Screen Shot 2014-03-06 at 2.31.25 PMFor retailers who follow a structured category management review, the first step is category definition. The idea of defining a category each year may seem redundant year after year.  But customers’ tastes and habits change. Trend reviews catch changing customer behavior and identify emerging opportunities. Smart retailers and vendors capitalize on new understandings.  For example, a retailer who habitually defined away-from-home beverages as carbonated drinks and bottled water could overlook the trend for protein shakes and water flavor additives.

The implications can transform a retail store. Consider the difference between the category definition “DVD Movies” or “At-Home Entertainment.”  In one situation, we optimize the DVD category alone.  In the second, we evaluate gaming, streaming services, satellite television -even bar ware!

Defining a category is about drawing boundaries the same way our customer does.  People ask “What shall we do tonight?” more frequently than “Which DVD should we watch tonight?”

Consider the differences in these category definitions:

  • Glues and Paints versus Crafting Supplies
  • Water Fountains versus Water Features
  • Party Invitations versus Party Supplies

Imagine the differences in product selection and store presentation with each category definition.

Category definition needs to be grounded in customer insights from several sources. Use affinity purchases while data mining market basket transactions. Be aware that affinity analyses can be misleading if retailers do not carry a wide enough breadth of product to be a full solution. For example, if a limited assortment grocer did an affinity analysis on birthday cakes, it may discover that the customers also purchased ice cream, paper plates and candles.  It could, however, overlook that customers purchased the remainder of their needs (wrapping paper, cards, balloons and invitations) elsewhere.

Be careful when using primary customer observational research and self-reported diaries to understand your customers. Customer observations are expensive and time consuming.  Self-reported diaries are notoriously inaccurate.

For most retailers, the most cost effective customer insights come from vendor reviews. Customer research from top vendors along with emerging niche vendors are rich. Niche vendors are usually the first to recognize and exploit new customer patterns. Established vendors seldom recognize changes. Their focus on current product lines and customer segments can create blind spots. Take, for example, the difference between established cleaning vendors like P&G or SC Johnson and environmentally-focused vendors like Mrs. Myers and Seventh Generation in recognizing the growing demand for less chemically-intensive home cleaning products.

For retailers trying to glimpse the future to meet changing customer demand, using shopper trends from every available resource helps create true category definitions.