Why You Win With Online Category Management in E-Commerce

In this blog article, we will cover the following topics:

Category management – a definition
A collaboration between retailers and manufacturers
Responsibilities of a category manager

Objectives of category management

Why category management is also important in e-commerce

The category management process in 8 steps
Foundation: strategic alignment
1. Defining the category from the consumer’s perspective
2. Category role
3. Category assessment
4. Category objectives
5. Strategy development
6. Tactics for your category management
7. Implementation of the action plan
8. Review

Numerous touchpoints between category management and online marketing
Product allocation through keyword and clickstream analyses
Easy category access thanks to an optimized website structure
Development potential based on conversion rate and basket value
Jointly coordinated measures

Conclusion: online category management offers great growth potential

Frequently asked questions about online category management

Category management – a definition

Category management refers to the structured organization of products into specific categories. The focus lies on consumers and their needs. For them, an optimized product assortment makes the shopping experience more efficient. Even more important from the customer’s perspective: the shop understands and fulfills their purchasing needs.

In brick-and-mortar retail, category management has been standard practice for decades: instead of grouping similar products together, complementary products are placed in close proximity. For example, in a supermarket, you’ll find various types of pasta next to pasta sauces, or in a sporting goods store, clothing, shoes, and backpacks for hiking all in the same aisle.

A collaboration between retailers and manufacturers

The category management process is based on a collaboration between retailers and manufacturers, aiming to create a triple-win situation within the bounds of antitrust regulations: satisfied customers, higher profits for retailers, and increased revenue for manufacturers. Product or service categories are treated as strategic business units.

It’s a holistic approach that involves various departments within both companies. Retailers and manufacturers each contribute their specific expertise to successful category management: retailers oversee the coordination between categories, while manufacturers provide in-depth knowledge of the product categories. Both parties share the goal of finding the best possible solution for the customer.

Responsibilities of a category manager

Category management is generally handled by a category manager. Their responsibilities include various tasks such as:

• analyzing shopping baskets,
• defining, structuring, and optimizing product categories (category management process),
• strategically planning product presentation, and
• purchasing and merchandising for the respective product segment.

Objectives of category management

Category management is a strategic, long-term approach. Its goal is to improve customer orientation, which is reflected in higher customer satisfaction. This, in turn, helps generate additional sales and strengthen the brand image. At the same time, the approach creates a competitive advantage: potential buyers perceive a retailer’s expertise in specific product categories and place their trust in them.

Why category management is also important in e-commerce

In e-commerce, category management is still a relatively new concept, but it holds great potential for development. Just like in brick-and-mortar retail, you can meet the consumption needs of your target audiences in your online shop through well-structured product categories and an optimal user experience – increasing customer satisfaction and, in turn, boosting your sales.

The category management process in 8 steps

A globally established 8-step process has proven effective for category management – and it can also be applied to online category management. This process enables a systematic and structured approach. You should go through each of these steps repeatedly to identify and implement opportunities for optimization and growth.

Decisions throughout the different stages are based on data and facts, especially those drawn from online marketing. Close coordination with various departments is therefore essential.

Foundation: strategic alignment

Before the actual process begins, you should discuss strategies, goals, and expectations with the manufacturers for your future product categories. This helps you avoid potential conflicts down the line.

1. Defining the category from the consumer’s perspective

This step focuses on understanding your customers’ decision-making process. Which products or services do they choose together—and why? To answer this, you analyze both quantitative and qualitative data, such as insights from market research.

2. Category role

In this step, you determine how important the selected product category is within the overall portfolio of your shop.

3. Category assessment

Once you’ve defined a product category, the next step is to analyze its performance. Using sales figures and various metrics related to purchasing behavior, you can assess where there is potential for development – especially in comparison to your competitors.

4. Category objectives

To evaluate the success of your product category, you define concrete and measurable goals together with the retailers. These goals typically relate to consumers, financials, market position, and performance. For example, you might aim to reach specific target groups, generate a certain amount of revenue, or elevate a product category into the top three within your online shop.

5. Strategy development

At this stage, the goal is to develop strategies that will help you achieve the previously defined objectives. Marketing strategies may focus on improving conversion rates, increasing average basket value, or boosting profit. In contrast, procurement strategies prioritize more efficient processes.

6. Tactics for your category management

To put your strategies into action, you and your team develop a concrete action plan covering assortment, product placement and visibility in the online shop, pricing, as well as your communication and promotional activities.

7. Implementation of the action plan

Once goals, strategies, and measures have been defined, it’s time to put your plan into action. To ensure the success of your category management efforts, assign clear responsibilities and set deadlines.

8. Review

Regularly review the performance of your product category to identify and implement opportunities for growth and improvement. The goal is to design your assortment as efficiently as possible.

Do you use online category management in your shop? Share your experience with us and feel free to leave a comment!

Numerous touchpoints between category management and online marketing

In online category management, there are many overlaps with online marketing. Both areas can benefit from each other’s expertise by sharing data and jointly implementing measures to ensure successful category management within the online shop.

Product allocation through keyword and clickstream analyses

Online marketing already gathers extensive data for its communication and advertising efforts, conducting various studies such as keyword and clickstream analyses as well as UX tests. This data makes it easier to assign products to the right categories, identify assortment gaps, and complement each product group with suitable items. Additionally, this framework offers opportunities to uncover potential for cross-selling and upselling strategies.

Easy category access thanks to an optimized website structure

Category managers can also use data from online marketing to identify the paths potential customers take when selecting products—and optimize the website structure accordingly. Are visitors searching for specific products or brands? If so, they should be able to navigate these paths using appropriate filter attributes in the onsite search.

In some cases, thematic landing pages, personalized product recommendations, or brand shops can serve as alternative entry points into categories. The goal is to provide your shop visitors with an outstanding customer experience through an optimized website structure. With category management, for example, products related to “barbecuing”—such as grill aprons, spices, charcoal, etc.—can be structured as one product group. This, in turn, can be used to create a themed page for the barbecue season, featuring products and content for the next grill party.

Development potential based on conversion rate and basket value

Using analytics from online marketing – such as website traffic, conversion rate, bounce rate, or average basket value – category management can identify development potential for specific segments. For example, improved user navigation in your online shop can lead to greater success.

Jointly coordinated measures

Online category management determines the marketing focus of a product group. However, specific advertising and communication measures should be coordinated with online marketing to optimally position product offerings for the relevant target groups. The prioritization of certain products and categories within the recommendation engine should also be a joint decision.

Conclusion: online category management offers great growth potential

Secure competitive advantages, strengthen customer loyalty to your shop, and increase your revenue – with a well-thought-out online category management strategy, all of this is possible. A long-term approach breaks away from traditional company structures and unlocks significant growth potential for your shop. Make the most of these benefits and work together with manufacturers to find the best possible solutions for your customers.

Frequently asked questions about online category management

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