Definitions and best practice models and processes

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1 Definitions and best practice models and processes 1

2 Category management = Category development Yes we know that it is a valuable opportunity The key challenges are clear It only works when you can go from project to process, Category management has to become the way you run your business. Category management is not brand management Category management involves many employees at several levels at your Company, requires a sufficient management and knowledge sharing structure Billions of data is involved You need true cooperation throughout the whole value chain It is only working when it is working at store level If it is not working for you, you are probably making it to academic 2

3 Overall category management objectives Category development Grow volume, Grow value, Grow loyalty Transform the strategic frames of the business plan to a category plan which could and should be implemented a round the moment of truth Use fact based decision process using sufficient tool s managing bill of complex data Continuously focus on best practice in store solutions recognizing different shopper behavior 3

4 Category Management process ECR Best practice Category Definition Category Role Category Assessment Category Review Category Objectives Category Marketing Strategies Category Tactics (initiatives) Implementation Plan 4

5 Clarify areas of alignment Manufacture Chain / POP

6 Category Definitions Category Segment Subcategory Subsegment? The structure of the category must reflect the process the consumer goes through before purchasing a product: The Purchasing Decision Hierarchy

7 Category definition The RTEC Category structure Total RTEC Trad. RTEC Muesli K-Snacks Kids Family Adult Trad. Muesli Granola muesli Kids Low calories Muesli Fibre Taste Chocolate Cornflakes Fibre Base Base Oat / Base Sugar/honey Fibre Other Flavour Flavour Coarse Fibre Other Fibre Fibre Other The category structure reflects the consumer/shopper decision making and is measurable and manageable

8 Both trading partners have to understand the possible roles and how they fit to the retailer s corporate strategy - The 4 Category Roles - Destination A destination category is a category with which the retailer wants to profile himself towards his target consumers and differentiate himself from his competitors. Convenience A convenience category completes the retailer's assortment and guarantees a one-stop-shopping experience. Routine A routine category characterises the retailer as a provider of consistent competitive value for the consumer's every-day needs. Seasonal A seasonal category is a category with which the retailer differentiates himself during a certain period of the year.

9 Category assessment Identifying business issues and opportunities 9

10 Contribution formula Number of Visitors Number of Shoppers Average Contribution x sales x ratio = Contribution are we to create customer flow / attendances? Attract the wanted customer profile More customers in the store or perhaps more loyal customers Ensure that the visiting customers buy customer hit-rate are we to ensure a more effective use of the customer flow? by increasing the average sale per attendance (sell more or sell out) by getting a better earning on the sold units by increasing the sale on the goods with the best earnings 10

11 Focus on The Earnings of the Category / Store defining the issues and opportunities The turnover Number of attendances Average sales Contribution ratio x x = Contribution Increase number of attendances in the store Sell more to the customers in the store Sell better More custom-ers in store / Increase customers hit-rate More loyal customers / more often The right customers Have more customers in store buy in the department Buyers buy more + extra/ more expensive More loyal to category Sell goods of high profit margin 11

12 What is the issues? Turnover Contribution / purchase Number of customers in store Avarge Contribution x purchase x margin = Contribution Increase profit Need more to Buy category Need to buy More of category How do we utilize the shopper flow to sell more and to increase our profit Buy improving our coverage of consumer needs 12

13 Focused at partnership and cooperating around category development Banner/Chain X Situation today Situation year 1 Situation year 2 Situation year 3 Business as usual Preffered partner adding volume Preffered partner adding value Increased customer loyalty % Turnover Profit % Turnover Profit % Turnover Profit % Turnover Profit Total category turnover Preffered partner share Competitor Competitor Private label

14 Objectives Volume, Value and or Loyalty Future potential Today's Solutions = Sales & Profit 14

15 KPI s and Assessments Sales effectiveness Turnover / 1000 customer in the chain/store Profit effectiveness Turnover / 1000 customer in the chain/store Loyalty Loyalty to the chain / store Number of potential customers who decide to buy in this chain / store Loyalty towards the supplier Supplier category share of total category sales in the chain / store Category importance Category share of total chain / store turnover Category share of total chain / store profit Supplier importance Supplier share of total chain / store turnover Supplier share and total chain / store profit 15

