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Why Is Category Management Important?

Tuesday, January 16, 2024

Why Is Category Management Important

​Category management is like being the maestro of each of these categories. It’s not just about stacking products on shelves randomly – it's about orchestrating a symphony of products customers want.

​So, going back to the grocery store, you’ve got everything divided into sections like fruits, vegetables, dairy, snacks, and so on. Each of these sections is a category.

​Category management is a strategic approach to the procurement and management of product categories as individual business units, each with its own distinct assortment, pricing, and promotional strategy. This concept is particularly vital in retail and other industries where businesses sell a diverse range of products.

Imagine you’re running a grocery store, and you're responsible for ensuring everything chugs along as expected and clients find what they need. Now, think of category management as your secret weapon to organize and boost your store’s performance.

​It’s a crucial component because it also aims to provide customers with what they want, where they want it, and when.

The ultimate goal of category management is to obtain long-term improvements in the efficiencies of the retailer, leading to increased sales, an improved shopping environment, and, most importantly, customer loyalty.

Let’s break each of these benefits down.

How To Keep Clear, And Concise Categories

How To Keep Clear, And Concise Categories

First of all, category management recognizes that each category is unique. It improves efficiency by allowing businesses to better understand customer needs and preferences within specific product categories.

You’ll determine the specific Stock-Keeping Units or SKUs that will make up your category, which is essentially the unique identifier for each of the products that you sell.

It’s important to note, however, that a SKU isn’t the product itself – it’s the identification code made up of six to eight characters that represent each distinct item.

When that’s out the way, you can start tailoring assortments and merchandising strategies. Doing this can enhance the overall shopping experience for your customers, leading to increased satisfaction and loyalty.

Additionally, it helps in optimizing your product assortment within each category.

By analyzing sales data, market trends, and customer behavior, businesses can determine which products should be included or excluded from a particular category. Doing this makes sure that your assortment meets customer demands and aligns with the overall business strategy.

Now, when it comes to customer experience, proper category management makes sure that your products are displayed and promoted well within their respective categories.

This increases your sales because customers are more likely to notice and consider products that are strategically placed and well-presented.

For example, if your customers are looking for books about marketing strategies, they’d expect to find them in the “Books about Marketing” section of your shop – and if you put them anywhere else your customers will most likely lose interest in putting unnecessary effort into finding those books.

Another thing that will influence their decision is your pricing strategies, which you can also handle with category management.

Analyzing sales data

When you try to manage your categories, you’re sure to end up considering factors like competition, consumer demand, and perceived value. You can use these factors to set up optimal prices that maximize profitability and competitiveness.

And, once you’ve figured all this stuff out, you can start designing targeted promotions and marketing campaigns for each specific product category based on your customer’s behavior and preferences.

Like this, category management allows you to differentiate the consumer behavior for each category of your products – you’ll know exactly what works for one category, why it works, and why it doesn’t work for the others.

This relies heavily on data analysis to make informed decisions.

By leveraging data related to sales, customer behavior, and market trends, businesses can make strategic decisions that are more likely to drive success within each product category. Doing all this will lead you to build more effective promotional efforts, with a higher return on your marketing investments.

If you need some ideas on how to build a marketing plan, then I highly recommend you read my ultimate, no-nonsense guide to help you market your product. It’s called “The Ultimate Marketing Plan”, and you can get the book now by clicking on the link.

Making Your Categories Customer-Oriented

So, if you haven’t already guessed, category management is often customer-centric regarding a lot of the decisions you’ll be making.

We’ve gone through this before, but just to reiterate you’ll be considering: Which products will be purchased; How they’ll be categorized; Where they’ll be displayed; and How they’ll be displayed.

You may assign different roles to categories depending on what customers you want to attract. There are four primary customer-centric category roles that you should know if you want to do this.

Making Your Categories Customer-Oriented

They are:

  • Destination Role– This category is for retailers or businesses that want to profile themselves towards their target consumers and differentiate from the competition. You should be offering superior value to consumers.

    ​For example, the electronics retailer Tech Haven has smartphones as their destination category, which means that their smartphones are the primary reason why their customers choose to visit the store.

  • Routine Role– Aims to provide consistent and competitive value for the everyday needs of your customers. This category will help develop your image to the consumer.

    Think of the box of cereal you eat every morning, or the brand of pet food you feed your pets every day. These kinds of products serve to reinforce your business’ identity and image.

  • Seasonal Role– Refers to products that are purchased only occasionally. A seasonal category often plays a secondary role when it comes to profit, but you can use it to differentiate yourself from the competition during certain periods.

    This one is more obvious but – in case you still need a hint – think of New Year’s greeting cards, holiday decorations, Halloween costumes, and even Christmas pudding. This is a product category specifically associated with any particular season, holiday, or special occasion.


  • Convenience Role– The convenience category aims to provide a convenient, one-stop shopping experience for customers.

    A good example is convenience stores like QuickMart, where the convenience category is represented by their section of “Ready-to-Eat Meals and Snacks”. This category caters to customers who are looking for quick, on-the-go options without the need for cooking or extensive preparation.

After you’ve set up all your prices, arranged all your products, and done all your promotions – your next concern will be managing and adjusting your inventory levels. Luckily, you already have all the data you need if you’ve been doing category management.

​By understanding the consumer behavior of each category, you’ll understand demand categories. This information will help you optimize stock levels, reduce excess inventory, and minimize stockouts. Ultimately leading to operational efficiency and saving you from unnecessary costs.

Collaboration And Category Management

Category management also often involves collaboration with other suppliers and vendors.

Imagine you need tomatoes for a pasta dish, but your supplier delivers onions instead. Chaos, right?

You can prevent these kinds of mix-ups by making sure each supplier knows exactly what’s needed for each category.

In general, it’ll also just do you a lot of good to work closely with these partners, as you can negotiate better terms, improve product quality, and ensure a reliable supply chain. A lot of mutually beneficial relationships can be gained using this collaborative approach.

Collaboration And Category Management

However, you can’t always rely on the same methods to sell or market your categories.

Markets are dynamic and subject to constant changes in trends and consumer preferences, so category management allows businesses to stay agile and adapt quickly to any emerging trends. You do this by swapping out products or rearranging things to keep up with what the data says your customers want right now.

Lastly, category management sets the foundation for measuring the performance of your products.

Key Performance Indicators or KPIs can be established for each category, enabling you to assess their success and identify areas where there’s room for more improvement. What worked well? What could be better? Category management encourages this kind of reflection.

In summary, category management is important because it helps businesses tailor their strategies to specific product categories.

It requires a more customer-centric approach for it to be fully effective, but if you use it right it’ll help improve your operational efficiency and overall business performance. This is something that you absolutely cannot overlook if you’re planning to make a business.

If you’d like to learn more about building and managing your business, I strongly suggest that you check out our NO B.S Newsletter.

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