areasfoil

CATEGORY PERFORM;
> CATEGOR
DEFINmOt' MEASUf STRATEGII
,

-
eaorv Defi~ i n
I1 and purchasing decision trees and to determine SKUs in the category 1
. Cateaorv Role To communicate the category role determined during the strategic .
-
phase -. -
Â¥
;I

3. Category Assessment To iden - nts which are important to target shoppers

To identify the gap between goals and current performance at the
sub-category level
To identify key opportunities versus the competition for the retailer'
target shoppers
To identify which products help build traffic, incidence, trans
profit
To identify the key tactical drivers which may impact the segment's
performance -
.&&&
~ " W Z J,

To quantify the market opportunity identified during category

assessment and create the benchmark for the on-going review
To communicate which strategies the retailer and category will follow
To confirm key product characteristics that will deliver against the,
I strategies
To provide guidelines for tactics, based upon chosen strategies ^y;
Category Tactics 1 To determine how to reach consumers through range, pri '

promotion and merchandising

The Essential Guide t o Day-to-Day Category Management

 -
Stage 1: Category Definition

The Key Business Question: Information about target shoppers is usually

gathered via consumer panels and customised
Dl. How should the SKUs within the category be research, which are frequently carried out by
segmented, based on consumer decision trees and supplier(s). Nevertheless, a retailer may choose to I

therefore what SKUs should be included in the define a category differently from its supplier(s). I
category'
I
Category definitions are becoming increasingly
varied and retailer specific over time and this
Category Definition can be critical to a retailer's tendency poses significant challenges to efficient
differentiation strategy because the way the data delivery as market information companies "1
retailer segments i t s category will impact i t s are asked to conform to individual retailer's I
market position. Consequently, a clear definitions.
understanding of the target shoppers' needs,
I
buying behaviour, and the inter-relationships Where a retailer and category adviser have
J
between product attributes that govern their determined the category definition, as long as
choices, is essential. there are no significant market changes, or new I
insights, the category definition only requires a
'sense check'. A half day workshop is usually
sufficient to allow for confirmation of the
structure and definition.
- * - ,.

From an organisationalpoint of view, it is imperative that categories are organised

according to consumers buying behavwur. Hence, where consumers think of solutions (e.g.
'7 want an 7talian meal"' - which could include spaghetti, mince, tomatoes, wine etc. -
rather than more traditional supplier categories based aroundproducts - meat, pasta etc),
these products need to be grouped and be seen as a category, i f this is how a consumer makes
purchasing &&ions.

The following explanations of category re-

definitions must be included where applicable.

Any consumer research which impacts the

category definition and decision tree .

 Any major changes should be dearly -'¥fe.+

highlightedwith supporting rationale (as t his
may Impact the merchandising)
A view on the supplier's, retailer'sand market
information companies' category structure,
data comparability and consi.stency across the
three sources (1.e. how comparablethey are
without re-codi g). This provides insight into
any time lag >nd monitoring implicationsIn
data provision, going forward.
b. Ç

The Essential Guide to Day-to-Day Category Management

The category definition should be defined for at least four levels: ,

-
Template D l How should the SKUs within the category be segmented, based on consumer decision trees
and therefore what SKUs should be included in the category?

:ourtesy of The Partnering Group

Note: In terms of data delivery, it is critical that this step is agreed and signed off by both the retailer and,
supplier t o enable marketing information companies t o construct data in the required format in a timely
manner. Companies should be aware that there may be a time lag and potential additional costs for data
delivery associated with re-defining categories and re-creating data structures.

Stage 2: Category Role

This stage involves communicating the category

role which was allocated during the Retailer
Strategic Phase. Objectives of each role are given
in Table 5.

Role Objectives
Defines the image of the retailer
Very important to target shoppers
Leads all categories in terms of sales growth
High percentage of-.resource
- -

Provides a balance between value, growth and profit

Important to consumers as part of their everyday grocery needs
---- -- - -. --
Provides opportunity for additional 'convenience' purchase
Reinforces the image of the retailer as a one-stop shop
Provides opportunity for profit growth

Table 5: Category Role

Adapted from The Partnering Group

Note: Most seasonal categories, by their very nature, are likely to be 'destinationltrafficdrivers' and therefore should be treated as such, depending
upon their value.
t

- ,

The Essential Guide t o Day-to-Day Category Management

Stage 3: Category Assessment be 5 Key Business Questions "1
This phase has historically (in the 8-step model), Al. What are the demogrqhics of the sefwents?
included consumer and retailer assessments. A2. Who are the key competitors in the category?
However, in the Day-to-Day process, these A3. Haw are the segments performing (where are the
analyses have already been conducted during the opportunitiesfor growth/improvement)?
Retailer Strategy phase. Consequently, the A4. Whichproducts help build traffic, incidence,,.
market assessment conducted here is relatively transactwn andprofit? " ,+-r^.,5,- * ,

straightforward, consisting o f only five Key AS. What are the key tactical drivers which rnay be
Business Questions: impacting segment performance?

at are the demographics of the segments?

The objective is to:

I
Establish whether the category's shoppers
match the retailer's target shoppers (by
demographics)
Determine which segments and brands are
most important t o the target shoppers. -

I
u

I
I
I
the retailer's performance.

