e-comm Category Management 101

Been meaning to pen this for a while now, almost as a summary of my learnings from doing category roles in e-commerce for over a decade and counting. During this time, I’ve been fortunate to manage a variety of categories, across both b2c and b2b contexts, ranging from electronic accessories to home & kitchen to large appliances, and now meat.?

Treat this as my humble attempt to entice young folks getting into the e-commerce space on the infinite possibilities and value creation of category management! Here we go!

So, what is “Category”?

In most contexts, “category” is often interchangeably used with “business” and rightly so.

At a very high level, category management is about making high quality decisions to maximise customer experience, within the viability and feasibility constraints of your chosen operating model.

At a more granular level, category is far-reaching and typically influences all the 4Ps of marketing:?

1. Place – Channel Choice / Operating Model
2. Product – Assortment / Shelf Design / Availability
3. Price – Customer Pricing / Margin Management / Vendor Negotiations / Profitability
4. Promotion – Events / Merchandising

In the e-commerce context, a few more dimensions get added to this traditional definition:

• Planning / Forecasting
• Inventory Management
• Seller Management
• Account Management
• Catalog
• Product Ratings / Quality / Customer Experience
• Packaging etc.?

In a nutshell, “category” means “business” and is the heart and soul of your customer proposition.?

So, what are these choices that Category Managers make and why?

In my view, the first pillar on which any category management is built on is Selection. Every operating choice that you then make is usually a function of your selection strategy.?

Selection / Assortment is the range of products that the category team wants to showcase to consumers in a given category. In retail parlance, this is often called a “shelf” with a designed width and depth of SKUs.?

This choice of Selection is typically based on a few parameters / vectors:?

1. Which channels are the dominant or destination channels for these products?
2. What kind of selection width and depth do these channels typically carry?
3. Is this a search category or a browse category?
4. Is this a head category or a tail category?
5. Is this a branded category or unbranded category?
6. What are the typical selling price ranges?
7. Are there regional nuances to selection available in the market?
8. Does selection in this category change seasonally?

This is eventually broken down into a market selection map along the lines of:?

Category x Sub-Category x Vertical x Sub-Verticals x Brand x Price Buckets?

Eg. Home & Kitchen x Cookware x Pressure Cookers x {Inner Lid, Outer Lid etc.} x {Prestige, Pigeon, Hawkins etc.} x {<500, 500-1000, 1000-1500 etc.}

Once this selection view of the market is clear, category will then apply a lens of:

1. Feasibility
2. Viability
3. Assortment Roles?

Feasibility: Can your current supply chain fulfil these products? Do you need any regulatory licenses or certifications to sell these products? Do you have vendors to reliably and consistently source these products from?

Viability: What are the unit economics for this product? What are the typical margins available? What is the estimated breakage / wastage / customer returns? What will be shipping costs for products of this size and value density? What are the expected discounts??

Assortment Roles: What part of your selection will set price perception for your store? Which selection is your margin driver? What selection will drive imagery perception for your store? In your shelf design, do you have the optimal mix of all three?

Feasibility, Viability and Assortment Roles will then converge into the final selection choice / shelf design for the category, which could vary from market to market as well. Once the selection design is clear, the next logical step is to evaluate fulfilment models.?

What should be the ideal fulfilment model for this category?

Typically, in e-commerce, the two dominant fulfilment models are:

1. Inventory Model
2. Marketplace Model?

The inventory model is where the platform itself or sellers on the platform take inventory positions across fulfilment centers. This model usually brings the best possible customer experience in terms of shipment speed, fulfilment reliability and product quality, but obviously comes at a cost of warehousing, working capital etc. Hence, category teams typically use this model for head selection which is high on inventory turns allowing them to work on a negative working capital cycle.?

The marketplace model is where a network of sellers on the platform make their selection available without anyone taking dedicated inventory positions anticipating platform demand. Consequently, this model is extremely scalable in adding selection and enables platforms to add millions of SKUs in tail and torso selection without the additional cost elements of the inventory model. However, customer experience is more unpredictable here since the platforms do not have control or visibility on inventory availability, product quality, packaging quality etc.

Once this choice of fulfilment model is clear, the category teams then work either with retail vendors or marketplace sellers or both, for different parts of the assortment. This will then diverge into managing day to day fulfilment metrics as well as annual vendor negotiations on margins, marketing support, payment terms etc.?

With the selection design and fulfilment models decided, the category teams then work with Planning or In-Stock teams on demand forecasting, seasonality inputs etc. to deliver high levels of availability, while managing inventory health metrics around ageing etc. ?

Now that selection design, fulfilment model and availability is sorted, the next decision to be made is around what do you price every product at. There are typically multiple schools of thought here. The dominant ones are:

1. Determine your most important competitor and match their prices wherever a signal is available. This is usually a tenet to preserve long term store perception on price
2. Wherever that signal does not exist or competition does not carry a given product, platforms look at a cost+ approach considering?both their costs as well as margin objectives to determine pricing

Pricing dovetails into the overall profitability strategy of the category and the category team will drive profitability improvement initiatives across the board such as:

• Discount Management
• Mix Management / ASP Management
• Packaging Costs
• Customer Returns
• Inventory / Working Capital Costs
• Warehousing Costs
• Vendor Margins / Seller Commissions

Once the category flywheel starts spinning, an important feedback loop is around product ratings as a proxy for customer experience. Category teams constantly work to either weed out "poor" quality selection and sellers or in improving products and packaging fundamentally with both vendor and brand partners.

The final part of the category jigsaw puzzle is around merchandising and catalog. While there are typically central merchandising functions, category teams lead the narrative on customer touch points around catalog, category tree design, topical events etc.

In conclusion, the category teams lead and manage most of the critical customer facing inputs of any e-commerce platform business, ranging from selection to pricing to availability to catalog, eventually culminating into revenue delivery. Given how holistic category roles are, my view is that this will set you up perfectly for long term success in business leadership roles.

If you are someone who is just getting started in the e-commerce industry and wants inputs / guidance on how to get started on category roles, feel free to inbox me.

?Cheers!