Some manufacturers and retailers in Russia have already introduced the position of Category Manager in their organizational structures. Isn't this too early a move yet? What will category managers be able to contribute to the success of the business in a still very fragmented retail market, with prices being the main subject of negotiations, and lots of consumer needs unaccounted for?
A well established, despite very young practice in the West, Category Management (CM) is a new talk in Russia. It is a totally different approach to retailing. The clue to CM lies in optimizing the product assortment to ensure maximum sales and profit growth. This is usually done at the level of categories - arrays of products that possess common characteristics, not only in shape, taste, purpose, etc., but also in how they are shopped for.
The three essential elements of CM include building a mutually beneficial relationship between manufacturers and retailers to propel category growth based on the needs of the consumer. The latter element - the Consumer - is the key to making any decisions.
As a technology, CM was widely adopted in the USA at the beginning of '90s in response to:
CM is a part of a bigger system called Efficient Consumer Response. ECR has two equally important dimensions - supply management and demand management. While the first part is more the supplier's responsibility of timely and quality deliveries, the latter is the duty of the retailer to meet the consumer needs. Together, they ensure an efficient march of the product from the manufacturer to the final consumer.
Category Manager is a position more often found in the retailer's organization.
Historically, the key account manager at the supplier's talks to only one person on the retailer's side - the purchasing manager. They have a limited responsibility to discuss a certain scope of issues, but it is not within their competence to touch on the logistics, finance or marketing. The whole structure of the relationship needs to be changed to ensure a lively dialogue between the parties involving all areas. A category manager can be one solution.
"There are three types of organizations in Western Europe at the moment," says Mathijs van der Zwet, ACNielsen consultant for Category Management. "Some concentrate on the price and margins, others on CM. In companies of this second type category managers are responsible for all business areas - marketing, logistics, space management, and other aspects. The third type of organizations is a combination of the former two, that is, they have a purchasing manager in charge of commercial issues, and several category managers taking care of particular categories. Retailers in Russia are already starting to implement the second and the third scheme. My supposition is that big retailers will operate under the second type, while discounters may opt for the combined one."
A category manager is supposed to know everything about his/her category, namely, the sales dynamics, where and how the products should be displayed in-store, what prices to negotiate with suppliers, when to replenish the stocks. This knowledge should essentially be based on the real consumer needs. In our information era, there is a plethora of consumer research available which allows marketers to understand how consumers segment a particular category, when and where they want to shop for it and actually do, what they associate with the category.
Many retailers and manufacturers in Russia still face each other from the opposite sides of the "barricades". Shelf space is often given to those suppliers who are prepared to pay more, and each tries to pull the blanket towards his own brands. With the category management scheme, the supplier must be willing to sacrifice his own interests for the sake of the total category development, especially when the supplier is chosen a category captain. Such an approach certainly requires faith and commitment which far not all companies in Russia are ready to exhibit in the face of rapid market growth. "It is easy to cast aside assortment management when you know that your stocks will be emptied anyway", comments Van der Zwet. "But the time will come when Russian retail market will get more stabilized, with a higher competition level. Then those companies that have invested in consumer research, technology and logistics optimization, will be in a winning situation."
The progress of CM can be presented in a graph, retailers' commitment to co-operation and information sharing with suppliers on the horizontal axis, and suppliers' competence in CM on the vertical axis. When both the retailer and the supplier are at the beginning of their respective axes, they have the 'traditional' buyer-seller relationship. The further and the more synchronized their progress along these imaginary axes, the more efficient and developed their co-operation will be. "Suppliers, as a rule, are more advanced in the adoption of Category Management", continues Van der Zwet. "Usually they initiate such co-operation with the retailer. However, I can make an assumption that in Russia, certain retailers, presumably the bigger international ones, stand much further on their X axis than some manufacturers on the Y."
Tatiana Noufferova, head of the Customized Research department at ACNielsen Russia, thinks that the development of CM in Russia will follow the western pattern in that it will be initiated by manufacturers. However, an adaptation of western CM technologies to the local market specifics may be needed. The concept will be primarily applicable to Moscow where the competition is highest, and gradually spread to other regions as well. "It's not a long time to wait until this will happen", says Noufferova. "Local managers are willing to learn more about CM now. In fact, it is this newly generated interest that empowered ACNielsen to bring its Category Management training to Moscow earlier this year."