Template A1
i
I
Â
-
kgment A national I

Iperson households
!person households
4 person households
MI household group#
.eve1 of affluence
ifestyle

dentified t a w

The Essential Guide t o Day-to-Day Category Management

A2: Who are the key competitors in the category?

The key competitors in the category can be

determined by:

Understanding what spend within the

category is lost, i.e. where do the retailer's
shoppers also shop for the category
Comparing their fair-share (market share at a
national level) to their category share

Based on this understanding, the retailer will

decide which competitors should be most closely
monitored during category tactic planning.

I Outputs torsover-perform against their respective fair share -

I 1 A view on which competitors should be most closely monitored (in a qualitative
manner and using household panel)
Insights1 0 Where a competitor is over-represented in a category, i.e. Category share greater
Recommend-

-
ations I than fair share. For instance, if Competitor A has 25% market share at a national
level, but 35% at a category level, the simple ratio of 35%/25% indicates its I

I Additional
Analysis 1
strength and over performanceltrading in that category
Analysis on how competitors' performance have been changing over time
Analysis t o determine where residual spend is being lost from primary

I buyersheavy users or loyal shoppers (i.e.: focus the analysis)

I

Template A2

oend % Marke id for retailer Fair share I

The Essential Guide

 A3: How are the segments performing (where are
the opportunities for growth/improvement)?

The segment's performance, and hence

opportunities for growth/improvement, can be
determined by:

Conducting a year-on-year comparison of the - Sales value for the category and its make-up
category segments. This will be based on the - Gross margin and profit (where itcan be ' H: .
following elements: calculated) .- ,..
-Number of shopping trips Benchmarking the above elementsagainst b e . <
-Percent of trips which contain the category market, t o determine which segments under
(conversion rate) and over-perform, and, where possible. Index
-Average basket value (for those baskets that the year-on-year trends
contain the category)

tw znterpretation purposes, a number of graphical outputs can be used to highlight tht

opportunitiesfrom this data. Poss1'bIe representations inchubs a 'Ibubbk chart': where w e
hubbIe is the market value of the category, they-axisis the growth year-on-year and the x-
axis is the profitability for the retailer - there are many
category team can use to assess the opportunity.
tl?t&m +- ^'^
3++&p+
ygs-^fs-s^
Â

V n c e of the segment over time

Performance of the segment relative t o the market over
insights1 A view on whether sufficient number of shoppers visit the

ations
1
right number of shoppers buy the category
A view on the opportunities for improvement (number of trips, conversion etc.)
based on shoppers' spending on the category
I1
1 A view on how the segments are performing in relation t o the market year-on-year 1
A clear indication on where profit could be improved
Additional Drill down t o SKU level

Template A3

trips
1
ipping last y e a r that 1
lo of Index vs % of trips Index

'"ntain
vs last
"ear
Value
(basted
Index
Ã
trans- last year
.Won actions

Category
Sub Category

N.B. Volume and value data can be used here (e.g. in EDLP/Loss leader environments, volume data would be recommended).

The Essential Guide t o Day-to-Day Category Management

- .
A4: Which products help build traffic, incidence,
transaction and profit?

An understanding of the year-on-year changes of

the following factors by segment will help to
determine which products build traffic, incidence,
transaction and profit:

W Penetration
W Frequenv
W Annual Spend
H Volume

Pertarmance of the segments in terms of traffic, incidence, transaction and profit

A view on which segments the category manager and account managers will ne
Recommend to focus on when developing their strategy. For instance:
- a low annual spend may suggest wrong product mix. This conclusion will then be
used to drive the category review and tactics ;
- frequency, e.g. if consumer is buying detergents in the market eight times a year'
but only twice in the retailer's stores' the conclusion is that there exists an
opportunity to drive purchasing incidence t

Analysis by competitor can give insight (from household panel data)

-
Template A4

Benchmark vs market
~
Penetra- lndexvs ; iual
end HI11
Index vs Frequency Index vs Transact- Index vs
last year last year ion size last p i last year

category
Sub Categoty

The Essential
A5: What are the key tactical drivers which may
be impacting segment performance?

It is important t o assess where, at a tactical level, To provide greatest insight, the retailer's
there may be a problem or opportunity. A high category tactics should be benchmarked against
level review of the category tactics can be the marketlchannel. This will ensure that early
performed t o assess the: focus can be given t o any appropriate tactics as
the development of the plan moves t o the 1
Range coverage tactical stage. I
D Pricing differentials
Merchandising
W Promotions

ier 1 anal* hoks at p w t b andpmpt to MentaB key opportunities; and qualitative&

competitors' stmngths and weaknesses. Tmphtes A3 and& i m l d b e n c h r k n g
erever possibh. Category Advkers aw o h abh to a& insight on seasonal &

h Outputs 1 -
Performance of the sub-seqments in terms of the factorssile
t-

~
A view on whether the range is correct (based on sample market covg-, -el
Recommend-
ations
A view on price range (entry and exit) versus the market
A view on percentage space allocation versus the market
qs->t-*;
+.. . -;. %S--@y
gJq
. *,A+6$&p
.;+:.t.+?
- +.
.,. 4 > 7 ~ < i , * G~ p
%-,?c ?
+

;;.-
>. .
7 7

A view on the number of promotions versus the market

ef' *$

,, L ~#- '%t,. - - i.
<%-,

; , ,-+c*v7;,. "" ."!>q? ;. 1

,+%&*.8-

A < I1
A view on own label share versus market, where possible and reIe~i!ihY
Review suppliers' share of the categorylsegment t o get guidance on the supplier's
Analysis strategy (bearing in mind that this analysis alone will not be sufficient t o dire&
4 1

Template A5

Sub Cateaor
Segment

N.B. Grey shaded boxes indicate that data may not be available, howew where available, it will provide greater insight.