16 Category marketing strategies The six most applied marketing strategies Marketing Strategies Purpose Traffic building This strategy aims at getting more consumers to the store and to the category Transaction building This strategy aims at increasing the Consumer s average spend in the category Profit generating Share protecting This strategy aims at increasing category % margin, cash margin and cash flows - Upstream/downstream supply chain cost impact The retailer adopts the strategy of defending market share and sales from key competitors and wishes to be unbeatable in this category Excitement creating This strategy aims at meeting the consumers' needs by offering fashionable and innovative Products or Promotions Image enhancing This strategy aims at creating a desired image towards the category consumer

17 Ex: Best practice tactogram Developing the engine Targets Strategies The supplier and the 4 P s Assortment Price Distribution Merchandizing Space and positioning Promotions Increased turnover Build customer flow Multi sales and complementary sales Focus on top 10 of the category Develop a wide and deep assortment covering all sorts of demands of the category Increased earnings Profit maximization Focus on items with high contribution per unit. Delist marginal issues and articles with low contribution per unit Increased loyalty Image build-up Maximize assortment focus on all what is in the category Events Maintain loyal customers Focus on new products from the whole world Develop a wide and deep assortment covering all sorts of demands of the category Shelf prices on market level or lower Shelf prices on market level of top 20 products. Relatively high prices of marginal and niche products Optimize sales prices Shelf prices on market level of top 20 products. Relatively high prices of marginal and niche products Optimize sales prices Shelf prices of top 20 under the market price Minimize space share and use C positions Optimize shelf position A positions for marginal products. Disproportional space for high-marginal products. A-position on the floor for high-marginal products No display of products with low contribution Optimize space based on the market position of the individual products. Extra space for new products on A positions Optimize space based on the market position of the individual products. Extra space for new products on A positions Optimize space focus on the best positions for top 20 products Sharp price promotions Currently advertised Promotions on marginal and niche products Theme advertising Focus on great activities No price promotions only theme and idea promotions on high marginal products Use a wide palette of promotions Advertise currently and where possible Develop activities and events about new launches Pay day promotions focusing on stock loading 17

18 Promotion and communication Category RTEC/K- Snacks Date: Segment Objectives Type of promotion All Family Drive frequency of purchase in HH with kids from avg 2,5 to 2,8 times per year by end of q FMIO (free mailing in offers) communicated in-store. Cross promotions with fruit manufacturer Split of investments Suppliers pay POSM 50/50 split of price reduction Promotion material/ In-store communication FMIO Cross category benefits Placement of promotion End gondola End gondola+fruit department Pricing Soft price reduction Amount of promotions 4 per year Commen K-snacks Build penetration to 10 % by the end of Q In-store promotion focusing on communication Supplier pay for POS material Brand communication. Demos. Traffic spots Close to shelf Normal 5 per year 18

19 19

20 Category management implementation 20

21 From projects to process Category Definition Category Role On going analyses Dynamic planning Execution Category Assessment Potential Objectives Headquarter Category Review Category Objectives Category Marketing Strategies Issues Reasons Action plan Cockpit Store / POP Review Category Tactics (initiatives) Implementation Plan 21

22 Let s wrap up Category Management is not only about selling more but selling better! Better bang for our bucks in terms of Promotions Innovation Range Presence of the range (OOS) Our fuel for growth is not limitless: it is all about investments! We need to stop carpet bombing and go for surgical strikes BUT HOW AND WHERE??? 22

23 Back to Amsterdam 1997 When it was for the first time pointed out that ECR would yield more results on the demand side! The theory was the ready and at hand But was the technique mature enough? Were mentalities ready? 2009 Barcelona The technique is now available Can we change the mentalities? 23

