What is the difference between merchandise management and category management

Merchandise Management 1. Merchandise Management Dr. Parveen Nagpal 2. Each of the four merchandise groups is managed by a general merchandise manager GMM , who is often a senior vice president in the firm. Each of the GMMs is responsible for several departments. Departments are managed by divisional merchandise managers DMMs. Each buyer manages several merchandise categories. In soft-goods merchandise, for instance, an SKU usually means a particular size, color, and style.

For example, a pair of size 5, stonewashed, blue, straight legged Levi jeans is an SKU. A mother buying a dress for her daughter might consider the entire set of dresses when making her purchase decision.

Lowering the price on one dress may increase the sales of that dress but also decrease the sales of other dresses. Some retailers may define categories in terms of brands. For example, the three breakfast cereal buyers for a supermarket chain, one for each major brand, might each decide to stock a new product line of gluten-free breakfast cereals offered by Kellogg, General Mills, and General Foods. However, if the brand organized buyers had taken a category-level perspective, they would have realized that the market for wheat-free cereals was limited and the supermarket would generate more sales by stocking one brand of gluten-free cereals and using the space set aside for the other wheat-free cereal brands to stock a locally produced cereal that has a strong following among some customers.

Category Management Cycle 9. Category Management Cycle 1. Category Definition: Defining a category is the first step in the category management process. Assess Role of Category: Retailers usually determine the priority level and then assign a role for the category based on a cross category comparison considering liking and disliking of consumers, and market trends.

Basically here retailers develop the base for allocating resources for the entire business. While assessing the role played by a category, retailers should thoroughly consider the nature and size of product category.

Category Management Cycle 3. Category Assessment: The retailer conducts an analysis of the sub categories with respect to sales, turnover, profits, return on assets by reviewing consumer, market, retailer and supplier information.

Category Performance: The retailer sets benchmark to measure the performance of the categories. It involves setting measurable targets in terms of sales, volume, margins, and gross margin return on investment GMROI. Category Management Cycle 5. Category Strategy: Retailers develop marketing and product supply strategies that determine the category role and performance objectives. Category Tactics: Categories tactics are used to determine the optimal category assortment, pricing promotions, and shelf penetration, essential to ensure that strategies put are on right track.

Category tactics determine and authenticate the specific actions that are required to implement the category strategies developed earlier. The areas covered under category tactics vary from retailer to retailer and place to place. Category Management Cycle 7. Category Implementation: This step is to implement the category business plan through a systematic schedule and list of responsibilities. Implementing category plan as per the objectives laid down, is the path to the success of category management.

It includes: I. What specific tasks need to be done? When to do, III. Where to do, and IV. Who will do it Therefore, implementing category plan on the part of a retailer requires to decide what, where, when a task to accomplish and by whom. Category Management Cycle 8. The category business plans are subject to change with regard to change in assumptions laid down. For instance, incase of any specific change in business environment, assumptions made earlier may not be valid. Therefore, business plan must be modified with respect to change in underlying assumptions without any delay.

The vendor, known as the category captain, works with the retailer to develop a better understanding of shopping behavior, create assortments that satisfy consumer needs, and improve the profitability of the merchandise category.

Thus retailers are becoming increasingly reluctant to turn over these important decisions to their vendors. They have found that working with their vendors and carefully evaluating their suggestions is a beneficial approach. However, the vendor category captain could collude with the retailer to fix prices. It could also block other brands, particularly smaller ones, from access to shelf space. Besides analytical tools, retailer sometimes assesses the categories with the help of data on the customers, suppliers or competitors.

Measuring category performance is the fourth step in the category management process in which the retailer develops bottom-line and benchmark to measure the performance of the categories. It involves setting measurable targets in terms of sales, volume, margins, and gross margin return on investment GMROI. Establishing category performance measures are essential for measuring performance of a particular category which later on becomes base for further improvement within the category.

Category performance measures basically represent the category score card that result in target objectives that are set by the retailer and supplier for the achievement of the implementation of the category business plan.

Under this stage of category management business process, retailers develop marketing and product supply strategies that determine the category role and performance objectives. This is usually achieved through advertising relatively low priced goods having enough price difference from the everyday. This strategy typically applies to products that are most price sensitive, have high degree of household penetration, need frequent purchases, frequently promoted, having high sales in the category and generate major portion of sales.

A turf protecting strategy also known as super traffic building basically is applied to defend the category sales and market share against a known competitor through competitive based pricing. This policy is only deployed when absolutely essential because it is generally an expensive strategy in terms of profit impact products with large transaction size that are under intense pressure from a defined competitor are considered under turf protection strategy. Turf protection strategy should be applied carefully as and when required because of the essential margin investment.

