The rise and fall of Category Management
For the last 30 years, category management has been a key strategy within the sales and marketing functions of consumer goods industry. If we look back at the history of category management, we can understand how it came about and most importantly what its relevance is today.
What is category management
The concept of category management was first formalized by Dr Brian Harris in the late 1980s. Category management is a business strategy whereby manufacturers work with retailers to develop joint plans to optimize the sales of the total category. The motivation for a manufacturer to engage in this process is that by in growing the entire category they grow their share of the business alongside. For a retailer, the motivation is to ensure the total profitability of their business in a certain category grows. This collaboration makes sense.
Before category management
At the time when collaboration between manufacturers and retailers was not in place as a business strategy, retailers and manufacturers enjoyed a decade of increasingly fractious relationships. Initially manufacturers had been in charge. It was easy for them to develop a brand and to secure distribution for that brand across a network of small independent retailers.
However, as retailers consolidated and gathered more and more power, they harnessed more control over the supply chain. Manufacturers very often found themselves at the losing end of fractious negotiations. In 1989 Dr Brian Harris created a working framework for manufacturers and retailers to work through these issues and to come up with strategies that were going to be mutually favorable.
What did category management change?
In the first years of category management there was a great deal of enthusiasm for this methodology mainly because it made so much sense for manufacturers and retailers to work together towards clear common objectives. This collaboration led to an explosion of technology that affected the way in which manufacturers and retailers collaborated. This is the time when, for example, the first technology for managing shelves, promotions and reviewing and evaluating performance in retail emerged.
There was also an explosion in research into shopper behavior which allowed for the category management to be fueled by real and relevant shopper insights. For many years, category management had a positive impact on the relationship between retailers and manufacturers.
Category management’s relevance today
Over the last 25 years in which category management has been practiced around the world, it is fair to say that retailers have started to use the methodology to secure stronger leverage over manufacturers. It is increasingly common to find joint plans being agreed through a common working process and then for retailers to demand fees for their implementation or at least, for marketing support to assure plans are implemented. In some cases, this goes further. Retailers in certain parts of the world, demand that manufacturers pay to be “category captains”. As this practice and as the level of cynicism as grown, there has been significant less interest from manufacturers to engage with retailers in category management. As a result, increasingly category management is seen as a retailer focused practice rather than one in which manufacturers can truly gain leverage from.
Category management was an important innovation in its time and responded well to the environment in which the market found itself at the end of the 1980s. However, over time, it has become harder and harder to gain real competitive advantage particularly for manufacturers. Today, many people see category management as being far less relevant as a business practice even though they often feel they have to be engage within it.
This blog found in Course 01: The History of Manufacturing.
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