Retail Category Management

As noted in Chapter 2, category management is a merchandising technique that some firms— including supermarkets, drugstores, hardware stores, and general merchandise retailers—use to improve productivity. It is a way to manage a retail business that focuses on the performance of product category results rather than individual brands. It arranges product groupings into stra­tegic business units to better meet consumer needs and to achieve sales and profit goals. Retail managers make merchandising decisions that maximize the total return on the assets assigned to them.

Retailers implement category management by recognizing the interrelatedness of products in a category; they then focus on improving the performance of whole product categories rather than the performance of individual brands. Some examples might be cheese, clothes, detergent, skin care, small animal foods, and athletic wear. Under category management, traditional brand- (vendor-) oriented buyers are replaced with category managers who are responsible for integrating procurement, pricing, and merchandising of all brands in a category. These category managers jointly develop and implement category-based plans with manufacturers to enhance the outcomes for both parties, which is conducive to more collaborative relationships and information sharing. Sometimes, the category management leader might be a representative of the dominant supplier in the category—for example, cheese (Kraft Food Group); clothes detergent (P&G); skin care (L’Oreal); and so on. Suppliers are expected to propose actions (such as new products or promo­tions) and be rated on their ability to increase total category sales (not just their own brands) and shopper satisfaction.24

According to the A.C. Nielsen research firm, good category management involves these steps:

  1. Define the category based on the needs of the target market.
  2. Assign a role to the category based on several questions: How important is the category to the consumer? How important is the category to the retailer? How important is the category to the retailer’s competitors? What is the category’s outlook in the marketplace?
  3. Assess the category to find opportunities for improvement.
  4. Set performance targets and measure progress with a category scorecard.
  5. Create a marketing strategy that draws the overarching picture of how to achieve the category role and scorecard targets.
  6. Choose tactics for category assortment, pricing, promotion, merchandising, and supply chain strategies.
  7. Roll out the plan.
  8. Review performance regularly and adjust as needed.25

A fundamental premise is that a retailer must empower specific personnel to be responsible for the financial performance of each product category. As with micromerchandising, category management means adapting merchandise for each store or region to best satisfy customers. In deciding on the space per product category, there are several crucial measures of performance. Comparisons can be made by studying company data from period to period and by looking at categorical statistics in trade publications:

  • Sales per linear foot of shelf space: Annual sales divided by the total linear footage devoted to the product category.
  • Gross profit per linear foot of shelf space:Annual gross profit divided by the total linear footage devoted to the product category.
  • Return on inventory investment:Annual gross profit divided by average inventory at cost.
  • Inventory turnover:The number of times during a given period, usually one year, that the average inventory on hand is sold.
  • Days’ supply:The number of days of supply of an item on the shelf.
  • Direct product profitability (DPP):An item’s gross profit less its direct retailing costs (warehouse and store support, occupancy, inventory, and direct labor, but not general overhead).

Some collaborative aspects of category management are working well, whereas other aspects are not—due to the differing roles of manufacturers and retailers in the channel of distribution:26

1. What Manufacturers Think about Retailers


  • Retailers act as equal partners.
  • Retailers get input from manufacturers so they put the best possible plan together.
  • Retailers are open minded and willing to change.
  • Retailers that give manufacturers proper lead time—and timely goals and suggestions— receive the highest-quality work.


  • Different goals among the retailers’ senior managers, category managers, and operations man­agers impede the process.
  • Retailers have a “template fixation.” Yet, a template alone cannot explain why shoppers choose a given product or category.
  • Retailers expect manufacturers to do more than their share or to pay more than their share for gathering and analyzing data.
  • What Retailers Think about Manufacturers


  • Manufacturers gather data on consumer purchases and make recommendations to retailers.
  • Manufacturers with clearly defined and supported plans are viewed favorably.
  • Manufacturers help the retailers understand how to get more out of shopper traffic and build shopper loyalty, incremental volume, and return on merchandising assets.


  • Manufacturers make recommendations that consistently favor their brands.
  • Manufacturers just drop a completed template off with their retailers.
  • Manufacturers do not maintain confidentiality for shared data or recommendations.

Figure 14-13 indicates how a retailer could use category management to better merchan­dise manufacturer and private brands in a category. The vertical axis relates to direct product profitability. The horizontal axis classifies brands in terms of unit sales (an indicator of inventory turnover). A new manufacturer brand in a category has the potential for high DPP but is not yet selling well, whereas a popular manufacturer brand in a category has both high DPP and high unit sales. The goal is to move the new manufacturer brand into the upper-right quadrant. A new private brand has the potential for good DPP if it can emulate a popular private brand in the category. The goal is to improve DPP based on sales by moving to the right-center quadrant. If both new brands succeed, while the existing ones stay popular, then sales and profits for the whole category will rise.

Source: Barry Berman, Joel R Evans, Patrali Chatterjee (2017), Retail Management: A Strategic Approach, Pearson; 13th edition.

1 thoughts on “Retail Category Management

Leave a Reply

Your email address will not be published. Required fields are marked *