The Death Spiral of “Let’s make a deal” Needs to be Transformed to “Inside Out”
I had an opportunity to give a keynote address at a Category Management Summit in Paris this past week. I quickly learned two things. First, Parisians still debate the merits and artistry of the Eifel Tower. Second, there is more debate on the value, and even definitions of category management, at least in consumer electronics categories.
What almost all CE vendors fail to realize is that mass merchants like Walmart and Carrefour, already practice state of the art category management. The “big boxes” collaborate with the world’s best practitioners of category management, who sell soft drinks, soap, toothpaste and other packaged goods. In short, these retailers “get it” (or are at least capable of the highest levels of category management) … it’s the CE vendors who don’t.
Category Management = Joint Processes and Category Scorecards
In packaged goods categories, retailers and vendors collaborate on SKU rationalization through joint metrics focused on overall category growth and profitability, including: profit per sq. ft., inventory turns, GMROII, plus overall drivers of traffic, market basket and consumer satisfaction. To translate these best practices to the CE categories, two things must happen:
1. CE vendors must be willing to develop the discipline and agnostic view of looking at the category across all SKUs through the lens of joint category metrics with the retailer.
2. The CE retailers must abandon “quick fixes” to sagging margins and be willing to share the market basket metrics required to collaborate on processes with CE vendors in the same ways they engage consumer packaged goods suppliers.
“Outside In” Programs Become a Death Spiral of “Let’s Make a Deal”
Currently, most CE vendors take an “outside in” approach of providing merchandising, programs, and rebates, in an effort to influence retailer execution. While the “outside in” approach can be fundamental in helping emerging retailers develop or test an approach, the results of “outside in” programs in mature markets with leading retailers are transient and temporary at best.
CE vendors, even one as large as Microsoft, simply does not have enough money to “fix” the perceived or even the real retailer gaps in merchandising, fixtures, labor model, training, demos, etc. In the end, it is the retailer’s stores, the retailer’s shelves, and the retailer’s staff. A vendor cannot transform change from the “outside in”. Unless something is “institutionalized” within the retailer’s business rhythms and processes, “outside in” programs perpetuate the addiction of “more vendor money” … and it’s a zero sum funding game year over year.
True Category Management will come from the “Inside Out”
It’s time to stop the insanity! The models, best practices, templates and scorecards exist within consumer package goods categories. It is not a lack of technology. It requires changing the “mindset” of category management from “inside out”. To transform category management within CE categories will require a new level of vendor / retailer partnerships focused on:
1. Moving beyond transactional to strategic business partnerships
2. An “agnostic”, more strategic view of entire category development
3. Holistic processes and objectives across the entire category … ALL SKUs
4. Joint scorecards measuring both customer experience and the entire market basket
5. Vendor leadership in technology and strategy, retailers’ ownership for execution
In the final analyses, we can’t manage what isn’t measured. Said another way, how “it” gets measured ensures both process and execution, especially in category management.
