Avoiding Disastrous Category Management & Assortment Decisions

There have never been more choices available for consumers, which leads to massive challenges for category and assortment managers. Which means being able to predict what happens when product change decisions are made is critical.

How to Avoid Disastrous Category Management and Assortment Decisions

Category management as a discipline started to become popular in the 1980s. Fast forward to 2021, and there’s never been more choice for consumers, creating even more of a category challenge for both CPGs brands and retailers.

The number of SKUs in a given category has exploded, particularly over the last 10 years. According to Nielsen, there are 58% more baby food SKUs, with up to 300 for the largest assortments. Similarly, there are +81% coffee SKUS and +42% in healthcare.

There are new products coming into the market all the time, and making the wrong SKU rationalization decisions can be disastrous for a CPG. For the retailers carrying your products, it’s a complex situation. They want to integrate new products into their assortment, sometimes whilst maintaining the same or shrinking available shelf space. Removing a product can have unintended consequences and can lead previously-loyal shoppers of that product to ditch your entire brand for your competitor, or even leave the retailer entirely.

A retail category manager might choose to remove an obscure, low-margin, and slow-selling product variety – logic often dictates that’s the right thing to do. But that item could be the reason that some of the store’s most profitable customers visit in the first place.

One of the dangers of traditional category management for both brand and retailer is that decisions are made in a simplistic manner by looking at metrics like sell through and margin, but without looking at the assortment from a shopper’s perspective. Then there’s the highly complex task of looking at the store holistically and getting to a granular understanding of how a single change in one category can affect the performance of multiple others. Simultaneously, shopper segmentation and profiling is becoming more complex, as are their tastes, preferences, and behaviors.

It’s becoming clearer all the time that, for many established CPGs and retailers, decades-old approaches are still being used to make critical assortment decisions. Often these decisions use primarily historical data, which in today’s faster-and-faster-moving environment, is like looking in a rearview mirror.

Instead of looking back, the top CPGs use all available data, analyze it in real time, and then make well-founded decisions on which moves to make by being able to accurately predict the effects of change on sales, margins, and revenue. Understanding how categories work together and how changes to them impact consumer behavior and satisfaction are the keys to category and assortment success. Not only will your CPG come out ahead, but accurate forecasts that present the most compelling business case to your retailers and channel partners will build and strengthen hard-won, long-term relationships. Simultaneously, you’ll be able to hone in on optimal plans forpricing and promotions and know which marketing levers to pull in order to grow your market share in the respective category.

Talk to the category management experts at Insite AI to learn how our solution will give you the edge you need.

Critical Priorities for CPGs to Maximize Omnichannel and Ecommerce Opportunities

Online shopping has seen exponential growth in the past several years, and the COVID-19 pandemic has prompted even more shoppers to look to the safety of the web for their needs. Not only is that online behavior prominent now, but many studies have shown the majority of shoppers who are doing their business online plan to continue, leaving both the CPG and retail industries changed forever. According to Boston Consulting Group, product makers are facing a radically less familiar sales environment as more shoppers turn to ecommerce and even directly to brands. In order to succeed in this transformed landscape, CPGs must nurture emerging capabilities, as well as adopt new strategies and partnerships quickly and effectively.

This means a turning point for CPGs, fundamentally changing the way they reach consumers and maximize wallet share. For many years, the growth of ecommerce could almost be ignored, with reliance on physical retail holding strong. According to BCG analysis, ecommerce only accounted for about 3% of all food and beverage sales before COVID. A small volume by most standards. However, the pandemic accelerated ecommerce to represent as much as 15% of total retail food and beverage sales. Most interestingly, the BCG analysts predict that 70% of CPG sales growth through to 2022 will come from ecommerce. This opportunity will be won by the CPGs with the most agile and sophisticated omnichannel capabilities

Online shopping increased by 50% during the pandemic (Nielsen, 2020) and social commerce grew by 37.9% (eMarketer, 2020).

In addition, the 2021 Food and Health Survey from the International Food Information Council reported that 1 in 3 Americans are shopping for groceries online more often, and that the majority of them intend to continue these habits. 1 in 3 Americans are shopping for groceries online more often, and that the majority of them intend to continue these habits.

BCG analysis reveals that 40% of the recent growth in online grocery is from people trying it for the very first time. By 2022, ecommerce’s share of grocery is expected to be as much as 3 times higher than pre-pandemic levels.

So what can you do to capitalize on these opportunities?

1. Accurate forecasting

   An overarching theme of shopping during the pandemic has been an insufficient available product inventory. Shoppers have experienced their standard, favorite, and even second-favorite products going out of stock – sometimes for months on end. This has led shoppers to trial and shift to alternative brands, and those which have been available when needed have often seen a permanent demand shift. Even during the most normal of times, a CPG’s critical capability is to accurately predict and respond to changes in demand, ensuring stock ends up exactly where the real-time need is, whether online or offline. These predictive analytics abilities allow more inventory to be allocated accordingly, whether it’s by geographic region or channel. Are you going to rely on retailer demand forecasts? Wouldn’t it be better to have these insights available in real time and with both accuracy and granularity?

