NATIONAL INSTITUTE OF FASHION TECHNOLOGY, JODHPUR
Application of Category Management Principles in ZARA
Mr. Sanjay Kumar
Mr. Ritesh Malpani
IInd Semnester MFM
Category management is a retailing and purchasing concept in which the range of products purchased by a business organization or sold by a retailer is broken down into discrete groups of similar or related products; these groups are known as product categories (examples of grocery categories might be: tinned fish, washing detergent, toothpastes). It is a systematic, disciplined approach to managing a product category as a strategic business unit. The phrase "category management" was coined by Brian F. Harris.
Category management (and the individual channel partnerships that preceded it) represents a new kind of vertical arrangement that is not integration, franchising, or a vertical restraint. Instead, it is a vertical partnership in which previously confidential information is shared between manufacturers and retailers to cut costs in distribution and increase the margins of both parties. Each category is run as a "mini business" (business unit) in its own right, with its own set of turnover and/or profitability targets and strategies. Introduction of Category Management in a business tends to alter the relationship between retailer and supplier: instead of the traditional adversarial relationship, the relationship moves to one of collaboration, with exchange of information, sharing of data and joint business building. The focus of all supplier negotiations is the effect on turnover of the category as whole, not just the sales of individual products. Suppliers are expected, indeed in many cases mandated, to only suggest new product introductions, a new planogram or promotional activity if it is expected to have a beneficial effect on the turnover or profit of the total category and be beneficial to the shoppers of that category. The concept originated in grocery (mass merchandising) retailing, and has since expanded to other retail sectors such as DIY, cash and carry, pharmacy, and book retailing. Category management lacks a single definition thus leading to some ambiguity even among industry professionals as to its exact function. Three comparative mainstream definitions are as follows: Category management is a process that involves managing product categories as business units and customizing them [on a store by store basis] to satisfy customer needs. (Nielsen) The strategic management of product groups through trade partnerships which aim to maximize sales and profit by satisfying consumer and shopper needs (Institute of Grocery Distribution) Marketing strategy in which a full line of products (instead of the individual products or brands) is managed as a strategic business unit (SBU). (Business Dictionary) The Nielsen definition, published in 1992, was a little ahead of its time in that customising product offerings on a store by store basis is logistically difficult and is now not considered a necessary part of category management; it is a concept now referred to as micromarketing. Nevertheless, most grocery retailers will segment stores at least by size, and select product assortments accordingly. Wal*Mart's Store of the Community, implemented in North America is one of the few examples of where product offerings are tailored right down to the specific store One key reason for the introduction of category management was the retailers' desire for suppliers to add value to their (i.e. the retailer's) business rather than just the supplier's own. For example, in a category containing brands A and B, the situation could arise such that every time brand A promoted its products, the sales of brand B would go down by the amount that brand A would increase, resulting in no net gain for the retailer. The introduction of category management imposed the condition that all actions undertaken, such as...
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