24 Barcelona 2009: see the crisis as an opportunity Step changes where often the result of necessity Can we keep spending on promotions as we do? Can we innovate our way out of stagnating markets? Can we accept not to sell simply because of OOS Just as climate change must push us into more sustainable economic models... The crisis in FMCG must push us towards sustainable sales S.W.A.T. Sell (better) What s Available Today 24

25 The challenge of Category Management: move from still pictures to the movies We have all analysed our category sales: Promotional efficiency NPI relevance Range and OOS But are our models dynamic enough??? Why??? Lack of information Lack of collaborative partnership Lackof simplicity 25

26 The challenge of Category Management: move from still pictures to the movies A vision for the future: A regular and mastered information flow between retailer and supplier allowing a simple category monitoring on a weekly basis For once, let s be simple and focused! The right alarm signals at the right time allowing for timely action at the relevant level 26

27 The challenge of Category Management: again, change the mentalities The technique is no longer a problem Simple ways exist to provide the information required Share the information: Retailers and suppliers are more than ever in the same (rocking) boat. The future of FMCG will depend on how they share their perspectives and know-hows LET S COLLABORATE, NOW! 27

28 Collaboration and synergies 1

29 Assess and develop co-operation Category management Limited cooperation (low priority) Focused at Partnership Investment by anufacture (Human esources and Financial) Advanced Customer management Focused at Improvement Basic Customer management Focused at Discounts Limited cooperation (low priority) Traditional negotiations Key Supplier cooperation Category Management 2

30 From projects to process Category Definition Category Role On going analyses Dynamic planning Execution Category Assessment Potential Objectives Headquarter Category Review Category Objectives Category Marketing Strategies Issues Reasons Action plan Cockpit Store / POP Review Category Tactics (initiatives) Implementation Plan 3

31 Cockpit 4

32 Why bother? We see a relative large consumer potential which is nor being utilized optimally The collaboration around innovation is not really working 5

33 Why Bother? A lot of money spend on promotions and activities are not actually working. Utilization and work on many campagins have proven ineffective. We be spent much time in meetings that do not add value to either retailer or suppliers. We be spent much time on inappropriate and very little useful analysis. Analyze which tend to be more manipulative than clarifying. The resources and time being spent in stores is far from optimized. Work around annual negotiations is disproportionately time consuming for all parties, we see models elsewhere in the world is much more efficient for both parties. 6

34 Coop Arla Case in DK Coop We need to develop the way we coorperate with suppliers It is not fruitfull the way we work!! How should we approach it How should we prioirtize the suppliers 7

35 Creating a joint agreed growth plan Joint plan Analyses Planning Execution Common Platform Chain strategi Category role Potential Issues & opportunities Reasons 5 6 Objectives Action plan Cockpit Head quarter POP Review Seldom Very often Once Focusing on commitments and true results 8

36 Joint plan - The overall objective Creating better business result for both parties Create better understanding of common business issues and opportunities Joint development of growth strategies Joint development and implementation of a category development plan Ongoing monitoring and negotiation based on common understanding and best practice business respect 9

37 Joint Plan - Getting started Define common overall objectives Definition of the category - common acceptance of the category definitions Define the Coop's goals and objectives for the category with focus on sales and earnings performance. Define Arla's vision for the possibilities in the category Establish the first framework issues and opportunities where do we believe that there are "low hanging fruits" in relation to shops, assortments, promotions, pricing, place and space, etc. Define and agree to the the process 10

38 Joint plan Guidning principals Common focus to grow the category, based on improved consumer and shopper satisfaction, greater volume, greater turnover, higher profits. The efforts and the work will be beneficial for all parties. Both parties overall strategies and plans must be respected. Work in the greatest possible transparency and there should in principle not be any sacred cows. Common goals, objectives and decisions must be based on facts and data Parties must be committed to implement it has been agreed The parties must be willing to spend the resources necessary to fulfill the aims an objectives Status meetings 1 time per month All information and agreements between the parties shall be confidential to a third party All agreements and actions will naturally be handled within the law Management of both parties must be kept regularly informed and as needed 11

