Applying the Principles of Category Management to E-Commerce
Category management, the systematic and disciplined approach consumer packaged goods (CPG) companies use to manage product categories as strategic businesses, has never been more relevant.
Consumers are doing more of their shopping online due to competitive pricing, convenience and greater control over their shopping journeys. According to 1010data, online CPG sales grew 36 percent in 2016 to exceed $10 billion, with top categories each generating more than $1 billion in sales.
This trend is poised to accelerate as online shopping becomes more convenient due to subscription services, same-day delivery and hassle-free returns. This poses a great opportunity for CPG brands that adapt quickly to the new rules of consumer engagement, which are upending everything learned from brick-and-mortar retail.
Consumers now have instant access to more information about products, along with a myriad of purchase options. They're empowered to get what they want, how and when they want, at the prices they want. In addition, brands can reach more people thanks to the internet, which allows them to grow into new markets. Furthermore, the cost of experimentation has decreased, which means new brands can enter the market with minimal investment.
These reasons are why e-category management has emerged as a key business strategy. It enables CPG companies to create and sustain competitive advantage in a crowded, complex, omnichannel world that's constantly evolving.
The challenge is that many CPG companies haven't yet recognized the intrinsic value of adding robust e-category management to their brand management tool kits. Therefore, they're not optimized to track, accommodate and leverage the paradigm shift in buyer-seller relations. This lack of recognition is more than mere oversight; it can have dire consequences.
The New Rules for Consumer Goods Pros
More specifically, there are some key reasons why CPG companies should make e-category management a priority:
- Total category performance is largely misunderstood: When online and offline sales are combined, many categories thought to be flat or declining are actually growing. Most CPG companies are flying blind about their categories because they lack a deeper understanding of the online channel.
- E-commerce experts get a seat at the retailer’s table: Retailers are looking for suppliers that can help them thrive online. Online-savvy brands will be better positioned to contribute to the e-commerce strategies of their retail partners, which can only improve their chances of winning preferred supplier status.
- E-category management drives innovation: Without pertinent information about the trends that are driving category growth, companies face the risk of becoming irrelevant. Trends appear in e-commerce before they appear in brick-and-mortar, meaning that e-category management can help drive innovation and, ultimately, positive business results.
E-Category Management Best Practices
For these compelling reasons, there are three best practices to keep in mind as CPG companies develop their e-category management strategies:
- Make corporate success contingent on e-commerce success. E-commerce isn't a niche; it’s the largest growth opportunity that exists for CPG brands today. CPG companies should devote adequate resources to this channel now to set up brands for success in the future.
- Get all the relevant metrics. Optimizing for e-category management requires getting a full picture of KPIs, including market share, product-level views, conversion rates and an understanding of the consumer online path to purchase.
- Have a growth strategy for each retail partner. Retailers are looking to compete effectively and thrive online. CPG companies need to come to the retailer’s table with indispensable insights about how to drive online performance.
In the end, it's all about putting the best data in the right hands at the right time.
Samir Bhavnani is the area vice president of omnichannel strategy at 1010data, a self-service advanced analytics platform.