The Essential Guide t o Day-to-Day Category Management

illustrative 5f; maw.& S W Q & , & ~- , -
Assessment Summary Output
A view on the demographic fit between the good performers, i.e. is the category value delivered by
segmentshrands that are important t o the target shopper group(s)?
A view of key competitors t o track, learn from and gain share from
A view on where the retailer over and under-performs in terms of total market and channel (i.e. whz
are the sub-categoryl segment and brand opportunities for growthl in light of overall grocery retail
market performance)
A view on which segments and brands are actually driving growth and share R
A view on any restrictions due t o already high performance
0 A view on the declining (and rate of decline) segments and the reasons for the decline

A view on what creates value in the category

- what is the level of penetration, loyalty, frequency and overall spend?
-what is likely t o be the category driver going forward, upon which the strategy will be developedl and
how does it fit with the retailer's overall strategy?

The views from each key question will be gathered using Table 6..

Key Questions Insights lmplicationlAction

A1 . What are the demographics of the
segments? rn 0

42. Who are the key competitors in the

AS. now are m e segrnenn perrorrnmg (wnere

are the opportunities for 0

arowthhm~rovement~?

1 A5. What are the key tactical drivers which

1 may be impacting segment performance?
1 0 0

Table 6: Summary output from CategoryAssessment stage

The Essential Guide t o Day-to-Day Category Management

Stage 4: Performance Measures

This stage quantifies the market opportunity Strategy and Category Assessment directions may
identified during the Category Assessment stage, identify different opportunities -these need to
which will be used to create the benchmark for be agreed and committed to, by both the
scorecard and on-going review at the sub- category team and senior management.
category and segment level.

The sum of the sub-categoty opportunities

identified during the Category Assessment stage
using a bottom-up approach, should equal the category and what targeh *L7ukdbe set? 1
opportunity gap identified in the Retailer
Strategy phase (top-down, R6). This is because, The size of the market opportunity within the
the R6 top-down analysis highlights the potential category can be quantified in terms of the
category opportunity based largely on fair share following criteria:
analysis.
-
H Value drivers, Number of trips, Number of
Meanwhile, the insights from the Categoty shoppers, % of baskets that contain category,
Assessment stage can be used to estimate Value transaction size
opportunities for a brand, segment and category, -
H Financials Sales value, gross margin and prof&
using a bottom-up approach. The Retailer -
H Markets Value share, over-trade

Target --illbe se* jainst each criteria.

W G e segments in terms of the me- abov~

Insights1 A quantifiable benchmark against which the retailer can measure the category's. I+<

Recommend- performance and confirm how the opportunity (financial) gap is likely to be filled, :
ations i.e. whether by shoppers spending more, or spending more often, or by
attracting new shoppers
Additional For some companies, additional measures may be included, e.g. asset utilisation-
Analysis can add further insights on the cosVsupply side (a menu that can be incorporated
into the performance tracking if required and relevant for the category is given
Appendix V )
Additional categoty specific measures may be used, where appropriate
(e.g. waste in fresh foods)

Template P I

No of trips (shoppers]
% of baskets that
contain category
Value transaction
size I
sales value I

1 Overtrade
N.6.
The variance between cun-ent perfotmance and tatyet performance will depend upon the role of the category
The measures must be consistent w&h the demand drivers Q.e. tmffic, tmnsaction etc). Under certain market c o n d m d u r n l7gut-e~may be
induded (e.g. introduction of ED& or 10s leader competition and price wars - as value and wluhe may tell d&rentstoties)
The anabis can be performed at the lower levels of sub- cat ego^ segment, etc.

The Essential Guide to Day-to-Day Category Management 49

 - -- - .... - -- --~

Stage 5: Category Strategies

This stage represents a critical link between the

retailer's overall store strategy and the indiiidual category strategy influences the tactical
category strategy. It identifies how the total opportunities (illustrated i n Table 8).
store strategy should guide the category strategy
. .-
1 In the Tier 1 afi rh, catq 1 strategies may be simplyficusing growth andpro$t

Driver
% of shop trips
that contain
the category 1
Re@..-.
value r Gross margin Actual profit 1

profit
total store total #of (increase the
opportunities shOPpnlfreq) profit of each
basket)

--
Y
(Convert more (incwase size profii
shoppers to of total (increase the
the category transaction or profit of the
or more often] buy more often] catwry)
caWory)

LOW volume Larger sizes Convenience

products
bought 3 4 1
year
- @ Impulsive
families
L O Y ~ ~
* Low prm
sensitivity

