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The Rationale of Rationalization

The grocery industry often uses the term


November 12, 2008
By Michelle Brisebois

Topics

The grocery industry often uses
the term “category management” to reference the process of looking at
their entire product portfolio in groups of products that make sense
from a consumer’s point of view.

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Cola and root beer serve the same role to a thirsty consumer.

The grocery industry often uses the term “category management” to reference the process of looking at their entire product portfolio in groups of products that make sense from a consumer’s point of view.

They might bundle together all of the snack products or carbonated beverages to look at a group of products that target a similar consumer need. Let’s face it, the cola and the root beer may have different taste profiles but they serve the same role to that thirsty consumer.

It’s a great way to ensure that your product offering is targeting all of the defensive positions. If this was a hockey team, you wouldn’t want five defencemen and not any forwards or goalies – right?

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Category management also seeks to involve key suppliers in the process to assist in providing products and services that fill any holes identified in the analysis. It’s a great sanity check and with a clearly defined process, it’s easy to do effectively by following these five steps.

1. Reviewing the category:

Identify product groups. Appetizers, entrées, desserts and children’s menus are all appropriate parent groups to examine.

Take each product or menu item and write it on an index card. Take a blank wall and group the products under their parent groups – this will allow you to see the whole picture … literally.

Take a look at your competitors and see what their product mix looks like compared to yours. Ask your suppliers what’s going on with their market in terms of trends. Are there new and exciting products in development that you can be first in line to launch?

You’ll see quickly where there are gaps in your product offering or conversely where there are too many products within a specific category.
It would also help to look at your locations and their individual product mixes. Is one machine more profitable than a similar machine in another location that caters to similar demographic groups? It may be a case of product mix and your success with one location can inform your strategy in the similar but less profitable location.

2. Targeting consumers:

Now that you see the products in terms of their categories – what target market do they address?

That six ounce cinnamon roll isn’t likely targeting young children or women who attend a nearby fitness class. It may be perfect, however, for hockey dads early in the morning at an arena or an area frequented by teenaged boys.

What needs do the products address? Take the same white cards and write down consumer needs that you are aware of. Those hockey dads will likely appreciate a good quality, strong cup of coffee for those pre-dawn practices. 

3. Planning the merchandising:

Once you’ve identified the products that fill your opportunity gaps and you’re sure they target the right customers, you’ll complete the planning phase by determining how they’re to be merchandised.

It may seem like a moot point in vending, but perhaps not. Can you bundle things together within the machine? Is there signage or other POP (point of purchase) materials that can help convert shoppers into buyers?
Products work best when they work with each other to solve a consumer problem.

4. Implementing strategy:

Work with your business partners to show them your rationale for change.

It will no doubt impress them that you’ve given thought to ensuring each location is working as hard as possible to be effective and profitable. You may wish to pilot your new product mix in one or two locations prior to rolling it out across the system.

Ask business partners for feedback regarding how well the changes are addressing consumer needs. Use the feedback to tweak your product mix and merchandising but only after giving it at least a few months to settle in.  Sometimes any change, even a welcome one, takes time to embrace.

5. Evaluating results:

Once you’ve lived with the new product mix for a while, look at the sales versus the same period during the previous year.

The evaluation should include gross sales, profit margins (by location, by product parent group and by product category). This analysis should provide more data to allow your business to respond better to customers as well as enable more focused financial accountability for individual categories.

When products fit together naturally, it’s easier to get consumers to make that second or third “add on” purchase.

Each product in your line up requires attention. They need your time for purchasing, forecasting, pricing, replenishing and promoting. The more products you have, the more your time will be divided amongst them.

Until we find a way to add more hours to the day – you’ll need to continue to focus effectively. Make sure each product is working as hard for you as your best team members do and ensure that their roles are clearly defined.

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