CATEGORY MANAGEMENT: SHARING BEST PRACTICES

1. CATEGORY MANAGEMENT: SHARING BEST PRACTICES Doing Business in Bentonville April 16, 2009

2. NWACC Category Management Curriculum Contributors 2

3. Typical CPG Team Roles & Responsibilities What’s The Diff?

4. Modular Development Most people associate modular development with the CDM role. Those of us in the role know it’s NOT Tetris! 4

5. Category Development Planning INITIATE STEP 1: Know your shopper Define the category Define success Roles & Responsibilities Identify team members Scope and Timing Define expectations Determine who is shopping, what are their needs, how do they buy? Understand barriers and opportunities. STEP 6: Measure / COE Continual Measurement Conduct Correction of Errors Track Progress and adjust plan accordingly STEP 2: Know your Competition and your Category Assess category performance (market, competitors, & our). Define the winners and how they win. STEP 5: Implement Execute the Plan STEP 3: Where do we want to go? Develop category, sub-category & segment strategies. Build financial plans to achieve category role and strategies. STEP 4: How do we get there? Develop the plan: the correct products, shelf arrangement, off-shelf product placement, category adjacencies, department layout, availability, pricing & promotion. Strategic Pricing / Promotion / In-Stock / Assortment / Line Review

6. Category Definition • Your Category Definition should… • Be determined by the customer’s point-of-view • When I say “Vitamins,” the customer thinks of … • Take into account “like customer solutions” • Multivitamins and Calcium both dietary supplements that contribute to consumers’ health and wellness • Include products with substitutable and/or complimentary benefits • Centrum and Viactiv are Multivitamin Brands that might be substitutable • Calcium and Vitamin D are Minerals/Vitamins that might be complementary

7. Category Definition • Your Category Definition should not be determined by… • Manufacturer • made by J&J or Wyeth • Supplier • distributed by McLane or McKesson • Brand • sold under the Equate or Spring Valley names

8. Category Definition • A Category Definition should outline a Strategic Business Unit • Nutritional Supplements Example: • A range of dietary supplement products consisting of vitamins, minerals, herbs and/or other organic/inorganic compounds, used to optimize one’s general health and wellness. • Category: Nutritional Supplements • Subcategory: Multivitamins • Segment: Adult Multivitamins • Sub-segment: Mature (or Age 50+) Adult Multivitamins

9. Traditional Category Roles Quick Definitions Category Role Example Strategies • Traffic Building • High Share, Frequently Purchased, High % of Sales • Transaction Building • Higher Ring-up, Impulse Purchased • Cash Generating • High Turns, Frequently Purchased • Profit Generating • High Gross Margin, High Turns • Turf Defending • Used to Draw Customers • Excitement Creating • Impulse, Lifestyle Oriented • Image Enhancing • Frequently Purchased, Promoted, Impulse, Seasonal

10. Category Management Process / Category Development Planning INITIATE STEP 1: Know your shopper Define the category Define success Roles & Responsibilities Identify team members Scope and Timing Define expectations Determine who is shopping, what are their needs, how do they buy? Understand barriers and opportunities. STEP 6: Measure / COE STEP 2: Know your Competition and your Category Continual Measurement Conduct Correction of Errors Track Progress and adjust plan accordingly Assess category performance (market, competitors, & our). Define the winners and how they win. STEP 5: Implement Execute the Plan STEP 3: Where do we want to go? Develop category, sub-category & segment strategies. Build financial plans to achieve category role and strategies. STEP 4: How do we get there? Develop the plan: the correct products, shelf arrangement, off-shelf product placement, category adjacencies, department layout, availability, pricing & promotion. Strategic Pricing / Promotion / In-Stock / Assortment / Line Review

11. Who is Shopping? Who Is Consuming? SHOPPER not CONSUMER CONSUMERnot SHOPPER CONSUMER andSHOPPER Sports Drink Video Games Baby Formula Baby needs caregiver to provide her with nourishment College jock is heading back to dorm from practice; He needs a quick energy boost Aunt buys game for her nephew; She checks the package for ratings

12. The Difference Baby Formula THE SHOPPER (Mom) THE CONSUMER (Baby) • WHO is she? Are there differences by income, age, race, religious beliefs, etc.? • WHERE does she live? Does that make a difference? Is she traveling or at home? • WHEN does purchase? At home, when her husband watches the baby? Does she stock-up or watch for sales? • HOW does she shop? Take the bus vs minivan? • WHY did she choose to feed the baby with formula? Why does she pick that brand or ingredient? • WHO is she? Is she a new-born or almost into semi-solid / solid food? • WHAT flavor or ingredient makes her happy when her mom feeds her? • WHERE is she when she is hungry? Store? Home? • WHEN does she get hungry? Late at night makes her tummy hurt so she needs the special allergy formula. • HOW much can she drink before she is full? • WHY does she need formula? Baby needs caregiver to provide her with nourishment