Table 7: Driven, opportunitiesand strategies

I
Tot$ # 4 '
Range Focus on building Building baskets with Building sale of Convenience, loyalty, Les SKUdright
W J s with h'gh products h g h t less larger sizes, impul*, low price mRivity S U k higher turns,
enetratbn, high frequenry frequently families I- complexity

New products Build on manufacturers'awarenw, trial Initiativesto build lnitiatiies to meet loyal
shopper needs
Less failurdsp,
Less wasted lab~ur
1
investment

traffic build, apphcable for â ‚ ¬ 0 improved p l a h m i

mNhanits tojnduce stratem, Crmcatmow and delivew

witching behaviour

I ononqmentsboughtbyta
o m elsewhere. POS to build tra
More space to w m e n b
bought by biq spenders.
More space to segmen
- bv, loval
bouaht . S ~ O. D D

-
Maximbe customer coverage of floor space. POGOpiomAe high D~splaysto explo~tcross
R e d ~ 00s
e margin products. POS for categov d e s Mlnlm~se
cross category purchases 005 on h~ghloyalty
Reduce OOS segmentdbr~nrk

Table 8: /llusttative Guidelines for tactics in light of caiqwry driven

The Essential Guide t o Day-to-Day Category Management

., :
%
As a rule of thumb, the retailer should focus on loyalty from 7% t o 8%. The same principle
the areas which are likely t o achieve the applies t o the other strategies outlined in Table
maximum benefit in terms of profit and sales. 8. The retailer therefore, must consider the
The incremental benefit for increasing loyalty incremental benefit versus the incremental cost,
will entail a cost that i s higher when loyalty is and select the opportunities which generate the
already high, i.e. moving loyalty from 40% t o highest net incremental benefit.
41 % will entail a cost that is higher than moving

Category Driver

I
Primary Focus

Tertiary Focus
0

on c ?gyfocus in ter rl
Recommend, - key drivers
- t h e overall store opportunity
the individual category strategy
, the product characteristics which should be used t o drive the strategy delive.,
Additional 1 NA-
Analysis 1

Each category review will need to determine what the retailer perceives zu category driver
and strategy should be. Thereafter, a focus on which elements of the tactical mix will deliver
the chosen driver is required.
For example, a category team may concentrate on three leveh offocus:
Primary focus: merchandising to improve the visibility of k g lines
Secondaryfocus: pricing mixfor non-pricesensitive SKUs
Tertiaryfocus: Range management (knowing this is already nearly correct)

The Essential Guide t o Day-to-Day Category Management

Stage 6: Category Tactic
Development
YR Rany/Assortment: What is the op
Having gathered sufficient data for an 80:20 fartheretaHer?
analysis (i.e. 80% of the insights obtained from n* Pricing What is the optimalpricing structurefor
20% of analysis), analysed the relevant market, the retaih?
developed insights and set performance metrics, FE. Promotion: What is the optimalpromotions mix
the retailer is now ready t o determine what tactics for the retai'h?
will be used t o deliver the strategy. The retailer TM. Merchandising: What is the optimal w e of
and supplier(s) aim for the best tactical mix t o spacelsignage and adjacenciesfor the retailer?
satisfy their target shoppers in terms of range,
pricing, promotions and merchandising.

This process is not intended to be prescriptive but

presents an opportunity for creativity and it is here
that the retailer can further harness competitive
advantage.
If a major review is being conducted, a category
Many companies will have mechanisms and may undergo significant changes. Under suth
toolkits for developing category tactics. Some circumstances, involvement of field staff
will have automated specific parts of the tactical throughout this stage is essential. It is also
analysis using various tools, e.g. pricing and recommended t o use regional staff and
promotion. All these mechanisms and tools merchandising t o review recommendationsand
should be used t o build upon the base level of build changes into implementation plans so that
information proposed in the Day-to-Day process, they are in line with other store activities.
only when they genuinely add insight and value, Equally, it is important that the affected supplier
and not waste resources better allocated agrees up-front, the boundaries of its analysis,
elsewhere. the confinement of the legal obligation of its
advice (e.g. a supplier can advise a retailer on
The development of an implementable category pricing or product mix but the actual output is
plan requires the early involvement of specific entirely at the discretion of the retailer),& roles,
experts or functions. Table 9 provides some responsibilities and access t o the collated
guidelines for this. information.

Store Operations To confirm the impact of store roll-out and manage the roll-out timetable
To confirm the feasibility of tactical recommendations, especially regarding
1
timing for new product introductions and de-lists, promotional calendars,
merchandisina recommendations, etc.
To confirm the appropriateness of the plan and evaluate the extent of. icjt:Kj
disruption at store level , ''5 - ' ^
,<'
-A?.-d
To assess the additional resources required for major category changes=,,
To manage programme for major re-lays
Regional Directors1
Store Managers

ianagemer* -f chi----
Table 9: Guide for mtes and responsibilities

The Essential Guide t o Day-to-Day Category Management

Inputs to the Tactical Phase

A number of inputs (from the preceding phases)

