CPGmatters: Philips Takes Category Management to New Trade Channels

Apr 13, 2011

Through a special arrangement, presented here for discussion is
a summary of a current article from the monthly e-zine, CPGmatters.

Kohl’s and Best Buy have set formulas for merchandising in their stores —
and neither includes CPG-type category management. So in looking to establish
its Sonicare and electric-shaving product lines in the process, Philips used
a reverse approach than manufacturers typically take with retailers in establishing
influence over how they merchandise and manage categories in the store.

“We went from
the top down — from the shopper-insights piece down
to the data piece,” said Peter Naumann, Philips’ director of category-development
management. “At a Kroger or a Safeway, you build up your category-management
engagment with data pieces and by analyzing shares and then you get to the
resulting shopper insights and get asked to do higher-level strategic management.

“But with these retailers, we did shopper observations that led to merchandising-strategy
suggestions first. We flipped the model on its ear.”

In the absence of
pre-existing data that would help Philips explain how it could help either
retailer, Philips talked with Kohl’s and Best Buy shoppers both in-store (with
the retailers’ cooperation) and in other settings
to understand their views on such issues. Armed with insights based on that
information, Philips obtained and got buy-in from chain management to present
ideas for tinkering with how merchandise in the relevant categories — both
Philips’ and
competitors — might be rearranged and enhanced to appeal more to what
shoppers were saying.

With Kohl’s, Philips came up with some ideas for promotional
strategies for the relevant categories with advice on how to exploit the fact
that sales in the power-shaving segment, for instance, is heavily driven by
the Christmas season.

When it came to Best Buy, power oral care and power shaving
devices were placed in the back, and both types of products displayed statically
in their boxes. Philips suggested that Best Buy move the merchandise set forward
and allow shoppers to “play” with the merchandise a bit, with shavers
out of their boxes and connected via their power cords to electricity.

“We could show them the lift that this approach historically gives retailers
and how shoppers are looking for that extra level of engagement, and how it
improves the shopping experience and conversion,” Mr. Naumann said.

upside-down category management was a daring but, considering the history of
category management outside of CPG brands and perishables, maybe the only option
available to Philips.

“The perception is that you can’t do category management unless
in the CPG category — very fast-moving goods — or you’ve
got a lot of syndicated data about your product sales,” Mr. Naumann said.

“Category management has grown up typically in places where data is more
available, where analytics are more possible and more enabled, and where retailers
have tended to want to drill into it and have the conversations you need to
have,” said
Joe Beier, executive vice president of GfK Interscope, which advised Philips
in the effort. “Retailers dealing in categories outside of that bull’s-eye
have been slow to adapt.”

Discussion Questions: Why has category management faced slow adoption outside traditional CPG channels? What do you think of Phillips approach to getting a foothold in Kohl’s and Best Buy? Can you suggest other techniques when shopper insights data aren’t available?

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9 Comments on "CPGmatters: Philips Takes Category Management to New Trade Channels"

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Bill Bittner
Bill Bittner
11 years 1 month ago
I don’t really understand the distinction in assortment planning being described here. To me, the key to category management is recognizing that there are subtleties to product categories that are best understood by the manufacturers creating products for those categories. Combine this with the development of business processes and computer systems that allow assortments to be managed along the same category lines and you have Category Management. And then of course there is the “free labor” for implementing resets. The fact that Phillips used their familiarity with a product category to advise a retailer how to improve category experience comes as no surprise. I can’t believe Best Buy or Kohl’s are not asking their manufacturers for advice on how to improve performance in their product areas. Whether they call it “Category Management” or not is merely semantics. I think one reason assortment planning in traditional CPG channels has focused on data gathering is because of the number of variations within most categories. When you have twenty flavors and four packaging options of each brand, it… Read more »
Roger Saunders
11 years 1 month ago

A wealth of data about Shopper/Consumer Insights exists within low ticket/frequently purchased products, like CPG. That data has been shared, in varying ways, among manufacturers and retailers as a matter of course.

The buy/sell side of other manufacturer/retail relationships can get a bit contentious, as to who might “own the consumer.” When the understand among these two forces is properly focused on the fact that the “consumer owns them,” the two concerns can begin to do a more effective job of making use of CPG strategies.

The sporting goods industry has done an effective job in this area, as has the lawn care industry. Both manufacturers and retailers have taken the time to address ‘Attitude’, ‘Behavior’, and ‘Future Plans’ of the consumer. That approach flexes the ability to support product, merchandising, shelf space, pricing, and product movement to the benefit of all parties–most importantly, the consumer.

Carol Spieckerman
Carol Spieckerman
11 years 1 month ago

Funny enough, the shaving/personal care displays were the ones that got my attention the most when I recently toured Best Buy’s new connected store prototype. So much so that I asked an associate if they were yet another new category. Nope. They just brought them out from the back-of-store shadows. Now I know the back story.