13. The Why Behind the Buy • What is the reason for a purchase by a shopper? • Is it the price? • Is it convenience? • Is it a particular brand? • Does she likes a particular Retailer? • Other? • There can be many motivating factors…

14. ABQQ Grid Quantitative In-Store Observation (Quantitative) Internet Survey Telephone Survey Loyalty Card Data Mail Survey Scan Data Household Panel Mall-Intercept Survey Behavioral Attitudinal In-Home Ethnographies In-Store Observation (Qualitative) Focus Groups Telephone Survey ShopAlongs Mail Survey Mall-Intercept Survey Qualitative

15. ABQQ Grid Data Sources

16. Data Points to Insight Who What Where When How Why Attitudes Scorecard Behaviors ACTIONABLE INSIGHTS

17. Category Management Process / Category Development Planning INITIATE STEP 1: Know your shopper Define the category Define success Roles & Responsibilities Identify team members Scope and Timing Define expectations Determine who is shopping, what are their needs, how do they buy? Understand barriers and opportunities. STEP 6: Measure / COE STEP 2: Know your Competition and your Category Continual Measurement Conduct Correction of Errors Track Progress and adjust plan accordingly Assess category performance (market, competitors, & our). Define the winners and how they win. STEP 5: Implement Execute the Plan STEP 3: Where do we want to go? Develop category, sub-category & segment strategies. Build financial plans to achieve category role and strategies. STEP 4: How do we get there? Develop the plan: the correct products, shelf arrangement, off-shelf product placement, category adjacencies, department layout, availability, pricing & promotion. Strategic Pricing / Promotion / In-Stock / Assortment / Line Review

18. Consumer Decision Tree • A Consumer Decision Treeis a market research study based primarily on consumer research (surveys and at shelf observation) and determines the thought process behind a purchase decision. • Includes Attitudinal and Behavioral Data • Reveals the reasons why consumers buy a certain product • Incorporates information based on consumer recollection from past behavior • Developed based on needs assessment

19. Market Structure • A Market Structureis a market research study based on actual purchase data across all channels. Statistical analysis and interpretation of product interaction (substitutability) drives hierarchy. Market Structures details the long term types of decisions that consumers make from a overall product portfolio. • Behavioral Data • Transactional data based from household panel • Reflects purchase history over a period of time (typically 52 weeks)

20. Know the Competition • What are competitors? • How are they identified? • Who are key competitors? • Channel • Chain • Category • Occasion/Trip Type

21. Connection to Segmentation Customer/Shopper • Right Product, • Modular • Promotion • Assortment • Demographics • Right Time, • Seasonal • Events • Promotions • Right Place, • DC • Store • Market • Right Quantity • Display • Open Stock

22. Category Management Process / Category Development Planning INITIATE STEP 1: Know your shopper Define the category Define success Roles & Responsibilities Identify team members Scope and Timing Define expectations Determine who is shopping, what are their needs, how do they buy? Understand barriers and opportunities. STEP 6: Measure / COE STEP 2: Know your Competition and your Category Continual Measurement Conduct Correction of Errors Track Progress and adjust plan accordingly Assess category performance (market, competitors, & our). Define the winners and how they win. STEP 5: Implement Execute the Plan STEP 3: Where do we want to go? Develop category, sub-category & segment strategies. Build financial plans to achieve category role and strategies. STEP 4: How do we get there? Develop the plan: the correct products, shelf arrangement, off-shelf product placement, category adjacencies, department layout, availability, pricing & promotion. Strategic Pricing / Promotion / In-Stock / Assortment / Line Review

23. SWOT Definition Review • Strengths • A firms strengths are it’s resources and capabilities that can be used as a basis for developing a competitive advantage. • Weaknesses • The absence of certain strengths may be viewed as a weakness. In some cases the flip side of a strength. • Opportunities • Changes in the external environment may reveal certain new opportunities for profit and growth. • Threats • Changes in the external environment may also present threats to the firm. It’s much less dangerous than calling in a SWAT team!

