Background
Omnichannel category management is an evolution in category management thinking. The fundamentals remain the same, but the thinking has changed because shopper demands have changed. The change in shopper demands is also driving change in how manufacturers and supermarkets best serve shoppers. The updated model places more emphasis on digital as digital influences buying decisions more now plus shoppers are buying more online.
A potential definition for omnichannel category management could be:
Manufacturers and supermarkets work collaboratively in long-term mutually beneficially relationships towards the common goal of creating an enjoyable, personalised overall shopping experience for shoppers.
Category Management Fundamentals
As outlined in my book (Category Management 2020) category management thinking has 2 fundamental building blocks. Firstly, that ‘the shopper is king’. Secondly, that manufacturers and supermarkets must work collaboratively in long-term mutually beneficial relationships to meet shopper demands. I would strongly suggest that omnichannel category management relies heavily on those 2 fundamental building blocks.
Over time shoppers have increased power in the supermarket industry. Recently, due to the internet, their level of power has increased further. Jim Blasingame, in his book The Age of the Customer, describes this change as customers now control the relationship with sellers and they also control the product information. Simply put changes in technology have increased the power of modern shoppers and consumers and will continue to do so in the future.
“Digital media and the ubiquity of digital data are transforming how consumers learn about brands.”
Technology is also creating a new manufacturer / supermarket relationship (others will say disruption). Marketplaces, such as Amazon, have created a different manufacturer / supermarket relationship that has limited interaction. These marketplaces empower manufacturers to manage their own ‘store’ and deal directly with shoppers. So, the manufacturer has greater control over decisions such as ranging / pricing etc. The supermarket provides an online store (platform) that enables shoppers to interact with manufacturers directly. The supermarket can also provide services such as logistics. For example, FBA – fulfilment by Amazon. This change in relationship dynamics should be included in omnichannel category management thinking.
Traditional factors such as trust are still important in modern manufacturer / supermarket relationships. As outlined by Corsten and Kumar (Do Suppliers Benefit from Collaborative Relationships with Large Retailers? An Empirical Investigation of Efficient Consumer Response Adoption Daniel Corsten & Nirmalya Kumar. Journal of Marketing 69 (July 2005), 80–94) trust is important to create mutually beneficial relationships between manufacturers and supermarkets.
‘Old’ Category Management Criticism
A criticism of previous category management thinking (and processes) was a ‘too narrow focus’. Over many years practitioners have suggested updated thinking / models to address this concern. For example, the report ‘From Category Management to Shopper-Centric Retailing’, by Winston Weber & Associates and Deloitte Consulting, stated ‘category management has too many limitations to produce the desired results’ (Progressive Grocer 2017). Simply put they suggest changing the emphasis from focusing on a group of products (category) to focusing on the overall experience the shopper has. Similarly, GMA-Deloitte (Delivering the Promise of Shopper Marketing: Mastering Execution for Competitive Advantage, 2008 ) stated ‘the goal of shopper marketing is a better shopper experience, which in turn leads to sales growth and heightened loyalty to the brand and the store.’ With shopper marketing the category management focus moves from looking at national / top level data to focus on groups of shoppers and their demands.
Omnichannel category management hopes to address the concern of category management having a ‘too narrow focus’ by increasing the focus on shoppers and the overall shopping experience. As outlined previously, modern supermarket shoppers have increasing power, so this is a logical step in the evolution of category management thinking. The major change in thinking is that omnichannel category management focuses on delivering a personalised offer to shoppers rather than a general offer for a target market / group of shoppers.
Omnichannel Category Management – what is new?
As already outlined the fundamentals of category management remain in omnichannel category management thinking. So, what is new?
Increasing online sales
“Consumers’ trust in online grocery shopping has taken time to develop. Australian consumers have demonstrated a desire to check the quality of food items before a purchase, particularly for fresh produce. Consumers typically only shop online for low-value and bulky groceries.”
Tom Youl, IBIS World Senior Industry Analyst
Online grocery latest ‘battleground’ for supermarkets, Retail World, 2019
Partly due to COVID major supermarkets, such as Coles and Woolworths, are enjoying increasing online sales. For example, Woolworths Group latest sales results (FY22 Q1) highlight eCommerce sales grew 53.5% to $1,879M. Online sales (Woolies X) were 11.4% of total supermarket sales.
Due to increasing online sales category management thinking has evolved to be omnichannel i.e. in-store and online. For example, in addition to choosing the correct range for different store formats, e.g. convenience vs supermarket vs hypermarket, manufacturers and supermarkets are now developing online only ranges too. Also, manufacturers and supermarkets may have different pricing / promotional programs online vs in-store. Logically, in-store tactics like off location / gondola end are hard to replicate online so different activations are developed for online vs in-store.
What is also of growing importance is the influence of digital. Historically category management may have had ‘too narrow a focus’. The historic focus was decisions buyers made such as range / distribution, price / promotion, planogram etc. Today the focus is broader and includes greater understanding of shopping behaviours (in-store and out of store). These insights are then used to develop new ways to serve shoppers such as marketplaces.
