Back to basics: Category Management during inflationary times

In previous times of economic challenge, Category Management has provided brands and retailers with the framework and a logical process to review and adjust overall go-to-market and category level strategies and tactics to adjust to changing shopper needs and expectations. Indeed, it was following the economic volatility of 1980s that Dr. Brian F. Harris devised the category management concept as a way for retailers to differentiate themselves from competitors and focus on product categories rather than individual products or brands.

David Ciancio explains how the traditional 8-step category management framework, combined with recent innovations in Customer Data Science, can provide a ‘back to basics’ roadmap for retailers and brands to successfully navigate the current economic challenges.

Changing category definitions

Covid has already changed how the consumer shops, but that is evolving once more with inflation now nearing 8-10% in many countries worldwide. Understanding these changes requires making sense of customer data and acting upon it.

Covid meant that consumers redefined some categories (e.g., we saw a broader definition of the ‘cleaning’ category), and similar changes are likely to occur as consumers adjust their shopping to combat the impact of inflation. This might include ‘economy meal substitutes’, for example.

Retailers should analyse shopper data to see where these shifts are most significant. Adjusting category definitions to be more in tune with these trends can be a major source of competitive advantage and positive consumer communication.

New category roles

We’re also likely to see new definitions emerging for Destination, Routine, and Convenience, as people consider more eating at home, and we experience greater supply volitivity and value-seeking.

In inflationary periods such as this one, some categories will become more important to consumers while others become less important. As a result, current category roles should be reviewed and modified to reflect these changing levels of importance.

Another consideration for reviewing current roles is likely to be the anti-inflationary strategies of competitors, especially more price-oriented competitors.

Category assessment and performance evaluation

The competitive landscape has changed, with the recent growth of online, quick-commerce and discounters. In inflationary times, more price-oriented retailers can quickly capture market share.

SWOT (strengths, weaknesses, opportunities, threats) analyses are especially important to determine any significant trends in retail channels and formats that are gaining market share in key categories and should be updated to make sure they’re reacting to the new inflationary landscape.

Category shopping behaviour changes are also likely, whether in transaction size, frequency of category purchase or category penetration in the basket, so category assessments should also include these changes.

Scorecard Objectives & Targets

While traditional sales and profit measures remain important, other measures should be included on the category scorecard to more directly measure the impact of inflation and the actions taken to address it.

Measures may include

• Category sales and sales growth
• Market share vs. key competitors
• Price index for key price image items (KVIs) and key promoted items
• Category sales contribution to total shopping basket
• Private brand vs national brand pricing gaps
• Gross margin return on investment (GMROI) by shopper segment

Category Strategies

We’ve seen new discussions lately around range optimisation to liberate working capital (to invest in price), the role of Private Brands in the mix, as well as other ‘value’ levers such as offer personalisation, shelf presentation and flow.

It is important to review and adjust the mix of strategies being used in categories. Strategies that focus on creating the right price image and the right value image become more important in inflationary times and help to positively impact consumer perceptions. Private brand products in the category can be targeted for these strategies. Transaction building strategies also become even more important to ensure that basket transaction levels are protected as much as possible.

Category Tactics

The right balance of price and promotion tactics become critical for success in inflationary periods to provide the consumer with an appealing value proposition. Shelf presentation tactics must make key value products easy to see and shopper on-shelf communication must reinforce the value to the shopper.

The use of cross-merchandising (product bundling) will also create value as well as help protect basket transaction sizes. Curating the assortment to reduce costs or better manage the supply chain is an even more important tactic in inflationary periods.

Implementation and review

All of the above is not without its challenges, however. Current labour shortage pressures, higher employee costs and supply chain issues need to be recognised and factored into category plan implementation programs. And a rapidly changing business environment needs urgent adaptation, which piles on further pressure.

Conclusion

These current inflationary times we’re experiencing show no sign of slowing down, and will present many challenges for retailers, brands and shoppers alike.

But by using the frameworks and guidance of effective Category Management, brands and retailers can truly go back to basics and use their knowledge of go-to-market and category level strategies and tactics to adjust to the new and ever-changing needs of the customer.