Executive Summary

Since the early 1990s retailers, most notably grocers, and manufacturers alike have increasingly embraced a new process strategy – category management – which shifts the manager’s focus from individual brands to the overall performance of a product category. Significant dollar sales growth is attributed to its adoption – an average of 16% for retailers and 10% for manufacturers (Cannondale Associates 2003). However, to date, category managers have emphasized stripping waste from the system and shifting volume across brands or time periods, rather than driving incremental consumption or trading shoppers up to higher value, higher margin items (Cannondale Associates 2002). Hence, category management is still seen as striving to reach its potential (Gregory 2001). This paper suggests that improvements are possible through the use of consumer behavior research as a supplement to the consumer insights derived from point-of-sale scanner information.

As outlined in the Category Management Report prepared by the Joint Industry Project on Efficient Consumer Response (1995) managers face several decision stages in applying category management.  To fully implement the business strategy, the completion of each stage requires significant insight into the motivations, perceptions and behaviors of the target consumers. The authors point to particular consumer behavior concepts that could refine these decisions by recognizing influences that occur before, during and after the consumer enters the store. For academics, this list highlights fertile settings for future research.

To illustrate one such opportunity, the authors present an empirical demonstration of how two particular consumer behavior concepts – context effects and categorization theory – reveal insights relevant to item placement decisions (Stage 1 in the Category Management process – Category Definition). Of particular importance is the fact that these insights would not be revealed by scanner data because the category from which an item is selected is not recorded. The authors demonstrate that a consumer’s item evaluation process (the attribute importance weights used to form preferences) may differ depending on the product class’ categorization (context). In addition, the attribute importance weights used in some categories may also be influenced by prior exposure to the product class in another categorization.

The current paper contributes to the academic literature in two areas.  First, the paper explores the relevance of context effects and categorization theory to Stage 1 category management decisions. Second and more broadly, it contributes to the growing area of category management through the use of consumer behavior research in the category management process.

Regarding the first contribution, the category-dependence of some attribute importance weights indicates that the preference a consumer has for a particular item depends upon how its product class is categorized. Hence, an item may generate much more consumer value in one category than it does in another due to the fact that the item excels on an attribute that enjoys heightened importance under that categorization. As empirically demonstrated, when the context changes increased attention is drawn to, or away from certain attributes. Noting which attributes exhibit such differences and their direction, especially relative to the order of exposure to the categories, may be helpful to category managers attempting to match the strengths, or minimize the weaknesses, of their items with respect to particular categories (store aisle locations) and to retail managers pondering alternative store layouts. Carryover effects due to sequential exposures to a product class in different product categories add another wrinkle to item placement decisions (and another source of in-fighting for category managers). Since the attribute weights used to evaluate items within a product class may be influenced by previous exposures to the product class, the appeal of some items will increase, while the appeal of others will decease, depending upon which categorizations were encountered earlier in the shopping trip. Thus, a store’s layout can be considered to induce more favorable evaluations of selected items, thereby, improving customer value and retailer and/or manufacturer business results.

The conclusion derived from both these effects is that a category manager’s desire to shift purchases toward higher consumer value, higher margin items in one category may require a different item assortment within that particular product class than is optimal in another category. Manufacturers, likewise, can use knowledge of an item’s heightened popularity in a particular category to make a more persuasive presentation to the retail category manager for item acceptance and favorable shelf placement. Similarly, advertisement, package and product designs can be done with a particular categorization in mind.

Regarding the paper’s second more broad contribution, the experiment presented in this paper is only the tip of the iceberg in terms of delving into how consumer behavior knowledge can assist in revealing category management-related insights. While the managerial challenge is to deliver superior tactics linked to deeper consumer insights, the research challenge involves either deductive tests of theory applied to practice or inductive generalizations gleaned from successes and failures with respect to consumer patronage. With this in mind, the authors provide a table linking the managerial tactics inherent to each stage in the category management process with relevant academic theories and concepts that may allow expanded and improved insights into these required decisions.  While the presented list of behavioral issues that are potentially relevant to these decisions is admittedly not exhaustive, its objective is to illustrate how category management decisions can be refined given an understanding of what inspires purchases and, in particular, how consumers behave given the category management decisions that impact their store experience.