category life cycle session 10

Category management

The key to buying is staying on top of things. If we have merchandise that isn’t selling, we

shall mark it down to get rid of it so we can get faster – selling merchandise

Category management

• Organizing the buying process by categories:– The category is the basic unit of analysis for

making merchandising decisions. in this section, we define the category , examine the process of category management , explain the role of a category captain , and describe where the category fits into the buying organization.

Category management

• The category ::it would be virtually impossible to keep the buying process straight without grouping items into categories. in general , a category is an assortment of items that the customer sees as reasonable substitutes for each other.

• Girls apparels, boys apparel and infants apparel are categories.

• Each of these categories has similar characteristics.

Category management• Category management is the process of managing a retail business

with the objective of maximizing the sales and profits of a category. this sounds simple.

• For instance in a grocery store chain there might be three buyers for breakfast cereal:kellogg’s,general mils and general foods. if all three buyers have merchandise on the same shelves, they will be , in essence, competing with one another.

• The category management approach to managing breakfast cereals would be to have one buyer or category manager who oversees every aspect of the merchandising function.

• An important reason for adopting category management is that one person, the category manager is ultimately responsible for the success or failure of a category.

• IT IS HARDER TO IDENTIFTY THE PROBLEM AND TO SOLVE IT W/O CATEGORY MANAGEMENT.

CATEGORY CAPTAIN• Some retailers turn to one favored vendor to help them

manage a particular category. known as category captain , this supplier forms an alliance with a retailer to help gain consumer insight , satisfy consumer needs and improve the performance and profit potential across the entire category

• Advantage category manager gets help from the category captain , as a category captain access to all market and store information, including costs and sales of its competitors.

• In return the captain works with the category manager/ buyer to make decisions about product placement on shelves, promotions and pricing for all of the brands in the category.

CATEGORY CAPTAIN

• Appointing a category captain can simplify a category manager’s job , but retailers should not turn over important decisions to their vendors.

• Category Life Cycles :• When developing a sales forecast, a retailer

must be able to predict how well product categories will sell over time. product categories typically follow a predictable sales pattern-sales start off low, increase , plateau and then ultimately decline.

• This section describes the most fundamental form of sales pattern , the category life cycle.

Category Life Cycles

• Using the category life cycle as a basis , we”ll examine some commonly found variations on it : fad , fashion, staple, and seasonal.

Figure 1.1

• Basic, Fashion, and Fad ProductsBasic, Fashion, and Fad Products fig .1.1 fig .1.1

Category life cycle • The category life cycle describes a merchandise

category’s sales pattern over time. The category life cycle is divided into four stages: introduction , growth , maturity and decline.

• Knowing where a category is in its life cycle is useful for predicting sales. however , the shape of the life cycle can be affected by the activities undertaken by retailers and vendors .for instance a vendor might set a low introductory price for a new product to increase the adoption rate of the product. Or set a high price to increase the adoption rate of the product., or set a high price to increase profits even though sales might not grow as fast.

Variations on the category life cycle

• Most categories follow the basic form of category life cycle : sales increase, peak and then decline.

• variations on the category life cycle – fad, fashion , staple and seasonal are shown in the figure 1.1


• The distinguishing characteristics between them are whether the category lasts for many seasons ,– Whether a specific style sells for many seasons and – whether sales vary dramatically from one season to the next.

– FAD– A fad is a merchandise category that generates a lot of sales for are

relatively short time – often less than a season .examples computer games, new electronic equipment etc.

– Fads are often illogical and unpredictable .the art of managing a fad comes in recognizing the fad in its earliest stages and immediately locking up distribution rights for the merchandise to stores nationwide before the competition does.

– Marketing fads is the riskiest ventres in retailing , as you need to identify the peak or else will be left with all the stock at your warehouse.


• FASHION : Unlike fad ,fashion is a category of merchandise that typically lasts several seasons , and sales can vary dramatically from one season to the next. A fashion is similar to a fad in that a specific style or SKU sells for one season or less.– A fashion’s life span depends on the type of

category and the target market.– Example carrot fit denims, double breasted suits

for men.


• Staple merchandise : also called basic merchandise, is in continuous demand over an extended period of time. most merchandise in grocery stores , hosiery , basic blue jeans are considered to be staple.


• Seasonal merchandise is inventory whose sales fluctuate dramatically according to the time of the year. both fashion and staple merchandise have seasonal influences

• In fashion example is woolen sweaters /pullovers

Sales forecasting and inventory management

• The forecasting and inventory management systems used for fads and fashion merchandise are very different from those used for staples. managing fashion merchandise can be tricky .since there is little or no history for specific SKU’s .buyers forecast sales by category rather than by item. therefore skill , experience and creativity enable the buyer to select quantities for specific SKU’s.

• On the other hand forecasting staple merchandise is fairly straightforward. since there’s a rich sales history

available.