To me, the Philips’ breakthrough was a supplier taking charge of a category that is core to them yet peripheral to specific retail customers, and two retailers collaborating to bring items to their full potential, even if it meant breaking policy. When retailers bury entire categories, lackluster performance is a fait accompli; there really should not be any dead zones in a well-designed store.

John Boccuzzi, Jr.
John Boccuzzi, Jr.
11 years 1 month ago
This comes down to something I discussed with clients while I was with Kenosia. Syndicated data is only one part of what I call the “One Truth”. The more data points you include in your analysis, the close you get to the “One Truth.” Adding consumer in-store interviews is just another data point getting you closer to that “One Truth.” The reason Category Management has taken longer in industries outside of traditional grocery is the amount of clean data. I enjoy sharing a story of my first sales call to a large Spirits company based in NYC back in 1999. I was presenting DataAlchemy, a solution that could help them with data analysis and Category Management. After a 40 minute demonstration of the solution the VP from the Spirits company said with excitement “This is amazing, I only have one question”. Thinking this was clearly going to be a sale I asked with excitement back “What is your question?” He replied “Where is the printer for the New York Knicks tickets?” Surprised and caught a… Read more »
Dan Raftery
11 years 1 month ago

Kudos to Joe Beier and Philips for applying “upside down category management.” If this seems hauntingly familiar to other category management veterans, it should. The concept was used to support the pre-ECR report “Variety or Duplication: A Process to Learn Where You Stand,” published in 1993 by FMI.

As lead researcher and author of the work, I can empathize with Mr. Beier’s challenge in gaining support for a planogram decision process that is first driven by consumer input (we called it the “decision tree”) and second by data rather than the other way around.

Key learning from history: too many items which are interchangeable in the consumer’s mind (duplicates) can actually hurt category sales. Takeaway: increasing variety based on the consumer’s definition can increase sales.

The report should be required reading for all category managers and new product development teams, in my humble opinion.

Ed Dennis
Ed Dennis
11 years 1 month ago
This is a very simple situation. Retailers who are heavily into real estate sales as a means of accumulating revenue cede the management of inventory to manufacturers/suppliers who rent shelf or floor space. It’s gotten to the point that the only thing left to manage is private label and that is managed by the sales of national brands (you wouldn’t develop a PL item that didn’t emulate a hot selling national brand item). So when a major department store contemplates a location they have to plan around all the departments they “lease out” (cosmetics, etc.) and their contracts with designer labels (who require certain standards in exchange for the right to sell their products)–there is little left to make any effort to manage. And as for the grocers, what a joke! They have never used category management for anything but a means of squeezing money out of suppliers. Don’t believe me? Go into any grocery and see how much shelf space is allocated to PL. Now dig around on those PL shelves and see how… Read more »
James Tenser
11 years 1 month ago
Category Management methods are widely used in data-rich retail categories characterized by wide assortments, display space pressure, multiple brands, frequent re-purchase, and high turns. Shavers and oral cleaning appliances are a category with more focused assortments, higher price points, less-frequent re-purchase and (I infer) much slower turns compared with most typical consumables. So it’s not too surprising to me that “classic” Category Management techniques have not caught on without modification in the personal care appliance category. Faced with this challenge, Philips NA chose a logical path. In part to compensate for the relative “data poverty” of the category, it took the question direct to the shopper and applied the resultant insights to advise key retail partners Kohl’s and Best Buy. Philips has fulfilled its role as a category adviser to these two key retail partners, and sales in the power shave/oral category have been favorably affected by relocating and re-merchandising it. It’s up to each retailer to consider whether this “breakthrough” technique creates greater overall value (whatever ROI metric they choose) compared with programs in… Read more »
Ken Dailey
Ken Dailey
11 years 1 month ago

Sounds like category management or basic business planning to me. Looking at the category roles and consumer decision tree or whatever you wish to call that type of information is a key as well as illustrating the market opportunity. I would look at retailers who have failed to better answer the question of why category business planning is slow to be accepted. A similar change of merchandising happened with light bulbs in the DIY channel–years ago–it’s good to note that initiative and common sense merchandising works.

W. Frank Dell II, CMC
11 years 1 month ago
Let’s start by setting the facts straight. The retail food industry has been playing with Category Management for years. Few, if any, have honestly created and applied the concept fully. In my travels I hear more and more food retailers backing off Category Management, except in name. It has not achieved–for many reasons–what was promised. Non-food retailers operate with the merchant concept. The merchant is responsible for one or more categories. They use the Open-To-Buy management tool. The merchant is accountable for sales, inventory and net gross margin. Accountability is clearly defined in the merchant approach. Some non-food retailing has limited basic product lines, meaning items available for sale year around. The balance is seasonal. The merchant must read the tea leaves and make one buy for the season. This approach is more advanced than the food industry old buyer and has clearer controls than most category management organization. The greatest difference between these two approaches is the availability of syndicated data.

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