Interestingly, technology is now viewed as an enabler to better understand and serve shoppers. Historically, some questioned the viability of digital. For example, do apps actually increase sales? Today manufacturers and supermarkets realise shoppers use digital tools, e.g. apps, whilst shopping so their digital tools are important to their overall offer.
Personalisation
“Retailers and manufacturers need to have a 360-degree of consumers’ digital and physical buying habits, which enables them to deliver personalisation,”
Alistair Leathwood, Chief Commercial Officer, Asia Pacific, IRI
Staying One Step Ahead, Retail Outlook for 2019 and Beyond, IRI
For the supermarket industry personalisation is when manufacturers and supermarkets tailor the shopping experience, including the products offered, to the shoppers’ individual requirements.
This change in shopper demands requires manufacturers and supermarkets to change how they assess products. Historically, category management focused on optimising ranges by focusing on ranking reports, UPSPW etc. This could lead to a situation where shoppers would not receive a personalised offer. As explained in my blog, RIP Range Rationalisation , major supermarkets such as Woolworths are already up-ranging to offer shoppers a personalised experience.
Up-ranging is only aspect of meeting shopper demands for personalisation. IGD research suggests that the retail store of the future will be:
‘a shopper’s personal micro store offering individualised and online-exclusive products, personalised promotions, recommendations, advertising and loyalty schemes.’
IGD, Three key global markets to see – 212% combined online growth over the next five years, 2018
To meet shopper demands for personalisation needs a change in category management thinking. Rather than focusing on a group of products or target market, group of shoppers etc the thinking has to evolve to understand an individuals’ personal preferences. It is then the role of the manufacturer and supermarket to meet those personal preferences. Rashid and Matilla describe the change in thinking as:
‘It means that mass marketing is replaced by mass customization’.
Rashid and Matilla
(Study on the scope and opportunities of category management for aligning the supplier-retailer business strategy, S Rashid, H Matilla, South Asian Journal of Management, 2011)
Manufacturer / Supermarket Power
My blog, Who has the power? , highlights the increasing power of modern shoppers requires manufacturers and supermarkets to embrace change and develop new ways of doing business to meet the ever-changing demands of shoppers. It is shopper demands driving this change, not other businesses such as Amazon.
An obvious example of this change is supermarkets launching marketplaces. For example, recently Woolworths launched their marketplace , called Everyday Market. These marketplaces aim to meet shopper demands for a personalised online experience. To achieve this, supermarkets have empowered manufacturers to have their own online store and deal direct with shoppers (similar concept to Amazon). In this case manufacturers, based on shopper insights, are determining the range / price etc. This allows the supermarket to focus on creating a platform to deliver an enjoyable shopping experience. Importantly, for omnichannel category management thinking, is manufacturers and supermarket changing the business model to meet shopper demands for an omnichannel offer. Marketplaces do not replace in-store sales but rather create an opportunity for manufacturers and supermarkets to up-range and meet shopper demands for a personalised offer.
Overall Shopping experience
“the future of retail lies in a single word: experience”
Source: Jarrett McCraw, Forbes
How to beat the disruption of distribution in retail, written by Jarret McCraw Partner & CEO at Mighty, Forbes, 2018
IMHO (in my humble opinion) the major change with omnichannel category management is a realisation that the category (product, price, promotion etc) is only part of the overall shopping experience. Category management thinking has evolved from ‘how do I maximise sales from this group of products’ to ‘how do I better manage the long-term personalised relationships with shoppers?’
The other changes listed previously (increasing online sales, shopper demand for personalisation, change in manufacturer / supermarket relationship dynamics) are all been driven by shopper demands. The ultimate goal for manufacturers and supermarkets is to develop an offer that meets all these shopper demands. This offer will then create the outcome of shoppers having an enjoyable ‘overall shopping experience’.
Some practitioners will suggest to achieve this outcome will require a top down approach. For example, what categories (fresh, grocery, GM etc) should a supermarket include in their marketplace offer? Others will suggest a bottom-up approach. For example, if shoppers want fresh hot food delivered in 30 minutes how do we make this happen?
Personally, I would suggest to achieve this outcome requires a change in thinking. Practitioners need to stop the traditional ‘too narrow focus’ category management thinking of grouping similar products to define a category, then determine the role of the category etc. They need to broaden their thinking to think how can manufacturers and supermarkets better serve shoppers? A simple example is that QSR, e.g. Domino’s, can deliver hot food, cold drinks etc in approx. 30 mins. Why can’t major supermarkets offer a similar service?
Summation
Disruption is the new normal in supermarkets. To meet the ever-changing demands of shoppers requires manufacturers and supermarkets to embrace change. In this instance category management thinking has evolved to focus on creating an enjoyable, personalised overall shopping experience for shoppers. To achieve this outcome practitioners need to adopt a omnichannel category management mindset that ensures the in-store and online offer is crafted to meet the personal preferences of shoppers.
The information provided in this blog post was general in nature. If you require more information I offer a free initial consultation by completing a contact us form.
