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Jamie Tenser
I WAS ASKED RECENTLY to address a group of consumer products managers about the possible future of Category Management.
The request came at a time when I had been devoting serious thinking to several topics that at first seemed only tenuously related. Computer-generated ordering is one. Optimization of markdowns is another. The impact of social, mobile and local media is a third. Then there was this trendy concept — Big Data — that keeps getting lots of mentions, but seems to defy clear understanding.
So what was I to make of Category Management in a world where these disparate forces swirl? More importantly, what practical insights could I deliver to this audience of the best and brightest that CPG companies had on their brand and account teams? I probably couldn’t tell them much they didn’t already know. Maybe I could try to make their heads explode instead.
Thought Experiment
I challenged this audience with the following thought experiment: Try to visualize what life could be like for Category Management professionals in a world with vastly more information and a good deal less control.
The diagram accompanying this post identifies ten factors or sources of input that a Category Manager of the future might incorporate into planning decisions. Many are already familiar — optimization of assortment, price, promotion and markdowns are well-established techniques built into software suites like those from IBM DemandTec. Other vendors offer macro space planning solutions, automated replenishment, capacity planning, In-Store Implementation and competitive analytics. These factors all interact in a dizzying matrix. But wait! There’s more!
Now fold in the massive influence of social/mobile/local media and online shopping and search behaviors, which are manifest as Big Data. We are witness to the vanishing boundaries of the in-store environment, due to the advent of personal digital technology, changing consumer habits, omni-channel business models and the immense flows of unstructured and structured data that these are creating for Shopper Marketers. I call this The Incredible Dissolving Store.
Big Data postulates that we will soon be routinely mining these external data flows for relevant behavioral insights and applying those insights on a continuous basis to enable shopper success and sustain meaningful competitive advantage.
Mix Mastery
It’s kind of like the marketing mix management problem. Heck, in many ways it’s a core part of the marketing mix problem. Shopper success — and therefore, the success of our category and promotional plans — are influenced by all these factors. Simultaneously. Continuously.
The increasing intricacy of the merchandising decision process reflects the proliferation of intersecting, measurable and optimize-able factors within the store. All these new data-based influences mean the locus of power is rapidly leaving the store and distributing across your customers’ mobile devices. The shopper is always in the center — no matter where you go, there they are.
It becomes increasingly apparent that Category Management in the Incredible Dissolving Store will not be about solving the equation — it will be about tuning the system. New analytics tools make the keys to relevance more accessible and more automated than ever. The life cycle of your decisions, shorter than ever. The power resides in the network and in the hands of individual shoppers.
Category Management, like it or not, is rapidly shifting from an orderly, controlled, recursive, planning process with boundaries and well-defined metrics into a deliberately dis-orderly, multidimensional, broad, shape-shifting and organic process that incorporates planning, detection, response and continuous strategic reconsideration.
In the Incredible Dissolving Store, we need to get used to the kind of ongoing discomfort this implies and think very carefully about the metrics we use to define success. If we listen actively and shed our bias, the shoppers will tell us what those must be.
FOR SOFTLINES MERCHANTS, end-of-season markdowns are a necessary evil that clears the racks and frees cash, but too often margins are sacrificed in the process. A markdown analytics solution can bring vast improvements to these activities, resulting in markdowns that are fewer, better timed, and less deep.
Our friends at IBM DemandTec have teamed with Deloitte to offer a webinar geared especially for softlines retailers, which explores how integrating in-season (promotions) and end-of season (clearance) pricing decisions can reduce the amount of excess inventory that has to be heavily marked down at the end of each season.
Learn how these decisions can be optimized and implemented at the store and item level, ensuring greater shopper success and business performance. To register and attend this free webinar, click the banner below.
Webinar Date: Nov. 7, 2012
Time: 8 am Pacific/11 am Eastern
Featured speaker: Chris Goodin, Principal Deloitte Consulting
IN FAST-MOVING CONSUMER GOODS, the art and science of merchandising requires an informed balance of interrelated decision processes.
Microeconomics tells us that product sales rate will be related to price, albeit somewhat elastically. Space planning endeavors to allow sufficient quantities of each product to be stocked to meet shopper demand, without tying up excess capital. Assortment planning attempts to fit the most productive and satisfying mix of items into the space available. Inventory management balances the labor costs of replenishing shelves against in-stock levels.
There are other “levers” that figure into the process – from promotions, to new product introductions, to the depth and timing of markdowns, to the influence of competitors and even the weather. Taken collectively, these amount to a matrix of influencers on productivity and rates of sales.
For the retailer this comes down to the simultaneous management of customer engagement, assortment optimization, and pricing and profitability management. Or, as IBM DemandTec director of product management Carol Teng expressed in “A New Generation of Assortment Optimization,” a recent webinar hosted by PlanetRetail: “The right focus; the right product; the right price.”
[Learn more about IBM’s DemandTec solutions at its “Revolutionary Decisions” microsite.]Teng shared five guiding principals for assortment optimization that are well worth summarizing here:
“We believe customer assortment truly is the next growth lever in retail,” Teng said. The building blocks for this capability begin with superior data sources, like POS and basket analysis; frequent shopper data on re-purchase and brand switching behavior; and shopper panels that reveal losses to competitors.
Assortment and other merchandising decisions are best made not in isolation, but in an inter-connected environment – a matrix, if you will. Ultimately assortment optimization will depend on an understanding of incremental demand and transferable demand. Practitioners must monitor these continuously as situations evolve. For each and every SKU and store cluster.