What to consider when implementing a customer centric category management strategy

Joe Harriman - Solutions Design & Implementation Director, Intelligent Shopper Solutions

Customer centricity means putting the customer first, understanding and adapting to their needs and wants. Customer centric category management (CCCM) is embedding this philosophy into a retailer’s category management process.

Over the past year, customer purchasing behaviours have changed at unprecedented pace. They’ll continue to significantly change over the next few years, as we enter an uncharted post-pandemic retail landscape. No retailer knows what the future holds, but those who can respond efficiently and effectively – thanks to a CCCM strategy – will be best placed for success.

Retailers approach category management using different levels of centralised and decentralised decision-making. The difference in approach plays a crucial role in how retailers should implement a CCCM strategy. In this article, we share our experience in navigating different business structures to support successful implementation.

How do category management approaches vary?

In the UK, the big grocers mostly take a centralised approach. This lets them benefit from economies of scale and range planning, so they can react quickly to price and promotional drivers from competitors. It then becomes the stores’ responsibility to put decisions into action.

Compare this to Japan, where retailers take a far more decentralised approach to cater for hyper-localised tastes and locally sourced brands. In Japanese category management, the decision-making power (including product sourcing) is spread across head office, area managers and store managers.

Of course, this isn’t to say UK grocers don’t have to consider local tastes (see Irn Bru sales in Scotland!). Or that large Japanese retailers don’t benefit from economies of scale. Or even that retailers can’t sit somewhere in the middle of the two structures, rather than at the extremes.

Further discussion could be had on the differences between the two approaches. The point of note with regards to implementing CCCM, is the category management decision-making process is different depending on the retailer structure.

More decentralised retailers tend to have additional layers of decision-makers (see illustrative example below). This means more areas of the business need to align with – and fully understand – the benefits of moving to a customer-centric approach, to ensure the desired changes are implemented, adopted and delivered.

Implementing customer centric category management – conditions for success

Over the past 10+ years, as we’ve been helping retailers across 15 countries implement CCCM, we’ve found four pillars of success. At a high level, they apply to both centralised and decentralised retailers, but nuances in delivery and focus within each pillar can make the difference between CCCM implementation succeeding or not.

Below, we give a brief summary of why these four pillars matter and how their delivery should alter to suit retailer structure.

1. Leadership

It all starts at the top. The leadership team must understand and endorse the strategic direction to foster a customer-focused culture the whole organisation can embrace. (Take a look at ICA’s Group Strategy.) This change of culture from product first to customer first keeps the customer at the heart of all decisions, top to bottom.

In particular, key leaders accountable for the retailer’s category management process (Business Unit Director, Head of Merchandising, etc.) need to support the customer-focused strategy and be part of governance processes incorporating it into the business.

For decentralised retailers, regional leadership also needs to endorse the new strategy and set up regional/local governance processes to deliver it efficiently. At one decentralised retailer we supported, the regional merchandising management teams only signed off category-level plans/visions if the business plan included specific (data-backed) considerations showing the decision was right for the customer.

2. Data and analysis

Whether or not a retailer is centralised, its data management should be – in order to capture, manage and optimise the use of key sources and create a comprehensive view of the customer. At decentralised retailers this centralised data needs to be universally accessible by regional and local category management teams.

The uptake of customer data analytics has benefited both retail structures over the past couple of decades. At a category level, it lets centralised retailers see idiosyncrasies across their estate and customer base, while still focusing on estate-wide brand and strategic alignment. For decentralised retailers, it gives regional teams a template they can use with customer data and industry best practices to shape in-store decisions – and rationalise those decisions for head office if necessary!

For decentralised retailers, it is important to note that a data-led customer-centric category approach doesn’t replace the valuable regional expertise and processes their decision makers rely on. Rather, it’s there to support them with easily understandable customer data insights that benefit both business and customers.

3. Tools, processes and integration

To ensure CCCM works efficiently at an operational level, retailers need the right tools and processes in place to integrate customer data and analytics. Often, category managers’ job remits lack scope for them to develop expertise in analytics, so they need easily digestible insights to support decision making.

New processes should include regular value measurement and consistent tracking of customer KPIs. Showcasing the tangible benefits of a customer centric approach encourages further adoption across the business.

Each retailer has different category management processes, influenced by how centralised/decentralised that retailer is. To integrate customer centricity, an important early step is a broad review of current processes. From there, work-shopping with category management decision makers and ‘customer champions’ in/outside the retailer can reshape category management to be more customer centric.

4. People and training

Educating those involved in the category management process on the benefits and value of customer data is an important early step. This gets easier as you build value measurement examples, as mentioned above. Next comes training. They need to know how to use internal tools and processes to make the most of these benefits. (See our article on helping teams integrate customer insights).

Centralised retailers may have category analysts or customer insight teams at head office, working closely with merchandising teams to set up CCCM. Regional teams are less likely to have such support. They may need extra time and support for training to help them access and apply insights to inform local category management decisions.

Change takes commitment but makes retailers much more effective

As with all changes, there may be internal resistance and obstacles to overcome. These differ depending on a retailer’s structure and culture. However, by following these four pillars, we’ve helped retailers from both ends of the centralised/decentralised spectrum implement a successful CCCM approach.

As I said, no-one knows what a post-pandemic world means for retail. What we do know is that retailers who adopt a customer centric category management process will be able to understand, respond and adapt to customers’ future needs more efficiently and effectively.

Like to find out more?

If you’d like to discuss customer centric category management implementation, please contact us. please contact us here.