will be used to develop the category tactics:
Corporate Strategy and strategies to support
the tactics:
- Ranaina Strateav (e.g. is the retailer about
breadth or depth?)
- Pricina Strategy (e.g. is the retailer about
EDLP and loyalty, and what is the price
perception versus price reality?)
Promotions Strategy (which links with
pricing, i.e. if EDLP, then the retailer will
focus less on promotions and work with
suppliers to keep prices low)
- Merchandisina Strategy (e.g. how important
is the 'look and feel' of the retailer's stores
and how does the retailer use
promotional/seasonal space?). This includes
the allocation of space for each category
(often with variations according to factors
such as regionality and store size)
A clear understanding of what the retailer's
target shoppers are buying: Range -What is the optimal
- which segments, brands and products are assortment for the Retailer?
important to them? (A1)
An indication of the size of the opportunity
within each category and sub-category, and
what the likely causes of the under-
performance may be (A3 & A4):
- e.g. wrong customers/products, low
penetrationlfrequency?
Assessment of which category tactics will best
close the gap - with input from the Retailer
Strategy phase:
- R6 (Strategy) TRI: What exists in the market and are there any
- PI, A3. A5 (performance metrics) missing SKUs?
- Table 9 (tactical guidelines)
A view on which competitors to track A retailer can determine if any SKUs are missing
(e.g. in pricing) from its own range by:

Reviewing the market and channel coverage

vs. the retailer coverage
Identifyingforthcoming new products
introductions from a supplier
Where data is available, ranking of sales in
volume or value will identify the most
important missing products

The Essential Guide to Day-to-Day Category Management

 -ammend- A recommendation for new product introductions
ations The timing plan for introduction

emplate TR1

SKU Present? SKI

T-*' 'I1 SKUs - -

ToA-' Char--' ---crag- Total=Retait-- "overage

Note: When introducing a new product, a retailer

should 'walk the product through the supply
chain' to assess how the product might impact
costs and complexity.

Considerations should be given to:

W Whether the new product will increase shelf H Processes which are autornatedhnanual
space utilisation H Cross docking opportunities and whether this
W Whether the product is easy to merchandise in can be done in light of volume potential
store W Whether delivery can be directed to store and
Handling costs, by estimating potential whether this would deliver any benefits
volumes and processes, asking questions How the product will be handled in the depot
around any double handling (pallets. ¤ts .- -. .. -
r 'a y^t 3-d tui((fiii<^tfW1"

Tier 1 analysts considers how appropkte the distribution is, in terms of density,
completeness of range, right rangefor right format,and whether segments, brands, and
SKUs are performing, including own label products where applicable.

The Essential Guide to Day-to-Day Category

TR2: What SKUs are unproductive and should be
deleted?

SKUs and range productivity can be determined TR2a) 80120 SKU Cumulanve sales analysis
using a variety of methods. A toolkit consisting
of 3 analyses is provided here and practitioners
may choose between the options, but are
strongly urged t o run sense-checks on the results
prior t o making any de-list recommendation.
The 3 analyses are:

TR2a. Cumulative Sales Analysis (80:20)

Cumulativesales
TR2b. Contribution t o Financial Performance
TR2c. Productivity figure 7: Output from Template TR2a Conduct for market and retailer

TR2b) Are SI :s/brands/SKUs " :ategory under-contributing t o financial per' nance

:>alesvalue woss margin
contribution % contribution 9
1 Category Top 50%
Bottom
-- 1
Top 50%
Bottom 20%
Top 50%
Bottom 20%
Top 50%

Template TR2b - May conduct drill-down analysis for brands using same table

TR2c) Is the category productive at market and

retailer level?
f t - 1 However, before a SKU is de-listed, it should be
verified against the list below. If positive
Where segments accom response is given t o any of the checks, the retailer
foi low% of value - may consider keeping it.
if the are low
priceloss leaders a
nd generating
interestthis is fine,
otherwisewhat am I
doing to change this
H Variety (i.e.: not duplication)
H Spontaneous awareness
Segments W High usage level
W High loyalty
Figure 8: Output from Template TR2c H Strong regional following
H Low cost of keeping
SKUs can be identified as 'unproductive' and Part of investment of growth strategy
potential candidates for de-listing if: H SKU is growing
Impact on corporate image is high
W They are in the tail of template TR2a
W They are in the bottom 20% in template TR2b Additionally, some segments may display
They are in the bottom two quadrants in TR2c artificially low value if they are positioned as low
pricelloss leaders. These segments must be
evaluated differently - for instance, based on
level of interest' generated.

The Essential Guide t o Day-to-Day Category Management

Optional Additional Range Analysis Spendina and basket size:
In terms of privatelown label, the strategy must Use segments through to SKU level that are
be aligned with that of the category. A retailer purchased by big spenders and therefore need
may want to conduct a separate analysis for own
label. Data is often difficult to obtain on own could be used to make this impact.
label, but where appropriate and possible, Lovalty and freauenfi~i
comparisons and analysis should be conducted. Use segments through ~ O S K U
level that are
Depth of distribution - in which stores (size of bought by loyal shoppers and therefore need
stores, or region) are the products listed? Is to be in stock at all times.
there a rationale for broadeningthe distribution
- e.g. where larger pack sizes are purchased and
preferred they should be introduced into the
'local'/'metro'/'high street' stores to deliver
improved consumer satisfaction.
Regional analysis - which products are important
in each region

Output Check of Ranging Tactic

Recommendations- Illustrative Ranging Options the retailer?
The output recommendations should then be
checked against the category strategy chosen by
the retailer:

Penetration and Traffic B u i l d w TP1. Whichproducts are highly elastic and require
Make use of segments, brands and SKUs with constant monitoring?
high reach which are purchased by target TP2. Whichproducts contribute to margt'n and where is
shoppers, but bought elsewhere. These should the opportunity? (vis-a-vis competitors'prices)
be added to the range. TP3.How does basepricing cornpare with promotional
Conversion: pricing (in the retailer and in the market)?
Use segments through to SKU level to build
conversion and, where possible, to convert
shoppers to the category.