39 Analyses Outputs of the analysis A clear description of the strategic issues concerning the possibilities of cooperating on the development of the category / store Causal hypothesis" with a focus on key parameters - Products, Promotions, Price, Place & Space, People and Shops 12

40 Analyse What are the key category challenges in Coop What are the problems and what are the possibilities Where are the problems and where are the opportunities What causes the problems and possibilities 13

41 Defining Coop category potential The category potential Marketdevelopment Profit development Markeds udvikling FairShare Dækningsbidrag % Dækningsbidrag kr Dækningsbidrag pr kg/l Kanal (Disc) udvikling Kæde udvikling Segment split Performance Indeks Earnings at category level are not systematic. Earnings are naturally an essential part of customer dialogue, but is expressed in relation to the priorities of individual products and activities. Konkurrent udvikling Earnings at the account level are part of the insights the client controller itself must supplement guideline with as needed. Main conclusions 14

42 Where is the challange Category Issues What is the challange Where What Chain Store In store transactions Average sales Margin velopment sub categories Brand development Turnover and profit by store Frekvens Penetration Intensitet SKU development ey Suppliers development In depts decription of category challanges 15

43 Causes to the challenges and issues Causes Store level Chain level Execution Assortment Campagins Procing Place and space Kampagne distribution Sortimentsmatricen Normal vs Kamp. (ACN) Normal vs Kamp. (ACN) Hyldeandel Placering Out of Stock Rank og udvikling / SKU Norm vs Kamp. (CDW) Medieandele (Tilbudsdata) Gnsnit pris (CM Market) Køler andel / placering Lokale aktiviteter Antal kamp. (SalgInfo) PEI (CM Promotion) Understanding the Causes is half the solution 16

44 The true three year perspective Presenting the objectives and the set up how to make it work in real life 17

45 Prioritizing issues and opportunities B. Campaign allowance from sales in to sales out C. Support ecology as a collaborative strategy D. Optimizing campaigns E. Internal communication from HQ to store F. Tailor-made Coop sales cycles G. Increase focus on multi pricing H. NPD exclusivity I. Improve in store display plan J. Utilizing collaborative marketing efforts K. Becoming more offensive in growing the market together 18

46 Forventet indsatseffektivitet 10 9 D. Kampagneoptimering / analyse 8 F. Udarbejdelse af målrettede Coop salgsture Forventet værdi - øget salgsavance (1 lille 10 stort) I. Display løsninger E. Kommunikation til butik H. NPD - eneforhandling G. Optimering af multisalgsindsatser J. Synergi i markedsføring Arla+Coop A. Bedre kategoriperformance - via tracking K. Mere offensiv end defensiv 2 1 C. Støtte Arlas fokusering på økologi B. Afregning på salg ud i stedet for salg ind ,368 Forventet resourceforbrug (1 lille 10 stort) 19

47 Prioritizing Expected sales and profit growth 1: Optimizing campaign collaboration more than 500 campaigns pr year selling more than 60 % of the volume 2: Collaborative NPD with exclusivity in some areas the next three year 3: Tailor made sales cycles Segmenting stores into 4 segments Good performing large potential Poor performing large potential Good performing small potential Poor performing small potential 4: Setting a new improved assortment 20

48 Opnået Plan Værdi Andel Værdi Andel Værdi Andel Værdi Andel Værdi Andel Værdi Total Volumen % % % % % Indtjening Pr kg. 16,5 100% 18,9 100% 21,5 100% 22,4 100% 23,3 100% 24,2 Total indtjening % % % % % Improving bottom line profit by 4 mio Euro s pr year in 1 category 21

