Retail, CPG and Logistics

Category management: How to develop and execute a customer-first product strategy

In a customer-driven market, category management has emerged as a vital element in retail operations management. It enables retailers to offer a seamless shopping experience, enhanced customer service and loyalty. Category management services drive sales and long-term success in a competitive market.

What is category management?

Category management refers to the procurement of goods and services by grouping them into categories based on similar characteristics like type, value, location, supplier, etc. This process makes it easy to understand and control the total cost of ownership for different categories. Each category might have its strategy depending on the nature of the products, the target customer base, and the retailer’s business model. The chief objective of category management is to boost customer satisfaction by offering them an easy-to-navigate shopping experience.

A strategic approach incategory management focuses on managing a group of related products as a single business unit or "category" to optimise sales, profits, and customer experience. Each product category is considered a profit center. Data-driven decisions are made about the assortment, pricing, placement, and promotion of products. This approach helps to ensure that the products offered align with customer needs, maximise operational efficiency, and foster growth.

An effective category management strategy involves cross-functional collaboration between merchandising, marketing, sales,retail supply chain management, e-commerce operations management and store operations.

Category management aligns product offerings with customer needs, preferences and behaviours. Category managers optimise the product mix according to customer feedback and market trends. Pricing is a critical component of category management. Category managers price the products based on their assessment of the price sensitivity of their customers. Placement of products in the store and targeted promotion strategies like buy-one-get-one, etc., are effective in attracting customers. Inventory control is a key element of category management as it helps prevent stockout and overstocking. Category management helps to enhance customer experiences by enabling category managers to tailor the product mix and promotion according to the needs of specific customer segments.

How to implement category management for a customer-first approach in retail?

Understanding the customer

The first step for creating an effective category management strategy is understanding the customers. You can understand your customers by collecting data about their behaviour, buying patterns, etc.

Establishing category goals

It is essential to define specific and measurable goals so that you can align all the activities to meet them. These goals can relate to customer profiles, financial reports, market share and performance. Establishing goals helps you track the success of your category management strategy and identify gaps.

Developing a strategy

The next step is to develop strategies to achieve the goals established. Specific action plans are developed for product range, placement and visibility in the retail store. Competitive pricing, effective communication and advertising help you achieve your goals. Strategies also factor in customer data, sales trends, seasonality, etc.

Review

The last step is to evaluate the success of your category management strategy by measuring the performance against the established goals. You can optimise your strategy for better outcomes based on the feedback.

Benefits of category management

• Consolidation of products by categories facilitates better pricing and improves quality management.
• Categorising products help to aggregate and validate spend by category. It provides insights into where the money is spent and with which supplier.
• A clear understanding of category characteristics and suppliers helps address category-specific issues and improves compliance.
• Category management boosts customer satisfaction by offering them a seamless shopping experience.

AI in category management

• AI has made inroads in category management and is enhancing the efficacy of traditional models. AI analyses vast volumes of customer data, sales data, market trends and inventory levels to provide insights for better decision-making.
• Machine Learning (ML) algorithms can predict future trends and demands and even the success of new product launches. These forecasts help category managers create more accurate and responsive strategies.
• AI analyses individual customer data and recommends products that align with a customer’s purchase history, buying patterns, etc. This helps category managers develop personalised shopping experiences.
• Real-time analytics of AI provides category managers with up-to-date information about sales performance, inventory levels, and customer behavior. These insights help category managers make prompt decisions ensuring that the category strategies remain effective and relevant.

In a nutshell, category management is not just about managing products but also about creating a customer-centered experience that builds trust and satisfaction at every touchpoint.

How can Infosys BPM help?

Infosys BPM offers retail BPM services for global clients. Ourretail process outsourcing services offer a smarter, more agile and highly responsive retail experience. Our retail solutions deliver new-age shared services operating models, strong domain expertise, and customized retail solutions.