Her 1 analysts looks at k g price point coverage, KVLfor tracking, competitorpricing

strategies and emures allpment withpricingpolicy andprice inflation.
1

The Essential Guide to Day-to-Day Category Management

TPI. Which products are highly elastic and
require constant monitoring?

Products that are highly elastic and require

constant monitoring can be identified using a
2 step process:

Step 1: Segment category into different clusters

based on quality and market positioning
Step 2: Group products according t o their
elasticity

Step 1: Segment category into different clusters Step 2: Group products according t o their
based on quality and market positioning elasticity
This is performed by segmenting the Although complex econometric
category by price. In markets where modelling can be used t o compute
there is already a premium, leader, elasticity, there are usually insufficient
secondary, tertiary, own brand pricing data points available. As a result, this
architecture (and also if products are assessment becomes more of a
stable in pricing terms, i.e. static), the qualitative assessment by the category
retailer can move t o Step 2. manager, inferred from ad-hoc research f
and consumer understanding. 1
1
II
The following three categories of elasticity should a
be identified:

Su~er-dynamics(SD) - category is checked

I
everyday or twice a week (e.g. Coca Cola) I
Dynamics (D) - category is checked weekly or
I
every two weeks (e.g. Pepsi Cola)
W (S) -category is checked monthly or (
every three months (e.g. Virgin Cola)

The results are used t o determine the frequency

of tracking competitors' pricing. Premium brands
tend t o require most regular monitoring.

Recommend- which require regular tracking going forward

ations
Additional Econometric modelling for sophisticated analysis
-Analysis

Template T P ~'

The Essential Guide t o Day-to-Day Category Management

TP2 Which products are contributing to margin
and where is the opportunity
(vis-a-vis competitors' prices)?

The retailer determines the products which

contribute to margin by:

H Comparing price levels with the competition

Identifying the elasticity
Estimating sales, gross margin and contribution

A recommendation on pricing and margin levels

margin mix in the category

Identification of segments which offer potential for margin increase either
through price or volume ."
Additional . Qualitative/ad-hoc research, to include coverage of competitive SKUs; adds more
Analysis insight into opportunities for price changes
A data aggregation or neutralisation at category level would enable this
information to be shared with the category adviser

Template TP2

% Sale! Gross
----:-
m,
I
Elasticity
factor
1 I --:--
I price I
Com~petiorA Competitor 1 Competitor C Gross matgin
fd-:LÂ¥.L

1 Totalled to

TP3: How does base pricing compare with

promotional pricing (in the retailer and in the
market)?

In order to determine the spread between base

prices and promotional prices in the retailer and
the market, an understanding of the following 2
questions is required:

Is the retailer spread comparable to or

different from the market?
Is the retailer's spread appropriaWsufficient?

These can be determined by:

Tracking the current and previous period base

and promotional prices
Comparing the retailer to the market

Â¥"+Essential Guide to Day-to-Day Category Management

 issues exist or where IoyaltyIEDLPstrategies are being introduced)

Additional N.A.
Analysis

Template TP3
Base price Promotional price

-
-

Category
Sub-Category
Sub-Category B
Current Compari
period son
period
current
period
1 1 1
Current Compari- Current Compari
period son
period
period son
Current
price
ndex to
market
1
I
Output Check of Pricing Tactic Recommendations Promotion -What is the optimal promotions mix
- Illustrative Pricing Options: for the Retailer?
The output recommendationsshould then be I
checked against the category strategy chosen by 'he Key Business Questions
the retailer:
Penetration and Traffic: TE1. What promotional activities are occurring in the
Use segments, brands and individual products market (competitor intensity and number of
which build price image promotions)?
Determine which highly elastic products must TE2. Do promotions in this category deliver real
have an absolutely correct price growth?
Conversion: TE3. Which SKUs deliver the greatest gro
Determine how price can be used t o promote TE4. Whatpromotional mechanics should be us
trial and increase purchase what times, to optimise the promotions mix?
S~endinaand basket size:
Focus on the big spender segments
Determine how price elasticity can be exploited
Lovalty and freauency:
Use pricing tools which attract loyal shoppers,
e.g. EDLP .
Use pricing t o encourage frequency of
purchase

The Essential Guide t o Day-to-Day Category Management

 lier 1 analysis looks at whether this is a category which is normallypromoted either by the
retailer or competitors; a view on how the top 10promotwns haveperformed and to which
pear to respond

In the medium to longer term, as the industry

uses more direct channels and other non-
trackable below-the-line options, it will be
increasingly difficult to know what promotional
activity is underway and t o monitor competitors'
activities. Nevertheless, retailers should still be
able t o enhance the effectiveness of their own
promotions t o build a loyal shopper base.

