Turned on by category marketing

SBHD: Companies flirting with category management are on the increase – and so is the risk of them fast becoming disillusioned. A great deal of commitment allied to a grasp of retail as well as customer needs is vital for the strategy to work.

Category management is becoming something of an obsession among consumer goods marketers. Like teenagers discovering the sexual urge, they are experiencing a rush of excitement as retailers that have spent decades giving them the cold shoulder suddenly offer the chance to “go out”.

Like teenagers and sex, if they are not doing it they feel anxious that they should be. If they are, they’re convinced their rivals down the road are doing it better.

Either way, their preoccupations and behaviour will never be the same again. Category management involves manufacturers in far-reaching changes. It requires them to develop more analytical, information-based, experimental approaches to marketing. It draws them to unfamiliar research areas, such as how consumers shop.

Above all, it is leading them beyond traditional brand wars – where manufacturer A slugs it out with manufacturer B – to a new concern: how to increase total sales and profitability in a particular category of goods.

One subtle but important shift in emphasis is the requirement to meet the needs of retailers as well as consumers. The politics of shelf space – where there is only room for a brand leader, a number two and own label – increasingly means new product development must become new category development.

This presents both sides with tantalising opportunities, as delegates to a Marketing Week conference on the subject heard this week. Mike Banks, director of consulting at Glendinning, points out that when retailers and manufacturers come together to learn more about a category and how to develop its performance: “It’s amazing what commitment it can generate.” But will this commitment bring true love, or endless heartache?

Manufacturers, especially, will have to accept far-reaching changes in attitudes and organisational structures to succeed. They’ll also have to accept new dimensions of competition.

Mastering new ways of mining vast quantities of data for nuggets of insight will be crucial. So will contests over who defines the category (and therefore who sets its marketing agenda). Meanwhile, competition will flare up over who is prepared to offer most for the hands of retailers in category- management relationships.

Enter catch number one. Can already-hard-pressed manufacturers really commit the time and resources needed to provide the bespoke service each retailer wants?

Graham Bishop, marketing controller at Woolworths, told the conference that manufacturers who want to build real partnerships will have to take time to grasp different retailers’ business philosophies, marketing strategies and cultures. He said: “Manufacturers have to decide which relationship matters most – the one with consumers or customers. Only one in a thousand can do both.”

That’s a crucial point. Retailers are embracing category management for three reasons: to cut costs, expand sales and profits from existing space, and to stand out from competitors. They are asking more, not less, of manufacturing partners.

This leads to catch number two. Many partners lack a clear idea of how far they are prepared to go. Specially tailored promotions, pallet sizes, configurations and delivery specifications are now common. Unique pack sizes, pack designs and product formulations are increasingly being placed on the agenda.

Marketers grappling with these demands are entering a dangerous political area: “If I flirt too much with Tesco will Sainsbury slap me in the face?”

Just as manufacturers’ obsession with taking cost and complexity out of their businesses is beginning to bear fruit, this sounds like a recipe for creating yet more expense and confusion.

Catch number three is even more fundamental. When retailers move from cold shoulder to come-on, it may seem as if attitudes are being transformed. At one level they are. But at another level, category management is simply an extension of the policies of the past 20 years.

Its most far-reaching effect may be to enable retailers to incorporate a growing number of manufacturers’ brands into their own marketing sphere of influence, thus reducing their independence into something purely nominal.

Like own-label suppliers, manufacturer brands’ positioning, pricing and margins – indeed, their whole marketing – could increasingly become mere extensions of retailers’ marketing strategies. It may be a win-win partnership instead of a win-lose adversarial relationship, but are the benefits split 50-50 or 90-10?

And who is incurring most of the costs?

Own-label campaigner Dave Nichol, president of Canada’s Loblaw and a senior adviser to cola company Cott, painted one scenario in a recent speech.

He suggested retailers who are on the ball will use their manufacturer brands as loss leaders in marketing warfare between retailers, thus doubling and redoubling the pressure on both their margins and their cost structures.

Cutting-edge, or “samurai”, retailers will soon be selling the leading nationally branded products at or below cost every day, Nichol predicted.

He said: “You have to control the mix of every category so that you have a large enough portion of the category’s total sales in high-margin retailer-controlled brands to allow you to sell the ever decreasing national brand portion of the category at or below cost.

“New customers will switch [retailers] for the incredible national brand prices. But when they get to the store they will discover, and end up buying, the samurai-controlled brand busters, the aggressively-priced comparable quality retailer labels, or if they are totally price driven, the retailer-controlled Aldi fighters.”

Don’t get me wrong. Like teenage sex, for most manufacturers category management is an essential stage in life.

It will be genuinely rewarding for the lucky few with the happy combination of outstanding consumer attractiveness and inner resources – and a passage to even greater opportunities.

But for those companies that lack branding or management resource, or whose approach is naive, it may end up being more bruising and costly than they ever anticipated.