If you define your product category well, you lay the foundation for successful analysis. If you don’t, your analysis can be misleading or useless. Hmm, which is worse? Misleading or useless?
What is the “right” way to define a category? Seems like a simple question but, for some products, there’s not a simple answer. Here are the two most important factors:
How consumers define your category. A shopper-centric category definition would include all the products that meet a similar consumer need. Ask yourself “for a particular usage occasion, what might a consumer choose instead of my product?” If you sell toothpaste, that’s pretty easy. If you sell popcorn, it’s a lot tougher to decide what products to include in your category. Should I include both microwave and ready-to-eat popcorn? What about other salty snacks? What about other relatively healthy snacks like yogurt or granola bars? You can see how this may not be as easy as you first thought!
How retailers define your category? For retailers, in-store location is a major factor and may override how consumers view a category. For example, consumers might see refrigerated orange juice and frozen orange juice as substitutable (I know I do!). But retailers usually break those into two categories which are managed by two different buyers.
Two more factors to consider before finalizing your definition:
How does your management define your category? You may have specific internal reporting requirements. You need a data structure that can deliver on those requirements.
How do IRI/Nielsen define your category? This factor is crucial if you are buying a syndicated database or ad hoc (aka one-time) reports. You must check their categories (sometimes called product modules) to make sure your items and key competitor items are there. Don’t assume anything from the IRI/Nielsen category name!
What to do if you can’t afford (or maybe just can’t manage) the volume of data necessary to meet all your business needs? Consider quarterly or annual ad hoc reports to supplement ongoing data delivery. This can be especially effective if you have a narrow retailer-based category definition but know you need to take a broader look from a consumer perspective.
Before you buy, ask yourself:
1) What are all the ways I could define my category?
2) Which category structure gives me the best analytic return for my data dollar spent?
3) Are there gaps I will need to fill in through occasional analysis of adjacent categories?
Sally,
I love that you zeroed in on the biggest stumbling block to understanding what is going on in your business. Each of the subpopulations that you have identified categorize activity to tell a particular story and the result is that few of the stories connect to each other.
How is it remotely possible for management to tell if consumers who buy Frozen orange juice at their store stop when the refrigerated or fresh offer is discounted or it’s summer or its sunday morning.
The reality is that the least derivative a category you can create makes it possible to add other identifying traits and then put together a more comprehensive analysis.
At the end of the day, connecting your customer preferences to how you manage will get you closer to meaningful results.