Initially developed for project-based sourcing of goods and services, Category Management (CM) helps organizations identify consolidation opportunities and optimize their purchasing strategies.

You visited a store and felt instantly drawn to an impeccably organized shelf, making everything seem tempting. That’s the strategic procurement category management process crucial for any business aiming to enhance customer experience and boost sales.

Now, ask yourself: Are your products organized to capture your customers’ interest and satisfy their needs? If this question stirs a sense of uncertainty, it’s time to comprehend the eight critical stages of category management. This approach could be your answer to transforming the product strategy, aligning your offerings with consumer desires, and ultimately maximizing your profitability.

What is Category Management?

Category management is a strategic procurement approach where organizations group similar spending areas to consolidate and enhance business value. This method optimizes how businesses organize and manage groups of similar items or services. It then enables them to streamline processes, leverage buying power, and enhance supplier relationships.

Category management procurement involves grouping items into categories based on shared characteristics, each managed as a strategic business unit. This method allows companies to tailor procurement strategies, maximize cost savings, boost performance, and effectively align these activities with their overall business goals.

Read more: What Is Procurement Catalog Management: Your AIO Guide

8 Must-Know Stages in Category Management Process

Brian F. Harris developed the concept of category management in the late 1980s and formalized it with an eight-step procedure known as the Brian Harris Model in 1997. A properly implemented category management streamlines procurement and aligns your products and services with the ever-evolving market needs, setting the stage for sustained organizational growth and customer satisfaction.

Below are the eight key stages of the category management process:

Stage 1: Define the Category

The first stage in the category management process is defining and identifying the category. This involves grouping products or services that serve similar purposes, facilitating more focused management and strategic planning. Accurate definition is crucial as it shapes the scope of management efforts and impacts subsequent strategies.

In a retail environment, categories might be defined as “beverages” or “snacks,” each customized to meet distinct consumer preferences and shopping habits.

A practical example could include a grocery store categorizing products to align with customer shopping patterns, such as creating a “back-to-school” category. This type of categorization groups relevant supplies together for easy access during the school season.

Stage 2: Role Assessment

The second stage involves evaluating each category’s strategic importance within the business framework. This stage determines how each category fits within the retailer’s broader business goals and its potential impact on profitability.

Some categories might be required to drive foot traffic to a store (e.g., seasonal products during holidays), while others may be more focused on generating high margins (e.g., luxury goods).

To demonstrate, consider a home electronics retailer identifying high-end audio equipment as a key revenue driver. This category might receive more premium store placement and aggressive marketing campaigns to attract music listeners who will likely spend more.

Stage 3: Performance Analysis

The third stage in the category management process, performance analysis, is crucial for assessing the efficacy of each category in contributing to the overall business strategy. This involves rigorous monitoring of key performance indicators (KPIs) for the category management process, such as sales volume, profit margins, and customer satisfaction.

For illustration, consider the example of the category management process for the automotive industry, which might analyze the sales trends and profit margins of its SUVs versus hybrid vehicles to determine which category is performing better and why. Regularly tracking these KPIs helps managers identify successful elements of each category, forecast trends, and develop corrective strategies to address underperforming areas.

Stage 4: Set Objectives and Targets

This stage involves establishing clear, measurable goals for each category that align with the company’s broader objectives. Setting these targets involves defining what success looks like for each category and mapping out a pathway to achieve it.

For example, a beverage company might set a target to increase market share by 15% for its line of carbonated drinks by the end of the fiscal year through strategic marketing campaigns and new product introductions. By setting specific objectives, businesses provide a clear direction for procurement category management initiatives and a benchmark against which to measure progress.

Stage 5: Strategy Development

Developing robust strategies for each category is critical for enhancing and aligning market performance with the company’s strategic goals. This stage involves identifying each category’s unique method and crafting tailored strategies to control these factors.

Consider an example of a bookstore chain that might develop a strategy focused on increasing the visibility and sales of its children’s books section by hosting weekly story time sessions and featuring popular children’s authors. Such strategic initiatives are designed to attract specific customer segments and differentiate the store from competitors. It thereby boosts sales and enhances customer engagement within that category.

Stage 6: Tactical Measures

This stage involves the deployment of specific tactics, aligning closely with the marketing mix’s 4 Ps: Product, Price, Placement, and Promotions. These 4 Ps of category management are crucial in shaping the strategic execution within each category:

Product (Assortment)

This involves selecting the right mix of products to fulfill consumer needs and match market trends.

Example

A grocery store might include gluten-free products in its health foods category to cater to dietary trends and customer health consciousness.

Price

Setting pricing strategies involves determining price points that reflect the perceived value of the products, align with competitive positioning, and fit within the customer’s willingness to pay.

Example

An electronic retailer might use competitive pricing for high-demand items like smartphones to attract more customers.

Placement (Shelf)

Product placement focuses on arranging products in a manner that maximizes visibility and accessibility.

Example

Placing impulse-buy items like candy and magazines near the checkout area in a supermarket can increase last-minute purchases.

Promotions

This involves crafting marketing campaigns and sales promotions that enhance product visibility and stimulate demand.

Example

A clothing retailer might run a back-to-school promotion offering discounts on children’s apparel, effectively driving traffic and increasing sales during this peak shopping period.

Stage 7: Implementation

Effective implementation is crucial for the successful implementation of category management. This stage involves putting the planned strategies and tactics into action across the organization.

For instance, a supermarket chain may implement its new strategy for the organic produce category by training staff on the benefits of organic food. They might rearrange the layout to make these products more prominent. Additionally, they could launch a marketing campaign to educate consumers about the health benefits of organic food. Proper execution ensures that the strategic vision for each category is realized in practice.

Stage 8: Review and Optimize

Regular review and optimization of category strategies are essential to adapt to market changes and consumer behaviors. This final stage involves continuously analyzing the performance, learning from the data, and making necessary adjustments.

An electronics retailer, for example, might review its category strategy quarterly, analyzing sales data, customer feedback, and market trends to optimize its product offerings. It can include increasing the stock of high-demand gadgets or phasing out outdated models. This ongoing process helps maintain relevance and competitiveness in the market.

Conclusion

Category management procurement is a strategic approach to procurement that can significantly benefit businesses in today’s dynamic customer landscape. By implementing a structured procurement category management process, enterprises can gain a deeper understanding of their spending habits, optimize supplier relationships, and ultimately drive profitability. There is enormous scope of the category management process in the future due to a shift in customer views. Today’s customers prefer to make purchases online. It is simple to target a potential customer based on their shopping history.

Investing in an integrated Source-to-Pay (S2P) Suite of Zycus can significantly enhance the effectiveness of your category management strategy. Its robust set of solutions can automate repetitive procurement tasks, freeing up employees to focus on more strategic initiatives.

Take your category management to the next level with Zycus’ Merlin AI and see how AI can revolutionize your procurement processes. Book a free demo now and unlock new efficiency and profitability levels.

Related Reads:

1. The Future Of Category Management Is Here!
2. Mr. Simmons on 6 Key Skills of a Category Manager
3. A Comprehensive Guide to Spend Management
4. Top 10 Winning Skills for Procurement Professionals
5. Your Guide to Direct Spend Management in Procurement
6. Utilize the Power of Generative AI in Spend Management: A Comprehensive Guide
7. Research Report: Putting the Supplier at the Heart of Procurement Thinking