maximum sale to the store and maximize
profits while keeping maximum number of his customers satisfied. 219
Retail Operations and ● The introduction of Category Management imposes the condition that all actions
Store Management-II
undertaken, such as new promotions, new products, re-vamped planogram,
introduction of point of sale advertising, etc. are beneficial to the retailer and the
shopper in the store, and not to any specific brand or product within a given category.
● There is a realisation that only a finite amount of profit can be milked from price
negotiations and that there is more profit to be made in increasing the total level of
sales of a category.
● Category Management entailed that the retailer should collaborate with the supplier
so that supplier’s expertise about the market could be drawn upon, and also that a
considerable amount of workload in developing the category could be delegated to
the supplier.
In a manufacturing-cum-marketing operation the category management process is akin
to brand or product management process. In such operations too generally one person is
responsible for all aspects of a brand or product category and he is usually the brand or
product manager.
‘Almost 90 percent of all consumer packaged goods companies say they are engaged in
some level of category management’

9.6.1 Who Benefits from Category Management?

The major beneficiary of the category management is naturally the Retail Organization,
Retail Chains, and the individual shop-owners. As seen from the earlier analysis the
retailer is able to decide the optimum level of assortments in a given category and the
overall stocks, as these are vis-à-vis the sales trends; the profitability is better and the
operational costs are lower.
Besides the retailer, vendors and manufacturers also benefit from the category
management process as they correctly understand what to produce and supply.
The other person who benefits is the Category Manager or Floor Manager or Brand/
Product Manager.
But the most important entity which benefits from the Category Management is the
consumer. It is the consumer who finally benefits as he/she is able to get the merchandise
of his/her choice at the right price at the right place and at the right time.
You can also look at the major components that are mutually benefited due to the category
management being a systematic study. Here one may look at the major components of
the category management process, as propounded by Swapna Pradhan in her book
Retailing Management – Text and Cases’ see Figure 9-6, which influences the process
as well as are also influenced due to the category management process.

220 Figure 9.6: Major Components of Category management

In the above figure ‘Strategy and Business Process’, which in turn is the result of Category Management
company’s long-term strategies, are the core components of the category management
process. These two components determine category management as a system and its
major purpose. The other four components have influence on the way category
management will be operationalised and institutionalized in the company as explained
here-below. Category management sets important parameters of performance and
directions for each of the components.
● The process of category management determines the requirement of organizational
capabilities in terms of personnel strength and competencies.
● It also determines the requirement or parameters to be set for the Information
technology.
● Category management goals determine the kind of trading partners required and
the type of relationships to be maintained with them.
● It sets the performance measurement goals on which the category management
process needs to be monitored.
The review of performance parameters sets the directions for future Strategies and
Business processes for the company. Hence, stronger the inter-linkages among the
various components the stronger will be the category management process.

9.6.2 How is category management used?

a) As discussed in earlier sections Category Management is used most in a situation
where number of vendors are competing for the same shelf space and the category
manager needs to determine how much quantity of each brand, each pack size,
each variety, and each price type to be maintained in the store or more correctly in
the given limited space.
b) Beside it is also useful for deciding on the margin structure for different categories
and price segments based on the profitability goals of the retailer.
c) Category Management is also used for deciding on promotion schemes during
different times of the year and also to determine the advertising and merchandising
display strategy to be used for a category.

Where and When is it used?

As mentioned in earlier sections Category Management is mainly used in Retail and
Manufacturing operations where the resources like space, money, man-power are limited
and one needs to decide how these resources to be used optimally to give maximum
profits.
One can think about a mathematical representation of the above dilemma as follows:
M1X1 + M2X2 + M3X3 >/= M
X1 + X2 + X3 >/= X
S1X1 + S2X2 + S3X3 </= S
P1X1 + P2X2 + P3X3 </= V
Where,
M1, M2, & M3 represent profit margin per unit of product 1, 2, & 3 respectively;
X1, X2, & X3 represent quantities of product 1, 2, & 3 respectively;
S1, S2, & S3 represent space required per unit or SKU of product 1, 2, & 3 respectively;
P1, P2, & P3 represent purchase prices of products 1, 2, & 3 respectively. 221
Retail Operations and M = Overall margin desired from the given operation;
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X = Overall quantity necessary to satisfy the taste of a given section of consumers;
S = Overall space available for display of the given product category;
V = Overall budget available for purchase of stocks of the given product category.
In the above equations we need to determine the exact values of X1, X2, & X3 which
are unknown variables, and must be solved to satisfy the above constraints. One may
have to use Simplex Programming Method to solve such an intricate problem. There are
computer programmes available to solve a bigger problem with higher number of
constraints and variables.
From the above constraints itself we can understand the situations in which category
management is most useful; like when one needs to maximize profits while providing
maximum range to consumers within the given available space and within the overall
budget. Now the situation seems so straight forward and simple but the complexity
begins when one realizes that a product with maximum margins need not be the most
preferred. Similarly the most preferred product may be requiring more space per unit/
SKU as compared to other products in the given category, thus compromising on the
space and margin combo. Now percentage margin per unit may be different than the
absolute margin per unit, thus complicating calculations on ROI possibly. These are just
few of the situations that have been identified, but as one starts working on practical
situations one would come across many complications and in such situations probably
the above mentioned method of putting down the problems in equation format may help
us tremendously.

