Wednesday, September 17, 2003

Categorical imperative To be found, every retail product must find itself on a well-defined shelf. This process is called categorization. In a supermarket, people looking for kiwi fruit know to visit the fresh foods section; whereas the cottage cheese will be in the dairy case; in a bookstore, the travel guides to Italy are in a distinct region from the novels of Sara Paretsky. Categorization is important in that it removes some of the clutter from decision making, helping the consumer to make decisions within categorical silos. Categories and distinct subcategories narrow down choices to a more easily handled set of alternatives. Instead of choosing between every possible food or beverage in the market, buyers can gradually decide between three brands of raisins or five brands of tuna. But categories are often less than transparent. Does salsa belong near the ketchup in the condiments area or on the same aisle as corn chips? Most markets place it in both places. Does Lebanese flatbread belong next to the English muffins or in the "ethnic foods" area? Can we store fresh pasta alongside the dry kind or with other fresh food on the perimeter of the market? In a bookstore, is a book on computers and business a business book or a computer book? Where would the Borders staff shelve a book that's both a travel and a philosophy book? (If it's Zen and the Art of Motorcycle Maintenance, it might end up in the Automotive section.) Does a great novel like Ellison's Invisible Man go in the "Black Studies" area or alongside Dickens and Faulkner in the literature department? In the music store, is Joni Mitchell pop or rock or folk or jazz? Musicians who cross genres (categories) have no obvious category for buyers to search in, and maybe won't be found. It seems that people organize their relationship to products in terms of categories. As a result, products are much more likely to fail when companies: can't find a clear category with a clearly marked shelf to put it on, or put the product in the wrong category - and the customers who might like to buy it cannot find it, as they are looking on the wrong shelves. Subcategories narrow things down even further. It's not a matter of choosing between shampoos any more. There are so many subcategories to frame our decision: shampoos with conditioner built in, shampoos for dry, medium, oily, or thinning hair, herbal shampoos, organic shampoos, dandruff shampoos, hydrating shampoos, "extreme-clean" shampoos, and more. Truly innovative products are hard to handle because they don't fit easily into existing categories. As mentioned above, stores do not know where to shelve these hybrids; and customers have often no clear map in their head where they should be. As a result, the market is desperate to reward typecasting - if you're going to write a mystery novel, don't have it cross over into sci-fi, too, or historical romance. If you're going to play classic rock on your radio station, don't ever play top 20 or country or urban contemporary. The categorization of radio stations has become an iron law, much to the dismay of those might like a little more of a mix or who prefer any music except from a few predetermined categories. The suppliers (of music, of food, of TV programs, of computers) are keenly aware of these categories and subcategories. What matter is not just whether they've made a good product that consumers like, but also how the product fits into a category. Establishing a new category is an uphill battle; the easier course is to steal shelf space and mind space from existing products. Category mastery is the aim of all producers, and for them the exact set-up of the categories is critical. It's not a matter of getting in the store, but one of getting on the right shelf. One interesting new wrinkle in the supermarkets has been the advent of "category captains." As described in a summary of an FTC report,, Category captains are typically large or important manufacturers upon whom retailers rely to provide information on how best to manage a particular line of products. For example, a supermarket might rely on a major soup producer to provide it with test marketing data on how best to place canned soups on shelves in relation to instant soups. The ostensible purpose is centralize marketing, but the consequence, of course, is the exclusion of smaller manufacturers. As the FTC report notes Exclusion may occur where information exchanges between a retailer and a captain allow the captain to obtain sensitive or proprietary information about rivals, creating incentives for the captain to advise management practices designed more to disadvantage rivals' products than to promote sales in the entire product category. Collusion between retailers may arise in cases where a single manufacturer serves as captain to a number of retailers in a region. Identical category management advice provided by that captain may facilitate explicit or tacit collusion among retailers. Likewise, where a retailer encourages its important manufacturers to agree upon a single category management recommendation, the result may be collusion (explicit or tacit) among manufacturers This practice, which is an outgrowth of slotting fees, we'll discuss in fuller detail in some later entry. 10:04:23 PM

comment []