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Importance Of Category Management

Paper Type: Free Essay Subject: Marketing
Wordcount: 1534 words Published: 18th Apr 2017

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The purpose of this coursework is to address the importance of category management in the success of customer oriented supply chain management. How suppliers and retailers contribute to the success of this idea. This study also focuses on discussing the pros and cons associated with the same to achieve maximum efficiency.

Supply chain responding to the market needs is market oriented supply chain, basically the implementation of marketing concept in supply chain. Market oriented organization, segments their markets and differentiates their product and services to maintain and create new customers to overcome the competitors. Scholars explain market oriented organizations are those who put customers first, generate, eliminate and respond to market intelligence and most of all the potential to exploit their resources towards premium customer value.

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Category management is basically a marketing strategy where the entire lines of products, are treated as Strategy Business Unit (SBU). This strategical implication helps the manager, understand and judge customers buying behaviour, pattern and market trends by focusing on an entire product category. Andy Striefel, now senior vice president of merchandising for Thrifty PayLess, offers his definition of category management as:

“I see category management as” a person responsibly taking care of the category and every item in the category, from time to time and decision is made to add that item until the last piece has left the store,”

Category management is the most known process of Efficient Consumer Response (ECR). ECR was first developed in 1995 to fulfil consumer needs in a better, faster approach at the minimum cost by partnering with the participants in a customer oriented supply chain. It helped the retailers and supplier in eradicating inefficiencies that have accumulated in channels of supply chain during 80’s. ECR was defined as,

“A set of improvement initiatives has been undertaken to help grocery retailers and their suppliers to work together, to satisfy consumer wishes better, faster and at a less cost” (Jeorg Hofstetter, 1995).

ECR has concept has considerably developing over the past fifteen years and it has enabled the supply chain partners pick “low hanging fruits” purging glaring inefficiencies . It optimizes the market oriented supply chain by minimizing the inventory levels, optimizes product availability and address the product quality. The whole conception of ECR relies on relationship that supplier and retailer share, to optimize stock level. Information sharing plays a very vital role to its success. The retail promotion, involves regular stock replenishments to meet the demand of the consumer rather than piling up by either of two. This can be attained by sharing of information and knowledge in precise, from time to time. End results of efficient ECR provide consumer value, eliminates costs that do not add value, maximize value and minimizing inefficiency throughout the supply chain.

ECR strategies are executed through both supply and demand side strategies. The basic objective of the supply side is to get the product through supply chain to end customers faster and cheaper. For demand side strategies category management is implemented to decide which products are to be displayed and sold by the retailers, regardless of how smooth the supply chain is. CM deals with a number of items to carry in a category, on the basis of type, size, flavours, packages and the area of space to be assigned for each product. This practise enables the retailer and its supplier to achieve critical cost savings and gives more attention on intense customer oriented marketing and merchandising practises. Category management can be well exercised if there is collaborative pooling of complementary knowledge to satisfy customer needs, for which partnering is the basic of effective Category Management. For smooth relationship between the retailer and supplier they have to contribute equally. Supplier and Retailer have to revise their strategies while partnering for CM to be fruitful.

In the case of supplier, the managers in marketing, sales and IT department have to work as a team. The objective of CM does not end in comprehensive understanding of consumer needs and appropriate promotional programs rather rewarding retailer’s strategies and franchise building efforts. To attain this, Supplier’s sales manager has to concentrate not just on building their brand but setting up mutually beneficial strategies through negotiating promotional activities and pricing agreements with retailers. Supplier’s manager should assess the entire category and their impact by analysing scanning, demographic, promotion and other information.

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With instance to retailer, the organizational structure has to be changed for CM implementation. This begins with revising their buying, promotional, space and inventory management and each has to be assigned to separate category managers. These managers should be authorised to operate their certain categories as small business in strategic setting and implementation. Their progresses have to evaluated, charted and adjusted if necessary and should be responsible for the results.

According to Araujo and Mauzas (1995, 1998), CM becomes institutionalized in the context of a supplier-retailer relationship, in three stages.

In stage 1, the central focus is brand around which managerial roles and functions continued to be defined. In the second stage, CM emerges as an independent staff functions and trial runs of the projects are done. In this process the main function of the staff is to provide the managers with data and analysis of data from the trial run. The collected data is scrutinised by the retailers in headquarters and engaged in further trial runs which replaces the traditional hierarchies and practises are redefined to manage entire categories. In the final stage, CM becomes the hub of the formal structure between the supplier and retailers. Finally, CM also becomes the operational practise that moulds the whole relations between the supplier and retailer. Such relationships are well implemented in the case of large retailers like Carrefour, Wal-Mart etc, to the success of their Category management.

However, it is difficult for retailer to built such partnership with suppliers, they vary in strength and are situated along a ‘relationship continuum’ (Gronroos, 1994; Webster, 1992) – with purely transactional market relationship at one end of the spectrum and long-term cooperative partnership at other end. The risk involved in such relations are, stronger suppliers might behave in an opportunistic manner by entertaining self brands within a certain category at the expenses of weaker suppliers, which is unethical and not in line with ‘ideal’ CM practises. Such situation can be avoided by so called ‘category-captain’, where suppliers take part in management role. Chosen supplier manages the brands of competing supplier basically the whole category. Category captains are liable to bring in all the retailer relevant information such as RFID, RFID etc. At the same time, high chances of supplier misuse their power to exempt or erode their rivals, thus restricting competition, price rise, lack of variety etc. Again, to avoid such situations other manufactures were involved in to the process to be ‘category advisors’ and ‘category validators’. These manufactured cross-checks the suggestions and recommendations put up by the category captain to ensure unbiased decisions to be prompted. Suppliers have teams assigned to help retailers with advice and planograms, the diagrams that depicts where the products to the placed in the shelves for optimum sales and the space assigned for each products.

CM contributes to a sustainable competitive advantage due to the increased customer value, loyalty, sharing of information, improved inventory management etc. Following case have been analysed and it has helped to understand that CM will promise a distinct sustainable competitive edge. This is been evident in this case wherein, the operation of Nolan’s finer food in the San Francisco bay had been threatened with a new intruder/competitor in the current market. Who was Valumart grocery chain, to open 10 new food and drug combo centres throughout Nolan’s market. Pore over Nolan’s recent market research and financial result shows Category Management as a defence against the encroachment of Valumart. Pilot test initiated by Nolan’s on shampoo category revealed increased in sales. However, further test had to be run, to implement category management in the most promising means. Roberto, the strategic manager of Nolan’s generated a list of slow sellers in the category and replaces them with fast moving or new products. The conclusions that can be drawn from the above study are CM can be implemented as a competitive strategy.


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