1. Where to Category Management? Evolution and Best Practice 7 August, 2007 Norrelle Goldring, Moxie Market Strategy Peter Huskins, Market Concepts

2. Session Objectives +Heads above the ‘water line’ – discuss the nature and potential scope of category management and shopper marketing +Stimulate thought on how to better add value to the category/shopper marketing discipline, and thus your organisation +Get you to share different viewpoints and best practices. Thinking caps on … we will be provocative!

3. Agenda +Category management – When did it start and why? What was it? +What is it now? How is it ‘working’ in Australia? +Where to – how is it evolving? +Examples of overseas trends +Discussion

4. Then … how did category management start? Range and space management was local and fragmented for hundreds of years Local suppliers understood local retailer needs Retailers could observe first hand what their local shoppers bought PAST

5. The ‘Father’ of modern category management +‘Category Management’ coined by Brian Harris and Larry Hernandez of The Partnering Group (USA) in the mid-late ‘80s as part of the notion of looking at categories as SBUs A discipline that’s less than 20 years old in its current form! PAST

6. Category Management “A supplier-distributor process of managing categories as strategic business units, producing enhanced business results by focusing on delivering Consumer value. By emphasizing business results for entire product groups rather than individual items or brands Category Management encourages a longer-term, joint distributor-supplier focus in marketing and product supply.”

7. Consolidating market necessitated efficiencies Bigger/national suppliers and bigger retailers with more products and floor space meant need for space and profit efficiencies PAST

8. The 1990s: The original 8-Step CM Process Category Role Category Assessment Category Scorecard Category Strategies Category Tactics Plan Implementation Category Definition Category Review Price Promotions Assortment Layouts Private Label Price Promotions Assortment Layouts Private Label A version of the traditional strategic planning process, applied to FMCG Fairly product/numbers based. Looks at the category as it is, not necessarily where it’s going.

9. Nielsen refined this to 5 steps in 1992: Category Review Target Consumers Merchandise Planning Strategy Implementation Results Evaluation Basically, a formal way of range and merchandise planning and reviewing categories Grown out of grocery, but could be applied to other retail channels PAST

10. Category Management +Formal, continuous process of fine tuning elements such as: +last year’s activities +opportunity gaps +better promotions +range management +space provisions +cost reduction through ECR disciplines +competitive analysis. Time Performance

11. Key Issues +Category Management often seen as ‘cost’ reduction ECR = Efficient Cost Reduction? +Over-riding need to hit the internal numbers +Retailers struggle: +Supply vs demand? +Culture for collaboration? +Skills and resources? +Internal silos? +Information and what to do with it?

12. No wonder we’re struggling … Retail buyer Sales Marketing Trade Marketing/ Category Supply/ Operations

13. Key Issues +Manufacturers struggle: +Trust? +Benefit or cost? +Brand vs category? +Internal silos? +Skills and resources? +Losing track of the market as we focus more and more on reports, analysis, research and lose the feel for the Shopper and Consumer And the Shopper and Consumer just keeps moving …

14. The Shopper and Consumer +Growing channel promiscuity +Smaller baskets more often +Give me Solutions +Time poor +Educated +Health and well being +Impatient +Judgemental

15. Either way … +Purpose was mostly about efficiencies for retailers and manufacturers, based on what sells +Tweaking of ‘yesterday’ for a better today … Not oriented toward the shopper PAST

16. Where are we now, and where to from here?

17. Now … modifications to the original 8 step process Spectra Marketing Systems process, 2006. Assumes greater shopper focus. Category Definition Consumer Decision Tree Demand Clustering Category Assessment Item Strategies Category Role Tactics/ Initiatives Scorecard Implementation CURRENT

18. Where are we now? Depends on who it reports to Nobody ‘owns’ the shopper Makes it difficult to cover all instore marketing drivers: Range, Space, Visibility/merchandising/theatre, Price, Promotion, Persuasion/service/incentives/training Marketing Based +Retail presence +POS development +Consumer promotions = brand not category focussed Sales Based +Sales decision support & analysis +Category analysis and reviews +Range & space analysis +Price promotion analysis +Space management = Customer not shopper focus CURRENT

