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Merchandising and Category Management

What Goes on the Shelf and Why

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Labels: [Sourced] checked against a source listed at the end. [General] standard industry knowledge. [Our view] opinion, labelled as such. [Illustrative] made-up numbers to teach an idea.

1. The story: the day brands became categories

By the late 1980s, big consumer-goods makers were changing how they organised brands. One account of Procter & Gamble's late-1980s reorganisation, as summarised by an encyclopedia of company histories, says category managers took responsibility for several brands and so became sensitive to the profits of the company's other products in their area. [Sourced: Reference for Business, summarising Business Week; secondary] Academic work dates the broader idea of category management to the 1980s, as an alternative to traditional supermarket buying, widely adopted in food by the early 1990s. [Sourced: academic abstract via Exa] Western Michigan University's food marketing program says Dr. Brian Harris pioneered category management in the late 1980s. [Sourced: Western Michigan University food marketing program] Trade press tracked the spread. In October 1995, Supermarket News reported Wegmans was running continuous replenishment programs (Module 9A) with 50 manufacturers at 90 shipping points, covering more than 70% of its grocery inventory, and in September 1999 it reported Wegmans as the winner of the first "Category Masters of the Year" awards. [Sourced: Supermarket News, Oct 16 1995 and Sept 13 1999] The shift: stop asking "how do we sell more of our brand?" and ask "how does the whole aisle make the shopper happy and the store money?" [Our view]

2. The one idea

Treat each category (water, shampoo, cereal) as its own mini-business with goals, a shelf allocation and a role. [General]

3. The kitchen-table version

Your fridge door. Space is limited. Milk gets prime space; the olive oil goes to the back. Every item must earn its spot.

4. The category management loop [General]

  1. Define the category (what shoppers see as substitutes).
  2. Assign a role: destination (draws traffic), routine, seasonal, convenience.
  3. Assess sales, margin, turns, share.
  4. Set strategy and tactics: assortment, price, promotion, space.
  5. Plan the shelf (planogram), execute, review. Supermarket trade press in the 1990s linked category management to Efficient Consumer Response, marrying the demand side to the supply side. [Sourced: Supermarket News]

5. Assortment: breadth, depth, and the tail

Breadth is how many categories; depth is how many items in a category. A larger assortment can win shoppers but adds inventory, complexity and markdown risk (Modules 9, 6). [General] Costco's limited selection is the opposite bet (Module 7B). [Our view]

6. Space matters, but less than you think

A meta-analysis of 1,268 estimates found the average shelf-space elasticity was 0.17, lower for commodities and staples and higher for impulse buys. [Sourced: Journal of Retailing meta-analysis, abstract] Worked example [Illustrative, computed by script]. Elasticity 0.17 means a 20% increase in shelf space lifts sales by about (1.20 to the power 0.17) minus 1 = 3.1%. Doubling space for water does not double water sales. Impulse items respond more, so give extra space there. [Our view]

7. Where AI fits

  • Localized assortments per store cluster. [General]
  • Image recognition and shelf audits. [General]
  • Generating planograms and testing them in simulation. [General]
  • Forward thread: assortments for shoppers that are agents, ranked on data, price and reliability, not shelf position (Module 21). [Our view]

8. Exercise

List 10 items you buy in one category. Which are "routine"? Which would you drop if the shelf had half the space?

9. Quiz

  1. What is a category's "role"? Its job for the store: traffic, routine, seasonal, convenience.
  2. Average shelf-space elasticity? About 0.17.
  3. What changed with category management? Focus moved from brands to whole categories.

Sources

CURIOUS? TEST THE CLUES

Curiosity check

Pick an answer and see why. No scores, no pressure. All shop examples are invented practice scenarios.

01 What is a category's role?
02 What changed with category management?