What challenge(s) do our clients face?
Connecting SKU level detail with a big picture strategy
Retailers live or die by the assortment, so it is crucial that strong category management processes are in place. However, from working with retailers across sectors (from grocery to electronics), we know that there are several challenges in achieving success:
- Connecting the assortment to the value proposition: The assortment must be a translation of the retailer’s chosen value proposition, its differentiation strategy and overall brand. However, often there is a lack of alignment or agreement internally on this value proposition or the strategic roles of categories, meaning that decisions further down the chain become divergent.
- Accounting for customer needs by store: Different stores will attract different consumers, perhaps as a result of geography or store location (well-off areas vs poorer). Without a clear understanding of how to segment and cluster stores by customer need, it can lead to an inefficient distribution of stock.
- Over-reliance on qualitative criteria: Qualitative choices and intuition must be balanced with more technical criteria such as performance indicators, otherwise there is a risk of bias, subjectivity and ‘personality’ leading decisions.
- Data management: With high volumes of SKUs, it can be difficult to track, manage and draw insights from such a large pool of data in a way that facilitates decision-making.
- Multifunctional alignment: The impact of category management goes beyond the commercial team and so it is necessary to involve the buyers, logistics, finance etc. to guarantee all areas are pulling in the same direction.
- Individualistic actions undermining the overall strategy: It may be the case that a commercial team members’ bonus is decided based on meeting sales targets. In this circumstance, they are likely to fight tooth and nail to secure and protect a large floor area, even if it may be better utilized by another category owner.
Failure to address these issues can result in a number of negative effects such as:
- High levels of stock or stock outs
- Stagnant revenue and sales
- Dropping profitability
How do we help?
We help our clients design and implement a best-in-class category management process, training staff to apply the methodology and adapt to future challenges.
Redesigning the approach to assortment requires a combination of technical analysis and experience in the field. We have delivered more than 130 successful projects in retail, across sectors and geographies. We understand the fast, challenging and practical dynamics of retail and bring together our Marketing & Sales knowledge with our data science teams to tackle the large data sets inherent in this challenge.
Our projects typically pass through the below phases in order to deliver a customized and effective solution.
During this process we work closely with your commercial team (and the rest of your organization) to support you to:
- Understand the brand positioning and assortment of key competitors
- Define and align your strategic goals, differentiators and positioning
- Translate strategic drivers into an assortment which suits your specific context
- Review the product hierarchy* to improve the assortment decision process
- Define the strategic role of each category to support your positioning
- Define the optimal assortment per store, based on real performance indicators
- Set execution standards per category to maximize in-store experience
*e.g. Hierarchy may be based on product type (tables, chairs…) or by occasion (dinner, cooking…)
What are the benefits?
- Improve brand equity: define the assortment that will support you in meeting customer demands
- Increase sales: through better alignment between products and consumer needs
- Increase profitability: through better management of the product margin and sales productivity
- Reduce complexity: set clear boundaries through segmentation
- Greater visibility and precision to act: monitor performance at SKU level and make precise corrective adjustments based on real world performance
- Reduce stockouts and overstock: reduce excess inventory or OOS events through better management of assortment per store
- Improve retailer relationships: demonstrate commitment through matching assortment to retailer brand positioning
- Support the differentiation from competitors: clarity on the categories and products which can deliver differentiation from the competition
How does it work?
Delivering a learning journey for your team as well as a technical solution.
We believe there is no value at all in building a complex book or tool to guide the category management. The real value is in the four hands construction together, with the client team, understanding their specific reality and embedding it in the solution.
A category management project with Integration involves a lot of interaction with a multifunctional team. Something which is very important in building a good technical solution, but also in making sure the client’s team is able to implement and move on with the project after the design phase is finished.
Our client, a specialized appliance retailer with >100 stores (part of retail group with USD 1bn+ revenue) came to us facing problems of high stock and fulfilment issues.
Upon examining the context, we understood the root cause was a result of a blanket approach to the portfolio across stores and a simplistic approach to category management.
In this project, we started from scratch, building up a category management capability in the team from first principles. The essential elements of our success were:
- Building a collective and qualitative understanding – through a data-driven approach, we challenged our client’s pre-conception of who their target consumer was and what they wanted by analyzing purchase data across the market. With this we developed a clear picture of the market, consumer needs and category strategy which all teams could subscribe to
- Connecting SKU level detail with the big picture strategy – We brought clarity to the role of each category considering the business objectives, brand positioning and differentials and ensured high-level principles such as product hierarchy drove decision-making at the operational level.
- Total commitment to involve and align all stakeholders – guaranteed buy-in from areas beyond just commercial, ensuring all teams were pulling in the same direction
Through the project, we overcame the commercial team’s ‘space wars’ to agree on category resizing in just 4 months, aligning individual interests with the overall business goal. This led to a ~11% increase in gross margin and a ~10% increase in revenue (accounting for effects of Covid-19).
Our client, an oil & gas multinational, which owned a forecourt retail franchise with ~900 stores, carried out a consumer study and found ‘the convenience store’ was the 3rd most important factor in influencing gas station choice. They estimated, improving stores could raise gas sales by up to 20%.
However, gas station owners did not care about the ‘low margins’ of a convenience store, and the ‘headache’ of running its operation; meaning the stores often did not deliver a good customer experience and were in many cases unprofitable.
The client asked Integration for our support in developing a strategy to improve the relationship with franchisees, to deliver a better customer experience and increased profits, and ultimately drive further store expansion.
In order to deliver a solution, we focused on a variety of core aspects:
- Understanding the beliefs and motivations of both sides – we undertook extensive field visits to understand the perspective and needs of the gas stations owners across the country; creating a compelling value proposition, target customer, and mission aligned to the company objectives and attractive to the gas station owner.
- A simple but complete solution – we transitioned from ‘self-select’ model with 1,000 SKUs to an easy-to-implement model of ’4 base packages’ with 15 optional local add-ons; matching defined audience types/needs and sizes with pre-selected high-performing SKUs
- Continuous improvement adjusting to the local realities – we fine-tuned the assortment and also the pitch to reach target KPIs by carrying out pilots in multiple regions.
In terms of in-store results, the project delivered an estimated 7% growth in sales driven through assortment changes and a higher on-average store profitability driven through clear guidelines for franchisees.
Our client saw an uplift in franchisee adoption rate, expanding its geographic presence, alongside improved management and tracking tools delivering greater visibility.
The category management culture was reinforced in the company to provide it with the tools and methods it would need to continue improving and to tackle new contexts or regions. Concretely, these included governance rituals and decision-making moments embedded per team to deal with the tactical assortment, pricing, exposure, and promotion decisions in each region.
OUR INDUSTRY EXPERIENCE
Integration has had the pleasure of working with more than 130 regional and international retailers, based in 12 countries and specialized in different segments, including but not limited to pharmaceutical, food, house appliances, fashion, sports, and toys.
Working across continents, our professionals have a developed understanding of the market dynamics, best practices and client/consumer needs across geographies as well as industry segments. This allows us to bring robust and customized solutions to our clients that take into consideration the internal and external context.