Category Management Analysis: Are Your Brands “Over” or “Under” Developed?

by Sue Nicholls, Category Management Knowledge Group

Category Management Analysis

As a category manager working for a retailer, you may have heard  “You are underdeveloped in Brand X or Segment Y in the category, and there’s an opportunity for you to grow in this brand or segment”.  As a category management analyst or sales person working for a supplier, you may have heard “Your retailer is underdeveloped in Brand X, and there’s an opportunity for this retailer to increase development in our brand”.  In both of these instances, the observation of under (or over) development is usually driven by a term called the “Category Development Index (CDI)”.  We are going to be covering the CDI measure in this category management analysis blog.

There’s a tendency to generalize the interpretation of the CDI, or not scratch below the surface and think about what the numbers really mean.  So many category management presentations focus in on this important benchmark number, but with a basic generalization (<100 is “bad” or underdeveloped; >100 is “good” or overdeveloped).  As with most measures, the CDI should be treated with more thoughtful interpretations, by tying in retailer strategies to the numbers.  Let’s take a look below for more details and category management analysis examples.

Category Development Index (CDI):

Calculation:

Brand or Segment Share at retailer ÷ Brand or Segment Share in market x 100

 

Category Management Index

The Category Development Index compares the retailer’s share of a brand or segment to a market’s share.  If an index is below 100, the common interpretation is “Brand #2 is ‘underdeveloped’ and you need to turn this around”, and if it’s above 100, it’s “Brand #1 is ‘overdeveloped’ and you need to give it less support.”  But think about it – if a retailer was to strive to have all of the indices at 100, all that would mean is that they are exactly at par across all of their brands and segments.  It would mean that the retailer was trying to focus on that average market consumer (that doesn’t really exist) without having a much more strategic, targeted consumer focus.

The other problem with the interpretation above is that the category development index does not tie into the retailer’s strategies, or consider what they are trying to accomplish in the category.  Consider if Brand #2 is a value brand that competes directly with their Private Label (Brand #6) brand – they may strategically be targeting this brand to further develop their own Private Label  brand.  In this instance, they would be much more likely to have a low CDI on Brand #2, and a higher CDI on Brand #6.

Here’s another example.  Brand #4 has a CDI that is greater than 100, in fact it’s quite high at a 114.  But consider if this brand is organic, fast growing brand with premium pricing that matches well with their target consumer?   They may want to create a target CDI of 130 or 140 to meet the needs of their premium consumer.

Category Management StrategyIn net, retailers need to be strategic about which brands and segments they want to be “most” and “least” developed in at a category level, based on their target consumer and what they are trying to accomplish in the category.  The CDI is an important measure that retailers should understand, but it should become a benchmark that they can create targets from to ensure they are achieving their overall objectives, instead of something that they gauge performance on based on if the index is greater than, or less than, 100.  And suppliers need to consider the unique retailer strategies when drawing conclusions from these numbers. If they are Brand #2 in the example above at a specific retailer, they are going to have a much more difficult time convincing the retailer that the biggest opportunity is to increase the CDI on Brand #2.

I’ve created an infographic that walks through a basic example of Category Development Index and Fair Share Index, to show you how to look at these to measures more strategically, and based on a retailer’s overall strategies.

Category Management Analysis

 Click here to download a *.pdf version of the infographic.

Start using your CDI measure more strategically, and take your category management analysis to new heights!

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