However, proper use of a turf protection strategy can assist the retailer in creating a positive overall price image. Implementing turf protecting strategy requires that if the competitor reduces prices or prices fall in the market, the retailer will follow with price reductions to maintain turf protection strategy. This strategy is issued to increase the sales of a particular category by emphasizing larger sales, multi packs, goods with trade-up options, aggressively pricing and promotion large transactions size terms, and goods that are subject to impulse purchase.

This strategy is used to generate profits by focusing on sub-category or parts of the category while keeping prices within competitive ranges. Products generating higher margins usually have a substantial amount of loyalty and which are not like less price sensitive items, with higher than category average gross margins are commonly used in this category.

This strategy is used to create excitement to a particular category by communicating a sense of dire need urgency , or opportunity to the prospect. Seasonal items, latest arrivals, special items, limited edition, rapidly growing segments, fashion trends, and high items with a high incidence of impulse purchasing, come under this category. This strategy is used to generate cash flow to ensure the retailer a balanced cash flow across the categories in a store to meet operating cash requirements, larger sales volume products, fast turning products, low inventory turnover goods, and goods with favorable payment terms come under this category.

Examples with regard to image enhancing are:, offering live fishes to customers stocked in fish tanks, exclusive product offerings, combo offers, happy meal menus, meal solution suggestions, wide product assortment, luxury brand assortment, competitive pricing, easy loan options, multiple modes of payment, feel of the product, etc. Categories tactics are used to determine the optimal category assortment, pricing promotions, and shelf penetration, essential to ensure that strategies put are on right track.

Category tactics determine and authenticate the specific actions that are required to implement the category strategies developed earlier. The areas covered under category tactics vary from retailer to retailer and place to place. Therefore, it is expected from a supplier to do proper amount of value addition depending upon the role expected from a category; by assessing this retailers further develop proper strategies.

For instance, a SKU may play convenience role for one retailer but a destination role for another. Therefore, while developing the category, category captain usually supplier should take an overall view of the category and create a framework suggesting for marketing traffic building, profit generating, and image enhancing etc. The retailing format departmental, destination, hypermarkets, etc. This step is used to implement the category business plan through a systematic schedule and list of responsibilities.

Implementing category plan as per the objectives laid down, is the path to the success of category management. Therefore, in a short, implementing category plan on the part of a retailer requires to decide what, where, when a task to accomplish and by whom.

This is the final step in a typical category management business plan. Category review enables a retailer and concerned supplier to gauge the performance of a category and identify key areas of opportunity and threats to overcome by adopting alternate plans.

As today category management is an important strategic plan, it becomes imperative for a supplier to revisit the dynamics of the category and the appropriate strategies and tactics.

This will enable a supplier to measure performance against the appropriate strategies and tactics. In this regard, one thing should be noted that category business plans are subject to change with regard to change in assumptions laid down. Effective category management can then rely on a wide range of tools and resources in the retail industry. Professionals need to know what is going on at the shelf-level. Therefore, they need accurate, real-time store insights on their categories.

This can be data on planogram compliance, out-of-stocks, display compliance, facings, adjacencies, and much more. Stakeholders will also want to monitor prices on the products in their categories. This way, category managers can provide the most value to both their customers and their companies. Which products resonate with consumers? Which promotions and displays are most effective? What do they consider good value for a product in this category?

Brands and retailers need to survey shoppers regularly to find out or turn to data providers to gather information on consumer behavior and buying trends. Effective category managers need data on planogram compliance, out-of-stocks, display compliance, facings, adjacencies, and much more. If you look back at the defining feature of staple merchandise in Table 1, you can probably think of a few items you have in your own closet that fit this category, whether it is socks, underwear, and even basic ribbon bows.

For a grocery store, staple items might be bread, butter, eggs, and milk. Retailers will often carry what is known as safety stock or back-up stock for staple inventory. Some retailers will provide long-term forecasts up to a year to vendors to help them understand future forecast needs and plan production accordingly. Typically staple merchandise is controlled by a continuous replenishment buying system. Fashion merchandise is often difficult to forecast as it is seasonal in nature and has unpredictable demand.

The demand for these items can differ based on factors that may or may not be controllable, such as weather or changes in consumer tastes. There might be limited selling history on these items and to understand how much inventory to invest, retailers will sometimes have to extrapolate a sales estimate from a like item from prior years.

It is both a science and an art to buy fashion merchandise in just the right quantity to maximize sales and prevent excessive inventory which will lead to unprofitable markdowns. Most retailers rely on an Open-To-Buy system to control fashion and seasonal merchandise. We will discuss this in more detail in an upcoming section. Both staple and fashion merchandise is planned in the overall merchandise budget plan and sometimes in separate buckets.

A retailer must understand what percentage of the business is generated by both staple and fashion merchandise to fulfill the plan for the entire season. Privacy Policy. Skip to main content. Module Merchandise Management. Search for:.