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Anton Xavier

By: Anton Xavier on October 26th, 2018

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CatMan - Attribute-Driven Market Inverting the Category Decision Tree

category management

Category Decision Tree

One of the critical elements of the CatMan2.0 process is the Category Definition and the Category Decision Tree step. The purpose of this step is to agree which items are within the category and to outline and define the Category Decision Tree (CDT). The CDT is a graphical record that assists retailers to better understand consumer buying habits, and the decision-making processes followed by individuals while shopping a category.

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So why use a category decision tree at all? At the end of the day, consumers make the ultimate decision as to what goes into the trolley or basket. They are the ones navigating the shelf and selecting from the range presented. Therefore, it makes sense, from a shelf planner point of view to consider how the consumer makes decisions about products when deciding on a shelf-layout and merchandising strategies and tactics.

An attribute driven market

The Food Manufacturers Institute (FMI), in partnership with Label Insight, show a dramatic change in consumer attitudes towards Transparency has taken place over the last few years. The Transparency Imperative 2018 shows that 93% of consumers continue to say it’s important for brands and manufacturers to provide detailed information about what is in food and how it’s made. But there has been a dramatic increase (74 percent in 2018 compared to 39 percent in 2016) in the number of shoppers who say they would switch from the brand they usually buy to another brand that provides more in-depth product information, beyond what is on the physical label.

The dramatic increase in shoppers who say they are willing to make a switch from their usual brand to the one that provides more in-depth information than appears on the label should be a flashing beacon to category managers across the industry to take transparency seriously. The potential to impact trust and loyalty around products is fundamental to success looking forward.

There’s a clear opportunity for brands and retailers to take leadership roles and increase existing market share by better serving the demand for transparency. There is also an opportunity to create and capture new and profitable market niches as is indicated by the finding that nearly half of shoppers are willing to pay more for a product that offers in-depth product information than what is on the physical label.

Attribute-driven market flips the Category Decision Tree

It can be argued that an attribute-driven market seems to be at a tipping point, a market-level evolution which may fundamentally change the way Category Management takes place. The CatMan + Transparency white paper produced by Director Emeritus of the CMA Gordon Wade, in partnership with Label Insight, is a first step in exploring how these changes may manifest across the category management process. 

One of those significant changes is in the Category Decision Tree itself. In the white paper, Mr. Wade makes the argument that with high-order attribute data, the Category Decision Tree can look very different. In an example, Mr. Wade breaks down the ice cream category in an example Category Management Plan for a fictitious grocer, he explains how the tree may end up looking inverted with the ice cream decisions first being organized by an attribute such as “nothing artificial", or “good for you”. This has the effect of virtually inverting the category decision tree, and it’s not a stretch for one to then imagine that perhaps this has a fundamental impact on “category” management, moving it more towards “attribute category management” - managing products by their causal attribute, such as “Gluten Free”.

CatMan 2.0 wrestled with this.

Of course, although perhaps interesting, this is not a new idea. In the CatMan2.0 - Driving growth in a shopper-centric world, the CMA Best Practice Unit described how they considered a totally different organizing schema than organizing by category. In this section, the authors describe how they considered “whether or not the industry should discard category management as outmoded and embrace some other organizing schema”. But in the end they concluded that, at this stage, the committee felt it would be more productive to "modernize the CatMan1.0 process" than it would be to change the whole discipline.

The authors go on to explain that there were two main reasons why they refrained from making such a fundamental change to the CatMan1.0 process. Firstly, supply chains and partnerships were all organized around categories - suppliers are organized around product categories and rarely span too many categories at one time. Secondly, and possibly even more importantly, they concluded that, hype aside for a moment, most shoppers today still organize their decisions around a category. And so it made sense to keep the category schema as the backbone of category management and to instead modernize by adding a layer of shopper marketing and insight across the process. Hence, CatMan2.0.

They did also specifically address the complexity of another alternative, which would be to organize products by shopper need states such as healthy aging, family care, and wellness. To which they believed there was a lot of validity in organizing category management processes around these types of schema as an augmentation to the existing category management schema and not as a replacement. In fact, they believe that many retailers are already attacking this opportunity from this perspective such as is almost commonly found in infant care and health and wellness need states.

How does e-commerce fall into CatMan2.0?

To wrap up this exploration, it is important to add a short note about the impact that the evolving e-commerce environment may have on the CatMan2.0 process. In most cases, the industry treats e-commerce as an extension to existing category management processes. This makes sense as many retailers are focusing on the significant executional challenges associate with e-commerce, and are not yet at the point of user experience optimization.

However, as we’re beginning to see in other industries the idea around how products are organized and sourced when the shopper interface is digital can significantly change the shape of the decision tree. Perhaps we may need to think of it more as a decision matrix as opposed to a hierarchical tree?

This is a big subject, worth its own space for exploration. On that note I will leave you with the thought that grocery is changing quickly, and evolving category management, as some would say, the backbone to the industry, is key to navigating this change successfully.

 

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Other posts in this series:

1 - Understanding the impact of High Order Attributes on the CPG Industry

2 - How Catman Enables growth in a Transparency Market

3 - Transparency’s Opportunity & Challenge for retailers

4 - Attribute driven market inverts the Category Decision Tree?

 

About Anton Xavier

Anton Xavier is a Co-Founder of Label Insight. With experience in management, operations and marketing, Anton has led the Label Insight team from its inception in Australia and subsequent move to the US, to its current position as a market leading, cloud-based product data engine. Completing postgraduate degrees in Australia, Anton gained invaluable management and marketing experience working with a variety of firms in Asia.