49 Accepterede KPI mål og målsætninger Category: Kæder Ost Total Coop, Kvickly, Superbrugsen, Dagligbrugsen KPI Enh Økonomiske KPIs Index YTD April YTD Index YTG/month Target Index Target Financial KPIs Total volumen Kg #VÆRDI! #VÆRDI! Salgsavance Pr kg. Kr. 18,4 20, , ,7 21, ,6 Total salgsavance Kr #VÆRDI! #VÆRDI! #VÆRDI! Arla volumen Kg #VÆRDI! Arla salgs avance Pr kg. 18,4 20, , ,6 21, ,1 Arla total salgsavance Kr #VÆRDI! Kunder 101 Salg pr 1000 kunde volume Kg 63,9 61, ,7 103 Salgsavance pr 1000 kunde Kr Arla Salg pr 1000 kunde volume Kg 30,1 29, ,4 99 Arla Salgsavance pr 1000 kunde Kr

50 Elements from the real action plan Optimizing campagins Hvordan gør vi Punkt A På baggrund af Rikkes/Arla s analyse af kampagner på pakkeost og skiveost i Kvickly, Super brugsen og Daglig Brugsen udarbejder Coop og Arla i fællesskab en håndbog med optimale kampagneanbefalinger Med udgangspunkt i anbefalingerne ønsker vi at sikre så mange best practice kampagner som muligt og så få worst case kampagner som muligt. Overblikket skal samtidig bruges til at fastlægge konkrete målsætninger for kampagne optimering Hvor mange dårlige skal luses ud og hvor mange flere best practice kampagner skal der køres for at vi kan nå målsætningerne Se tidligere kommentarer Hvem har ansvaret og hvornår gør vi det Punkt A Lars og Heidi har taget konklusionerne på pakke og skive ost til efterretning og de bliver indarbejdet i markedsføringen fremover Det er planen at der i løbet maj måned bliver udarbejdet analyser og optimale anbefalinger for de øvrige segmenter. Punkt B Etablere metode for løbende kampagneevaluering / optimering Rød/gul/grøn Hver 4 uge analyseres alle grønne og røde kampagner. Fremtidige aktiviteter justeres efter behov. Punkt B Jespers udarbejder og præsentere en ny løsning på hvordan det kan og bør gøres. Den løsning der blev 23

51 Elements from the real action plan NPD Hvordan gør vi Udvikling af lanceringer specifikt til Coop - udfra Coop's ønsker - understøttende projektets mål- og målsætninger. I forlængelse af sidste arbejdsmøde vurdere vi at fælles NPD vil få stor betydning for indfrielse af vores fælles målsætninger. Vi har derfor besluttet at fælles NPD fremadrettet skal have en højere prioritet i projektet. Udgangspunktet er hvordan vi kan få flere til at spise ost med udgangspunkt i den kundestrøm der er i Coop F.eks Udvikle en ost der ikke lugter eller specielle Nordiske varianter til Coop Arbejdet kickstartes og fokuseres ved afholdelse af en fælles team dag med relevante deltagere fra både Arla og Coop Hvem har ansvaret og hvornår gør vi det Det er besluttet at komme i gang så hurtigt som muligt. Arla undersøger mulighederne for at udvikle/afholde en fællesworkshop evt. i Sverige Tiden er ved at løbe fra os hvis det skal være inden sommer ferien. Hvis det på nogen måde er muligt skal vi forsøge om det kan lade sig gøre inden ferien Bolden ligger hos Arla og vi forventer en tilbagemelding ASAP. 24

52 Elements from the real action plan Setting a new assortment Hvordan gør vi Som udgangspunkt udfordre Coop vurderingen af potentialet. Men som sagt på mødet tvivlen skal komme den sigtede til gode Det er derfor besluttet at Arla kommer med forslag til en optimering, der kan forbedre indtjeningen med 0,5 kr pr kg. "Gennemgå sortiment - underkategori for underkategori med fokus på: a. indtjening pr. kg. b. salg (haleanalyser) c. ""kategoristrategi""" Hvem har ansvaret og hvornår gør vi det Arla kommer med forslag til hvordan vi forbedre sortimentet, samt til hvordan den løbende udviklings proces kan optimeres. Vi skal have fastlagt en deadline! "Udvælgelse af de ""strategisk"" vigtige lanceringer - fx gennem nedpriotering af nogle og oppriotering af andre. Bedre planlægning (læs længere tid i forvejen). Lanceringer skal altid ligger over kategoriens mål- og målsætninger." Reglen i underkategorier er 1 variant ind 1 variant ud med mindre der er klart fokus på at få nye forbrugere til kategorien. 25