TE1: What promotional activities are occurring in

the market (competitor intensity and number of
L

' ^
promotions)? -^. ..,.
.
,

Promotional activities in the market can be Frequency . .

determined simply by field research. The Intensity $-;-
following factors must be considered: W Mechanic ' ^ s
W Timing
Volume sold on promotion

e n s i t y , mechanic used, m it ni-n promotio^^^ft

and key competitors, benchmarked against the market, will allow a retailer to
determine the level of competitiveness and reliance on promotions in the category
Understanding of key differences in promotional activity vs. competitors
Insights1 The information gathered sets the recommended parameters for promotions in
Recommend- terms of number, intensity and timing; and guides the development of promotion
ations tactics in the future, e.g.
-Where competitors are highly active in promotions but a retailer is less active,
this may account for troughs in the retailer's sales, even when operating under
EDLP strategy
Additional Suppliers can often add qualitative insight t o promotional activii nd
Analysis success in the market

Template TE1

Frequency of promos
Intensity of promos
Mechanism
Timing (for calendar)
.. . .. Ñ

The Essential Guide t o Day-to-Day Category Management

TE2: Do promotions in this category deliver real
growth?

The effectiveness of promotion for a category can

be determined by analysing the total volume
sold, split by promotion and non-promotion
volume, at the category, segment and brand level.

This analysis determines whether the category is

generating real revenue or whether it relies on
promotional volume t o maintain share.

Output-
Insights1
Recommend- 1 ~romotionalsuccess
-Figure 9: output from Template TEZ
- Time

(at category, segment and brand IeveO

* ~ h e t h e i l a t e g o m r o w i n g à ‘ à ‘ i m pbeing supported by promotional volu

A qualitative view on peaks and troughs can add further insight into drivers
1
I

I
dditional teview sales split b. iutral, baseline, and incremental sales-
Analysis

TE3: Which SKUs deliver the greatest growth?

The SKUs which deliver greatest growth can be

determined by:

Building on TE2 to identify which brands and

segments have been on promotion each week
H Comparing the weekly campaigns to rank them
by incremental li*

An undmnding, on a weekly basis, of which promotions have-b

down t o SKU level
An understanding of the lengthtintensity of promotions and overall volume impact
An understanding 6f the retailer's reliance on particular SKUs for promotional activity
Benchmark of retailer's discount level by promotion mechanics vs. market's
Insightsl A view on which SKUs, promotions and intensity are most productivein terms of
Recommend- delivering incremental value
ations A view on which timeframes are best for promotions
A qualitative view on which suppliers are supporting promotional activity
N.A.

1 Analysis

Template TE3

Compel
--
A
Competitor B

The Essential Guide t o Day-to-Day Category Management

 TE4: Which mechanics should be used, at what
times, to optimise the promotions mix?
Which discount levels are most effective?

Theoptlmum promolotlonSmmixcan bedete mlned 「

based on hlstorlcalpromotlons,byanalyslngthe
Hれ fa 寸O fo dl 廿e ent leveL Ofd@5countand a
「 「 「

Va le 可 ofp onnotlonalLqechanlCS
「 「

Outputs ･ A view on which combination of mechanics and discount deliver optimal segment lift
Insights/ A recommendation on promotional mechanic, feature/signage and display to deliver

ep
･

Recommend- the greatest lift for a chosen discount level

at 山n5
Additional
Analysis

Template TE4

向・ I AnyPromo Feature Display F&D TPR AnyPromo Feature Display F&D TPR

ゴ
Output Check of Promotion Tactic - Illustrative
Promotion Options:
The output recommendations should then be
checked against the category strategy chosen by
the retailer:

penet 「atlon and 丁 a什に 「 Lovaltv and freauencv

･ Use promotions to build price image and ･ Use appropriate tools to attract loyal shoppers,
promote traffic of sub-categories and SKUs e.g.promotions may be less effective than an
･ Use mechanics to induce trial (e.g. promote EDLpStrategy 巾 Opti 山口ng S引 eSto theSe
price reductions, link buys) shoppers
Conversion ･ Use cross category promotions
･ Focus on promotions and mechanics that ・トOCuSp omotlonSCon ltemSSthata eboughtby
「 「

encourage trial and increase spend loyal consumers and try to discourage
Spendina and basket size switching
･ Focus on big spender categories
･ Use mechanics that build spending e.g. cross
category promotions,link and multi-buys, pack
add-on ユ

･ Do not use price reductions on individual items

to increase spending

62 The Essential Guide to Day-t0-Day Category Management

Merchandising - What is the optimal use of
spacelsignage and adjacencies for the Retailer?

