While retailers and manufacturers rate the practice of category management as 'critically important', both seem to be slowing their use of traditional tactics such as EDLP, loyalty, shelf management, and micro-marketing, according to a study by ACNielsen US. So what's the new tactic that replaces them?
According to ACNielsen's '14th Annual Trade Promotion Practices and Emerging Issues Study', the business of category management is in a period of transition. While manufacturers and retailers continue to rate it as "critically important" they are using the traditional tools of category management less often, year-on-year.
Business units
Category management is the core business practice which allows consumer packaged goods (CPG) retailers and manufacturers to manage individual product categories as separate business units. It's importance to both types of company remains high on their lists of priorities, as the survey data in Figure 1 shows:
| Manufacturers:
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Retailers:
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Source: ACNielsen - Trade Promotion Practices & Emerging Issues
Out with the old
But while category management is obviously still a key strategy, when asked which of several category management processes or tactics they used in 2004, both retailers and manufacturers reported decreased use of almost every one:
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Manufacturers | |
Retailers | |
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| Included in category management processes | 2002 | 2003 | 2004 | 2002 | 2003 | 2004 | |||
| Assortment planner | 85% | 91% | 90% | 73% | 96% | 86% | |||
| Promotional planning | 80% | 85% | 84% | 83% | 90% | 86% | |||
| Shelf management | 89% | 95% | 82% | 83% | 94% | 81% | |||
| Category business planning | 82% | 87% | 82% | 68% | 92% | 81% | |||
| Every Day Low Pricing | 80% | 74% | 76% | 60% | 82% | 67% | |||
| Frequent shopper / loyalty scheme | 48% | 51% | 41% | 45% | 51% | 43% | |||
| Micro-merchandising | 34% | 39% | 31% | 30% | 41% | 43% | |||
| Micro-marketing | 23% | 33% | 23% | 30% | 45% | 38% | |||
Source: ACNielsen - Trade Promotion Practices & Emerging Issues
In with the new
So if these traditional tools are being used less and less, what is replacing them? According to Rob Holland, ACNielsen's senior vice president of retail marketing, the study's results suggest that category management is in a time of major transition. "There's a lot of experimentation going on right now, with manufacturers and retailers searching for the most impactful yet cost-effective overall planning process and merchandising and marketing techniques".
Holland added: "One surprise was the fact that less than 85% of all companies surveyed rated 'understanding the consumer' as a critically important issue. We believe that category management needs to begin with a complete understanding of the consumers that CPG companies are trying to serve."
Partnerships working
Among the study's other findings, Holland pointed out that the gap between manufacturers' perceptions of the value they receive in return for their trade promotion spending, and retailer satisfaction with the amount of such funding they receive, continues to narrow.
More than one-third (35%) of manufacturers said they receive "excellent" or "good" value from their trade promotion expenditures (up from 31% in 2003). Likewise, 36% of retailers indicated that the share of manufacturer trade promotion dollars they receive is "sufficient" or "more than enough" (up from only 22% in 2003).
Holland believes that, although this represents a noteworthy improvement, a significant gap still exists, with manufacturers and retailers needing to better align their trade promotion efforts.
The study
The survey was conducted during March 2005 and was based on responses from executives at 42 retail organisations and 90 manufacturing companies. The 100-page report is available online for US$495.
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