24. Strategies and Tactics Strategy and Tactics for Car Air Fresheners category

25. Category Management Process / Category Development Planning INITIATE STEP 1: Know your shopper Define the category Define success Roles & Responsibilities Identify team members Scope and Timing Define expectations Determine who is shopping, what are their needs, how do they buy? Understand barriers and opportunities. STEP 6: Measure / COE STEP 2: Know your Competition and your Category Continual Measurement Conduct Correction of Errors Track Progress and adjust plan accordingly Assess category performance (market, competitors, & our). Define the winners and how they win. STEP 5: Implement Execute the Plan STEP 3: Where do we want to go? Develop category, sub-category & segment strategies. Build financial plans to achieve category role and strategies. STEP 4: How do we get there? Develop the plan: the correct products, shelf arrangement, off-shelf product placement, category adjacencies, department layout, availability, pricing & promotion. Strategic Pricing / Promotion / In-Stock / Assortment / Line Review

26. Category Roles • Assigned role based on a cross-category quantitative analysis that considers the: • Consumer (Step 1) • Retailer (Step 2) • Supplier (Step 2) • Marketplace (Step 2) Category Role

27. Traditional Category Roles Quick Definitions Category Role Example Strategies • Traffic Building • High Share, Frequently Purchased, High % of Sales • Transaction Building • Higher Ring-up, Impulse Purchased • Cash Generating • High Turns, Frequently Purchased • Profit Generating • High Gross Margin, High Turns • Turf Defending • Used to Draw Customers • Excitement Creating • Impulse, Lifestyle Oriented • Image Enhancing • Frequently Purchased, Promoted, Impulse, Seasonal

28. Retailer Hybrid Model - Price Point Leads all Criteria for all Segments - Good – Better – Best Pricing

29. Category Growth + + = Penetration Frequency Amount Purchased Volume • How do You Move the Gears? • Penetration – Convert shoppers to buyers – increase the number of people that buy the category at a given retailer (Increase Buyer Conversion) • Frequency – Increase the number of trips buyers purchase the category at a given retailer (Increase the Buy Rate through more Trips) • Amount Purchased – Increase the amount of the category that buyers purchase at a given retailer (Increase the Buy Rate through more Volume per Trip)

30. Category Management Process / Category Development Planning INITIATE STEP 1: Know your shopper Define the category Define success Roles & Responsibilities Identify team members Scope and Timing Define expectations Determine who is shopping, what are their needs, how do they buy? Understand barriers and opportunities. STEP 6: Measure / COE STEP 2: Know your Competition and your Category Continual Measurement Conduct Correction of Errors Track Progress and adjust plan accordingly Assess category performance (market, competitors, & our). Define the winners and how they win. STEP 5: Implement Execute the Plan STEP 3: Where do we want to go? Develop category, sub-category & segment strategies. Build financial plans to achieve category role and strategies. STEP 4: How do we get there? Develop the plan: the correct products, shelf arrangement, off-shelf product placement, category adjacencies, department layout, availability, pricing & promotion. Strategic Pricing / Promotion / In-Stock / Assortment / Line Review

31. Execution Reconciliation

32. Category Management Process / Category Development Planning INITIATE STEP 1: Know your shopper Define the category Define success Roles & Responsibilities Identify team members Scope and Timing Define expectations Determine who is shopping, what are their needs, how do they buy? Understand barriers and opportunities. STEP 6: Measure / COE STEP 2: Know your Competition and your Category Continual Measurement Conduct Correction of Errors Track Progress and adjust plan accordingly Assess category performance (market, competitors, & our). Define the winners and how they win. STEP 5: Implement Execute the Plan STEP 3: Where do we want to go? Develop category, sub-category & segment strategies. Build financial plans to achieve category role and strategies. STEP 4: How do we get there? Develop the plan: the correct products, shelf arrangement, off-shelf product placement, category adjacencies, department layout, availability, pricing & promotion. Strategic Pricing / Promotion / In-Stock / Assortment / Line Review

33. Measurement & Correction of Errors Execution • The Monitor and Review process includes three important components: • Review the key metrics for success (the report card of results) • Agreement upon the dates to review the results • Crystallizing the insights and results and taking appropriate action • Remember, the category management process is dynamic, not a one time event. It is a continuous cycle of attitudinal and behavioral analysis and action.

34. CATEGORY MANAGEMENT: SHARING BEST PRACTICES Doing Business in Bentonville April 16, 2009

35. Information and Registration Marshall McCall (479) 936-5171  mmccall@nwacc.edu James Thulin (479) 936-5107 jthulin@nwacc.edu Visit http://www.nwacc.edu/corporatelearning