53 The full effect of Category Management isn t proven until it works on store level! Category development is done store by store 26

54 Assessing the store potential Sales effectiveness X+10% X Goal Chain average in category 1 N Stores 27

55 Butikkerne besøges og beskrives 28

56 KPI s at store level Kæde Superbrugsen Butik Herfølge Best practice Norm Poor Ranking Herfølge Store Sales 1000 kr / Sales development index / Sales 18,71 14,45 7,29 99/110 10,35 effectiveness Sales effectiveness development / Konklusion Butikken er generelt på vej frem primært på grund af større kundestrøm Salgseffektiviteten i kategorien har været faldende butikken køber sig til større omsætning Der mangler aktivt fokus på optimalt udnyttelse af kundestrømmen Umiddelbart der et stort potentiale i butikken svarende til 28 % vækst i forhold til normen 29

57 Category Management Be prepared for change as shoppers demand more 1

58 Crash Course - Objectives Understand how to get a long term perspective to your category management process. See what it takes to move from project to process working closely together To have a clear understanding of the values of working with category management on store level Retailing is detailing Get a clear understand of how to measure and manage category development focusing on sales and profit effectiveness See the true value of working proactively whit P.O.S data 2

59 Crash Course - Headlines Setting the scene Definitions and best practice models and processes Collaboration and the long term perspective Category development Creating the necessary understanding and basic knowledge to manage and grow your category 3

60 The business to business to consumer market CONSUMER MARKETING MANAGEMENT Manufacture Chain POP Consumer Moment of truth TRADE MARKETING MANAGEMENT 4

61 The Business to Business to Consumer market We are actually selling 2 types of products! The consumer product covering consumer needs The business product covering business needs 5

62 The Consumer Product The value is basically build on taste, feelings and perceptions Consumer evaluation Ability to create consumer loyalty Ability to create consumer trial Ability to create consumer knowledge 6

63 The Business Product The value is basically build on facts Business evaluation Ability to create chain and store turnover Ability to create chain and store profit Ability to create chain and store profile and image 7

64 ECR & Category Management E fficient C onsumer R esponse Though cooperation to fulfill the needs of our common consumers better, faster and at a lower cost 8

65 Category development How can we grow the cake together optimizing the moment of truth Win for consumers Future potential Today's Solutions = Sales & Profit Win for manufactures Win for chains and stores 9

66 Category Management Category Management Category development Right assortment Right prices Right promotions Right place & space Right NPI s 10

67 Cooperation at several levels creates the best results KAM/BUM Chain Consumer Sales Rep / Merch. Store/POP 11

68 Cooperation around the moment of truth External dialog KAM/BUM Category manager Chain Internal dialog Sales management Internal dialog Consumer District management Dialog Store/PO Sales rep / Merch Store / POP External dialog 12

69 Knowledge and understanding becomes key to success Knowledge sharing creates synergy Manufactures knows a lot but not enough Retailers knows a lot but not enough Efforts Results Data / knowledge sharing is a must to create best practice solutions 13

70 Category Management: from nice to have to must have 14

71 The world has changed... Yesterday the world was big and full of opportunities Growing markets Fragmented customer base Aspirational categories and products 15

72 The world has changed... Today the world has shrinked let s not fool ourselves and face it! FMCG is no longer so fast! Markets stabilize! Impossible to deny the retailer as a partner Lots of categories comoditize as real innovation is becoming more and more difficult to come by 16

73 The world has changed... And so have we to change! From hunter-gatherer... To farmer!!! 17

74 The world has changed... Accept our limitations and develop news tools too get more out of a more limited business surface Optimize the available levers: Products: Existing => assortment Innovation => when available! Dynamise the shopping experience: Promotion Merchandising Deliver the product: kill OOS! 18

75 Sell more of what is available today on a more limited surface: let s move into the future! 19

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