Fact file 1: Category Management Association

Category Management Association has been formed with the mission statement:
‘Advancing Professional Standards in Category Management’. Early in 2003 an informal
newsletter began circulating as an anonymous discussion group exchanging ideas and
advice. An interview with Progressive Grocer article prompted the formation of a formal
organization in November 2004. Since that time, the association has blossomed by simple
word-of-mouth into a member-driven resource for sharing information and advice. The
Resource Directories continue to expand by category and channel. Each of these
directories has a matching Discussion Group, some of which are very active and some
of which sit empty until someone starts a thread. International Chapters have been
added by request, along with university resources, professional coursework listings,
new discussion group areas, and a new ‘Virtual Convention Center’ to allow members
to hold small meetings as well as large webcasts. The association seeks to serve the
needs of its members and guests, creating ‘buckets’ for information to be amassed,
and creating a ‘place’ for interaction among peers.

9.7 LET US SUM UP

● Retailers have to handle retail categories at many different levels like product
class, product categories, sub-product categories, styles, brands, SKUs, and then,
further at the level of strategic management, group level, country and regional
level, and finally at individual store level.
● Though it may seem at first glance that retail category management is similar to
product management in manufacturing and marketing companies, it is not so, when
one looks at the environment and conditions in which these categories are to be
managed.
222
● Category management has, for the longest time, remained hidden in the realm of Category Management
product management, considering that the latter concept has been used more
commonly, especially in the context of manufacturing and marketing, by FMCG
companies, where this responsibility rests with a product executive or manager.
● With the advent of large format store retailing in the past decade, the concept of
category management began taking roots with its own theory and practice.
● Category management is a process by which a particular product group/sub-group
is managed against various or selected dimensions (various product or category
features like price range, product content or material used, product usage, etc.) so
as to achieve right stock levels vis-à-vis actual sales and, thereby, achieve the
desired profitability goal.
● An important facet of Category Management is the shift in relationship between
retailer and supplier: instead of the traditional adversarial relationship, the relationship
moves to one of collaboration, exchange of information and data and joint business
building
● As a cornerstone of efficient consumer response (ECR) initiatives, category
management is designed to help retailers with the right mix of products, at the right
price, with the right promotions, at the right time, and at the right place.
● The Partnering Group has defined category as “a distinct manageable group of
products or services that consumers perceive to be inter-related and /or substitutable
in meeting a consumer need.
● The process of Category Management or its goals are influenced by Business
Goals, Financial Goals, and Consumer Needs in that order which in turn have
influence on Profitability Goals and Consumer Satisfaction.
● When one analyzes the category management more deeply it will be realized that
it is Category Management which influences the other major functions in some
way or the other.
● The industry standard model for Category Management is the 8-step process, or
8-step cycle developed by the Partnering Group.
● Category Management is the central focus of any strategic plans for the retail
store or organization.
● Many retail organizations after they have firmed up on their Business and Financial
Objectives have to get into the nitty gritty of Merchandise Purchase Plan, that
leads to Merchandise Assortment Planning or in other words Category Planning.
● The major beneficiary of the category management is naturally the Retail
Organization, Retail Chains, and the individual shop-owners. The retailer is able to
decide the optimum level of assortments in a given category and the overall stocks,
as these are vis-à-vis the sales trends; the profitability is better and the operational
costs are lower.
● The most important entity which benefits from the Category Management is the
consumer. It is the consumer who finally benefits as he/she is able to get the
merchandise of his/her choice at the right price at the right place and at the right
time.
● Category Management is mainly used in Retail and Manufacturing operations where
the resources like space, money, man-power are limited and one needs to decide
how these resources to be used optimally to give maximum profits.