19. What else is happening? +Increasing shopper focus - growth of shopper insights departments. Retailers increasingly requesting shopper insights from suppliers +Shifting of above-the-line marketing dollars into instore +Some category management has gone too far – too much range rationalisation can mean shoppers seek smaller brands in non-grocery +Mundane shopping experience in grocery, based on numbers and clean store policies, no theatre BUT … Shift to shopper behaviour emphasis not yet reflected in store Difference between ‘behaviour’ and providing an experience! CURRENT

20. What is needed +New strategies and processes that take you to the next level that involve: +Total store then Category +The Consumer and the Shopper +The total supply chain to the end use +Targeted responses +International trends +Experience the intimacy Time Performance

21. Source: Porter: Competitive Strategy Understanding the Difference Category Development Category Management Operational Effectiveness = “Running the same race faster.” measure retail performance identify opportunity gaps focus on retail performance. Strategy = “Running a different race.” identify consumer-based opportunities create value focus on total supply chain. Retailer Supplier Consumer Retailer Taking a Category Development approach encourages innovation and maximizes total supply chain value.

22. The future … a potential model Customer/ Sales Consumer/ Marketing Shopper/ Category & Channel Insights FUTURE

23. Shopper Marketing should own the shopper +Shift from ‘category’ to instore or shopper marketing and development +Owns the shopper experience for the category in the store, in all its locations (across channels, occasions, dayparts, missions) +Informed by: a) broader consumer trends (marketing), b) customer/retailer realities (sales), and c) shopper behaviour (insights) +Shopper Development need to synthesise marketing, sales, insights and analysis to improve shopper experience to grow overall category +Look to tomorrow - DEVELOPMENT, using SOME of yesterday’s info to inform it. Emphasis on shopper, consumer and retailer trends and how to leverage these – ‘what should we be doing’, not ‘how can we do yesterday better’ Purpose: mostly about improving the shopper experience, for retailer and supplier profit FUTURE

24. Some examples of where the future lies +SEGMENTED EXECUTION: How brand, pack, price, display, promotion and persuasion change by shopper occasion +DEMAND CLUSTERING: store types, shopper types, impacts on range, space, marketing +THEATRE: Visibility plus ambience – sound and smell, not just sight FUTURE

25. Pharmacy example: executional priorities change by channel segment At shelf 1 5 Front of store displays 3 Gondola end displays – condition based cross-sell with related categories e.g. cold & flu, arthritis, skin care, infant care / women’s health 2 Staff recommendation 4 Check out (impulse) SEGMENTED EXECUTION

26. Identifying unique shopper groups by store or category Forecasting category or brand demand at a local level Also applied to store marketing strategy DEMAND CLUSTERING

27. THEATRE

30. From … To +Performance based +A better yesterday +Numbers focussed +Range and space focus +One size fits all solutions +Subset of sales +Demand based +A new tomorrow +Led by shopper behaviour and needs +All sales drivers, plus theatre +Clustering and segmented execution +Shopper marketing division SUMMARY

31. Summary +Category management is evolving into more holistic shopper marketing based on localised demands rather than national performance +To stay relevant and reap rewards companies and brands need to look at the entire shopper experience, not just range and space +Retailers are looking to suppliers for insight and inspiration – provide it! +Take the reins and synthesise sales/customer, marketing/consumer, and category/shopper. The market is shifting toward instore focus – we’re in the right place at the right time! SUMMARY

32. A final word from Brian Harris … “ The techniques of CM are a means to an end... not the end itself! We need to rekindle the original spirit of CM as a consumer-focused philosophy for creating excitement and differentiation.”

33. Discussion +What is your take on how category management is evolving? +Who would you consider best practice in any or all of the instore sales drivers? What are they doing? +Who in your opinion has the most holistic approach to the shopper? How are they attacking it? +What instore sales drivers do you need to focus on in order to take advantage of the evolution to shopper marketing? What would need to change in structure and capabilities in order to achieve this?

34. Moxie Market Strategy Norrelle Goldring P: 61-2-9427 7473 M: 61-411-735 190 E: norrelle@moxiemarketing.com.aunorrelle@moxiemarketing.com.au W: www.moxiemarketing.com.au Market Concepts Peter Huskins P: 61-2-9982 3084 M: 61-412-574 793 E: phuskins@marketconcepts.com.auphuskins@marketconcepts.com.au W: www. marketconcepts.com.au THANK YOU