Category definition is the first step in astructured category management review for retailers. The idea of defining a category each year may seem redundant. But customers’ tastes and habits change. Trend reviews identify changing customer behavior. Then you can identify emerging opportunities. Which is how smart retailers 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.
Why it matters.
The implications can transform a retail store. Consider the difference between a category defined “DVD Movies” or “At-Home Entertainment.” In one, you optimize the DVD category alone. In the second, you consider gaming, streaming services, satellite television – even bar ware!
Define a category by drawing boundaries the same way your customer does. People ask “What shall we do tonight?” When did you hear someone say “Which DVD should we watch tonight?”
First, consider the differences in these category definitions:
- Glues and Paints versus Crafting Supplies
- Water Fountains versus Water Features
- Party Invitations versus Party Supplies
Then, imagine the differences. You would change product selection and store presentation with a different category definition.
How to do it.
First, category definition needs to be grounded in customer insights. Use several sources. Conduct affinity analyses of market baskets. Be aware that they can be misleading if you do not carry a wide enough selection to be a full solution. For example, let’s say a grocer did an affinity analysis on birthday cakes. It discovers that customers also purchase ice cream, paper plates and candles. However, It could overlook that customers purchase the rest of their needs somewhere else. Because it does not carry wrapping paper, cards, balloons and invitations.
Be careful when using primary observational research. Ditto self-reported diaries. Primary research is expensive and time consuming. Self-reported diaries are inaccurate.
For most retailers, affordable research comes from vendors. Combine research from top vendors with emerging niche vendors. Niche vendors are usually the first to recognize new customer patterns. Established vendors seldom recognize changes. Their focus on current product lines and customers can create blind spots. For example, established vendors like P&G or SC Johnson were late to recognize the demand for low-chemical cleaning products. Early trends were recognized by vendors like Mrs. Myers and Seventh Generation.
In summary, retailers trying to glimpse the future need to understand the earliest changes in customer demands. Use shopper trends from every available resource to create true category definitions. Then revisit the categories each review cycle.