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Retail Operations and
Store Management-II Check Your Progress-B
1. Briefly comment on the following statements.
a) Category Management influences IT by deciding the dimensions on which
the data needs to be captured.
b) Category Management influences warehousing operation from the point of
quantities.
c) Each category need certain expertise and experience in handling the category.
2. Fill in the blanks with the appropriate word given in the brackets
a) Strategies need to be implemented by adopting various tactics which are
________ term in nature. (Short / Long)
b) In a manufacturing-cum-_______________ operation the category
management process is akin to brand. (Marketing / Finance)
c) Most important entity which benefits from the Category Management is
the___________. (Consumer / Supplier)
3. State whether the following statements are True or False
a) Management has to take into consideration the characteristics of the category
in terms of its attributes.
b) Unless we do not act upon our plans we would not be able to judge the
performance.
c) Role of Category Management is to minimize profit.

9.8 KEYWORDS
Business Goals : These goals determine the direction the category would
take in order to fulfill the business purpose.
Consumer Needs : Based on the Business and Financial goals company
may decide what needs of the consumer it may try
and satisfy.
Category management : It is a process by which a particular product group/
sub-group is managed against various or selected
dimensions (various product or category features like
price range, product content or material used, product
usage, etc.) so as to achieve right stock levels vis-à-
vis actual sales and, thereby, achieve the desired
profitability goal.
Financial Goals : Based on the business goals company determines the
financial goals it would like to have for itself in order
to satisfy the stakeholders’ interest, like that of
shareholders/investors, employees, vendors, etc.
Profitability Goals : These are the consequences achieved based on the
category management process followed by the
company.

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 Category Management
9.9 ANSWERS TO CHECK YOUR PROGRESS

Check Your Progress-A

FIB
a) Buying b) Different c) Category
T&F
a) True b) False c) True

Check Your Progress-B

FIB
a) Short b) Marketing c) Consumer
T&F
a) True b) False c) False

9.10 TERMINAL QUESTIONS

1. Explain the concept of category management.
2. How one does defines categories?
3. Explain the relationship of different goals with category management process.
4. Why category management can be called as an independent function?
5. Explain the influence of category management on major functions.
6. Describe the eight step process in category management.
7. What are the major benefits of category management?
8. Who are the major beneficiaries of category management and why?
9. How category management process is used? Also put the major problem of category
management in a mathematical form.

9.11 FURTHER READINGS

Books
● Jonathan O’Brien “Category Management in Purchasing – A strategic approach
to maximize business profitability” – Kogan Page, 2010
● Cimler P & Zadra•ilová, D. “Retail management” - Praha Management Press
2007 978-80-7261-167-6
● Brian Roberts & Natalie Berg “ Walmart – Key insights and Practical Lessons
from the World’s largest retailer” Kogan Page, 2012
● Keith Lincoln & Lars Thomassen “How to succeed at Retail – Winning case
studies and strategies and strategies for Retailers and Brands”, Kogan Page, 2010
Journals
● Brown, Christina L.; Krishna, Aradhna (2004), “The Skeptical Shopper: A
Metacognitive Account for the Effects of Default Options on Choice”, Journal of
Consumer Research, 31 (3): 529-540.
● Childers, Terry L., Christopher L. Carr, Joann Peck, and Stephen Carson (2001),
“Hedonic and Utilitarian Motivations for Online Retail Shopping Behavior,” Journal
of Retailing, Volume 77, Number 4 (Winter), 511-535. 225
Retail Operations and ● Basuroy S, Mantrala MK, Walters GH. 2001. The Impact of Category Management
Store Management-II
on Retailer Prices and Performances: Theory and Evidence. Journal of Marketing
65: 16-32
● Zenor, MJ. 1994. The Pro?ts Bene?ts of Category Management. Journal of
Marketing Research 31: 202-213
● Food Marketing Institute (1995), Category Management: The Category Plan.
Washington, DC: Food Marketing Institute.
Websites and Online Resources
● [Link]
● [Link]
management-explained/
● [Link]
● [Link]
Feinberg_(2004)_-_Optimal_Retail_Markups.pdf
● [Link]
● [Link]
● [Link]
● [Link]

Activity

Visit any FMCG goods making company and find out the responsibility rests with a
product executive.
…………………………………………………………………………………......
…………………………………………………………………………………......
…………………………………………………………………………………......
…………………………………………………………………………………......
…………………………………………………………………………………......
…………………………………………………………………………………......
…………………………………………………………………………………......
…………………………………………………………………………………......

Note : These Terminal Questions/Check Your Progress/Activity will help you to

understand the unit better. Try to write answers for them. But do not submit
your answers to the University for Assessment. These are for your practice
only.

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