The Perils Of Seeing Category Management As A Price Management Tool

Posted 10/03/2017

Category Management must be aligned to business strategy and business process else it will become an irrelevance.

The 2017 Global Category Management Leadership Report (request here) explores how leading and following organisations put category management into practice and deliver value for their organisations as a result. This year, we’re extended the analysis to develop a list of practices and activities which have a demonstrable link to business performance.

Right at the top of that list and our first area to consider here is the concept of aligning Category Management, and what it is aiming to achieve, with the business processes and broad strategies of the company, and making sure that there is a clear plan showing what is going to be done which is agreed with stakeholders.

This seems like an obvious area to get right, but it is striking how many of the 326 companies participating in the survey felt that this was either something they did not do well, or did not do at all - between 59% and 39% depending on which area we look at. 

The question we need to ask here is, if category management is not aligned to business strategies or to business processes, then what is it trying to deliver? The danger for practitioners is that decoupling category management from business direction means that it can quickly become irrelevant. 

Category Management, at its best, takes the strategic direction which the business is striving for and converts that into concrete deliverables for the supply chain. Additionally, the best practitioners can leverage category strategies to influence the absolute strategies of the business, ensuring that the overall direction being taken and the supply chain support for that achieves maximum alignment. 

Examples of this exist in a host of industries, where strategic imperatives such as market penetration or speed to market have been delivered through intelligent focusing of the supply chain through well thought out category strategy development. 

We have also seen examples where the strategic direction of a business is not well articulated - perhaps through market changes or M&A activity which can cause a pause in organisational strategy. In these cases, well executed category management can bring the conversation back to life and refocus the need for clear strategy. The danger lies where there is no overall direction. 

Our second area is even more critical for success; the alignment of category management to business processes. This means ensuring that those processes which demand supply chain participation (such as new product development, marketing strategy or sales cycle) and the category management activities are being driven with the same timings and pace in mind. 

Where this is not achieved, then the outcomes expected on either side can be undermined by the lack of integration. As an example, if the sales cycle demands an 8-10 week lead time, then there is no benefit from the development of category strategies which preclude that. If NPD and time to market is the lifeblood of future cash low and profitability, then the supply chain relationships need to work in a way to optimise those outcomes. 

The reasons for misalignment are many and varied, but often start at the simple point of the business sharing an understanding of the ability of the supply chain to help deliver the required outcomes when they are primed and targeted towards those outcomes. The danger lies when Category Management is viewed as a price management tool rather than a process to bring about fundamental alignment of the business, its strategies and processes, and the supply chain. 

This area is one where the Category Management Leadership Report highlights a reduction in capability over the last 3 years. This may be a reflection on the volatility in the world economy, where external factors are weighing heavily on many organisations and there is a need for agile realignment of many firmly held positions. 

This leads to the third of our areas to consider: ensuring that the business has a good sense of the focus areas for category management activity over the last 12 months and has bought into the expected outputs. As ever, plans change and vary as conditions alter, but it is easier to amend a plan than to have no plan at all. 

Getting this area right is number four on our list of practices which drive business results, although 52% of the businesses we talked to do not prioritise this as an area for development. Our experience shows that the act of getting to a plan, having alignment with stakeholders in the business on priorities, and then getting broad agreement, is a significant piece of worthwhile marketing for the category management organisation to undertake. Even better, once the plan is there, stakeholders are often motivated to check how their bit is progressing, driving even better engagement into the organisation. 

We are absolutely clear that getting Category Management to a place where it recognises and demonstrably serves the business strategies is critical not only for the success of Category Management application, but also overall business success. 

Read more about it in the 2017 Global Category Management Leadership Report, and come and talk to us about our experience of developing and implementing change which brings this about.

Tagged by topic: Business & Stakeholder Engagement , Category Management , Category Management Survey

  by Allison Ford-Langstaff

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