2. How do you adapt your marketing and assortments online?

   The levers for marketing and promotion are completely different when selling online vs. in store. Instead of allocating shelf facings and space with tactical deployment of in-store gondola ends, power aisles, and POS, you are dealing with digital shelves. CPGs need to deploy strong relationships with ecommerce shops to secure online visibility and placement. Additionally, a focus on which range of SKUs in each category are essential to meet demand is imperative. It’s not always possible for a full range to be stocked, so making quick decisions on the most profitable and in-demand lines can mean the difference between winning business or losing it to a competitor.

3. Have a deep understanding of the online consumer

   Well executed consumer activation is reliant on an understanding of the shopper. How will they find you? When someone searches for your product, how and where will you appear in the search results? Are searches being conducted by brand name? Product name? Category? Will the shopper behave differently when they have instant access to consumer-generated content and reviews from other buyers? Winning in omnichannel is no simple or easy battle: balancing retail, DTC, ecommerce, marketplaces like Amazon, and delivery partners such as Instacart keep CPGs on their toes. The most valuable tool for managing these challenges will make sense of multi-channel data and make smart, go-to-market decisions using it in real time.The good news is that technology has risen to the challenge; platforms boosted by machine learning, artificial intelligence, and data science are enabling CPGs to optimize their operations in real time, making sense of the mind-boggling combination of supply, demand, marketing, promotion, assortment, pricing, and activation metrics.

It’s the brands who can make all these complex, go-to-market decisions faster and with more accuracy that stand to grow and earn the largest share of wallet.

Launching a New Product in Crisis Mode

New products are often tricky to launch, but doing so amidst a crisis is even more challenging. Here’s a look at how P&G handled the launch of Microban 24 at the beginning of the COVID-19 pandemic.

It’s Possible But Tricky to Launch a New Product During Crisis Mode. So How?

In January 2020, nobody in CPG could have predicted that certain business categories were about to boom; curbside grocery delivery, video communications platforms, and cleaning products were about to explode, but who could have seen it coming? Businesses in these sectors have experienced real category growth during the pandemic, boosting their businesses by delivering value to consumers when they needed it the most.

The COVID-19 pandemic has shaken most of us to the core and taken most of us by surprise, but it’s not the first such event to have done so and it won’t be the last. CPGs must be ready and have as much insight and prediction ability as possible for what happens next.

In February 2020, P&G launched Microban 24, a cleaning and sanitizing product that could kill 99% of cold and flu viruses. The launch coincided with the beginning of the global COVID-19 pandemic and at a time when shoppers were emptying retailers’ shelves of anything that could kill viruses. Microban 24 was on track to end 2020 with sales of over $200 million – more than twice the original projections.

COVID-19 took most business leaders and CPGs by surprise, including the team at P&G who immediately had a capacity and supply chain challenge on their hands; consumers couldn’t buy the new Microban products fast enough, quickly causing inventory shortages. One of the biggest challenges was even just sourcing enough triggers for the spray bottles.

According to the leaders of the world’s most important CPGs, 2020 and the COVID-19 outbreak have changed consumer behavior forever. According to Marc Pritchard, P&G’s Chief Brand Officer, “these are fundamental changes that aren’t going to go back.”

While 2020 was a year of major growth and opportunity for some CPGs, it was a painful experience for many in adopting new ways of working, including becoming more agile, making faster decisions, and dealing with high levels of future uncertainty.

The Microban story begs a fundamental question for CPGs: how can some of them recover, how can those who have won keep flying high amidst quickly evolving landscapes, and how can they stay ahead of the curve? They must be proactive instead of reactive when it comes to demand and revenue forecasting and the respective requirements in terms of manufacturing, logistics, and sales and marketing support.

Leading CPGs like P&G are turning to AI to assist with highly accurate forecasting, enabling new and established brands in their portfolio to remain nimble and having the ability to evolve plans and strategy in near real time. One of the challenges CPGs face is an overwhelming amount of static, historical data collected across the organization and oftenheld in different silos. While executives have access to modern-day KPI dashboards, these often rely on past data and don’t account for the hundreds of factors that can change consumer demand in a world that’s changing faster than ever.

Imagine your ERP system linked with sales and marketing data, your consumer insights, real-time retailer intelligence, direct-to-consumer channels, news and weather data, as well as up-to-the-minute consumer intent and preference analytics coming from social media and listening.

By running millions of ‘what if’ scenarios in a matter of hours, the right AI tool will allow you to continually optimize your go-to-market plans. This includes modelling decisions on category and brand stretch, category adjacencies, and brand extensions. The right platform will give you the power to predict demand, right down to the most granular level: by SKU, by channel, by retailer, and even down to the individual store.

Test new product variants, price points, and shelf-arrangements months before a product goes live, enabling faster time to market and lower development costs. Test assumptions and validate gut feel without the risk of losing time or making failed investments.

As soon as the world changes, like with a COVID-19-type event, a smart AI tool gives you the power to re-forecast category, demand, and supply-chain issues from beginning to end in hours rather than days or months.

Talk to our CPG solution experts and see forecasting like you’ve never seen it before.