Developing a sales forecast

• A simple way to develop a sales forecast for a merchandise category is to adjust the past sales to make projections into the future.

• this type of sales forecasting technique is done at the category, rather than SKU,level and is used primarily for fashion merchandise.

• Forecasting sales of staple merchandise is typically done at the SKU level.

Developing a sales forecast• Sources of information for category- level

forecasts:• Buyers utilize a variety of sources in making these

decisions. these are discussed below:– Previous sales volume: buyers see a sales pattern

over a period of time and judge the target sales for the next season.

– In case of staple /basic merchandise the sales and demand pattern is regular whereas in case of fashion merchandise, where styles change from year to year , sales figures older than two – three years are not useful.

Sources of information• Published sources:– adjustments to sales trends are based on economic

trends in the geographic area for which the forecast is developed.

– Unemployment rates ,interest rates ..etc.. All effect the buying power of the customers hence all of this is taken into account when sales forecast is set.

– Retailers and their vendors can buy data from private firms like infoscan(www.infores.com)infoscan buys information from individual supermarkets on price and promotion activity that has been scanned through their POS terminals and aggregates the data by region, chain or market area.

Sources of information

• Customer Information: knowing what customers want today is very useful in predicting what should be purchased in the future.

• Customers information can be obtained either by measuring customer reactions to merchandise through sales, by asking customers about the merchandise, or by observing them. obtaining market info. About the merchandise directly from the customer is probably the easiest yet most underused method.

• Some retailers maintain a WANT BOOK : it maintains out of stock or requested merchandise.


• Customer information can be collected through

• DEPTH INTERVIEW • FOCUS GROUP

Sources of information• DEPTH GROUP:The depth interview is an unstructured personal

interview in which the interviewer uses extensive probing to get individual respondants to talk in detail about a subject.– Example a grocery store chain goes through the personal checks

received each day and selects all customers with large purchases of groceries and with small purchases .representatives from the chain call these customers and interview them to find out what they like and don’t like about the store.

FOCUS GROUP: is a small group of respondents interviewed by a moderator using a loosely structured format. Participants are encouraged to express their view and to comment on the views of others in the group.

Example ::to kep abrest on the teen market, for instance,some stores have teen boards comprised of opinion leaders that meet to discuss merchandising and other store issues.


• Shop competition: buyers need to observe their competition. Shopping at local stores helps buyers gauge the immediate competitive situation.

• Vendors and resident buying office buyers must seek information from vendors and resident buying offices.

• RBO’s either are independent organizations or are directly associated with particular retailers that offer a number of services associated with the procurement of merchandise. vendors and resident buying offices are excellent sources of market information.

Store – level forecasting

• Forecasting method described so far is performed by buyers at more aggregate levels, like a region or a distribution centre servicing many stores and it is done at category level , and not by SKU level.

• The problem with such a sale forecasting ????

• Answer : the problem with such a forecasting at more aggregate levels is that store- level variability gets averaged or summed out of the data.

• for example happens when one store sells more single- serving -sized food products and a different store sells more family – sized products.combining results will show evenly distributed sales which is wrong.therefore store – level forecasting is important

To predict store level forecasting

• To predict store level forecasting systems need to be able to measure simultaneously the impact of many factors on unit sales. these include – Promotion– Price– Placement of merchandise– Substitution– Competition– Location– Others.

Factors impacting sales forecast

• Price : generally with few exceptions the raise in price causes unit sales to decrease and vise versa. this can be measured by determining the elasticity – the percentage change in unit sales resulting from given percentage change in price. Thus items that have a high elasticity are price – sensitive and which are with low elasticity are price in- sensitive.

Factors impacting sales forecast

• Promotion: the degree and type of promotion is critical in determining the unit sales of an item.

• Store location :there can be large variances in demand depending on store location.– Which city– If in the same city whether in inner city location or

sub- urban or rural location.Product placement : the amount of shelf space afforded

an item , as well as its location on the shelf ,can have a large impact on sales.

Factors impacting sales forecast• Seasonality: some categories ,most notably apparel, are highly seasonal in

nature, in the extreme case , all of the sales of a particular merchandise category will occur during a single season.

• Other factors: there are other factors that impact sales , usually to a lesser degree, but sometimes significantly :among these are – Product life cycle : whether demand is increasing , declining , growing

etc..– Product availability :the degree to which the merchandise is on the

shelves – Competitor price and promotional activity :these also affect a

retailer’s sales.– Business cycles: sales are higher at the beginning of the month due to

payroll cycles and on weekends than on weekdays.– Weather : late or early arrival of hot or cold weather can have a

significant impact on sales of seasonal items.– Cannibalization : decreasing the price of apple jacks would increase

sales , but perhaps to the detriment of the sales of Fruit Loops.

category life cycle session 10

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