To determine whether the retailer's space

allocation is appropriate involves:
1 Using space tools, e.g. Intactix, Apollo and
Spaceman t o (jointly with supplier) create the
recommended category planogram
1 Verify the category planogram against the
Merchandising Checklist

The historical focus o f category management ofi

merchandising has resulted in a number of space
tools being created for the Industry. Where a
retailer does not have a space management tool,
its suppliers may be able t o advise on space
assignment, taking into account of the following.
factors in the Merchandising Checklist

The Merchandising Checklist, given below, should be used to verify each recommendation:

Is the merchandising in line with strategic positioning and global objectives and
does it focus on the "right" customer?
Does it meet the needs and expectations of the target consumers/shoppers?
Does it help reflect the category definition and give a fulllclear overview
of assortment choices available?
Does it reproduce the different consumerlshopper decision processes and sort mechanisms?
Have categories been co-located in a logical manner t o drive sales?
Does it ensure that all category locations are "right" so that shoppers find it easier t o shop by
need and impulse?
Have multi-purchase opportunities been provided?
Does it achieve the allocated roles?
To what extent does it contribute to achieving the marketing strategies for this category?
Have category signposts been used to trigger shoppers t o shop in a categorylsub-category?
To what extent have barriers been lifted?
Does merchandising focus on the key message in the store?
Does it create the right ambiencelenvironment associated with the category by the target
customer?
Courtesy of ECR Report "Howto implement Consumer Enthusiasm - Stra(60ic Consumer Value Management', facilitated by Roland Beyerand Partner

Tier 1 Solution has a simple mercbandis- ... - ------ - .imetrics, such as:
Rate of sale
Frequency ofpurchase
Minimum space thresholds
An understanding of operational constraints
A view on competitors' w e of space and adjacencies
Practicality of thefixtures and layout
Input from the shopper decision tree which determines whetherproducts are merchandised in
multzple locations
How c i n n / ~ / r f f/ I M / / ftvnrnnftnwa/sp~e
wid h~ w / S

The Essential Guide t o Day-to-Day Category Management

When planning and creating layouts, both
retailers and suppliers must allow for differences
in fixtures and ranges between stores. Ranges
are likely t o have varying space allocations for
different store sizes (e.g. hypermarket) and
location (e.g. high street vs. out-of-town).

--
Output, A pc
lf1
l 811111.
Insights1 A recommendation and the proposed shelf layout for products, constructed base
Recommend- upon the consumer decision tree using the merchandising software
ations A recommendation of promotional space use in line with the promotional calenda
A recommendation on signage (shelf displays, etc.)
A recommended workplan for space changes (cross-checked with merchandising 1;
and store operations)
Additional N.A.
lAnf'---.-
.
Output Check of Merchandising Tactic - . 5 .$FL
'AT- t

Illustrative Merchandising Options: : ,,.

Sl^t~t'
,aq
37
The output recommendationsshould then be . .'i-.ia'-V.
7

checked against the category strategy chosen by

the retailer:

Penetration and Traffic:

Use merchandising techniques t o draw
attention t o segments that are bought by
target shoppers elsewhere
Use Point-of-Sale (POS) t o build traffic and
maximise shopper coverage of floor space
Reduce Out-of-Stocks (00s)
Conversion:
Use adjacencies and dual locations
Clearly signpost potential link-buys
Spending and basket size:
Allocate more space t o segments that are
bought by big spenders
Use POS t o promote high margin products and
encourage cross-category purchases
Reduce OOS
Lovaltv and freauenq:
Allocate more space t o segments that are
bought by loyal shoppers
Create displays t o exploit cross category sales
Reduce OOS, especially on high loyalty
segmentsibrands

The Essential Guide t o Day-to-Day Category Management

'4, .-
 complete and there should be a clear plan for the is critical that the tactic plan is aligned with the
retailer, supported by recommendations from its category strategy (see table below) t o ensure that
category advisers as t o the specifics for each the proposed actions will deliver against the
tactic. A view on the insights generated from the identified targets in the performance metric
analysis and the implication or action that will be template (PI).

1 Ranging
TRI What exists in the market and are there
any SKUs missing?
TR2 What SKUs are unproductive and should
be deleted?

"PI Which products are highly elastic and

require constant monitoring?
TP2 Which products are contributing to
margin and where is the opportunity
(vis-a-vis competitors' prices)?
TP3 How does base pricing compare with
promotional pricing (in the retailer and
in +ha market)?

-1 ..-...
w..w..-

TE1 What is happening in the market

(competitor intensity and number of
promotions)?
TE2 Do promotions in this category deliver
real growth?
TE3 Which SKUs deliver the greatest
growth?
TE4 Which mechanics should be used, at
what times, t o optimise the promotions
mix? Which discount levels are most
effective?

Additionally, a qualitative view on the

suppliers' promotional strategy and
their funding contribution

Once this summary table is completed, the next by the retailer, it should be followed, otherwise,
phase is implementation. An executive summary the retailer should ensure that the plans are
of the outputs and recommendations from each developed in a coherent manner so that they can
major stage should be presented t o senior be compared across categories and evaluated
management alongside the proposed high level against each other. Once the category team have
implementation plan. Where a pre-defined received senior executive sign off, it can move
structure exists for such plans, usually determined into implementation.

The Essential Guide t o Day-to-Day Category Management 65

 !
!
Quick!Reference!for!Key!Category!Management!Calculations!
!
Average!Price!
- Reflects(the(average(product(price(in(retail(stores(REGARDLESS(of(merchandising(
activity((displays,(features,(temporary(price(reductions).(
- In(other(words,(average(price(includes(both(nonEpromoted(sales(and(promoted(
sales((if(any)(during(the(time(period.(
!
- Calculation:(
(
Total(Dollars(
Total(Units(
(
- Example:((10,000(units(of(Product(X(sold(during(a(time(period,(during(which(8,000(
units(were(sold(at(regular((or(everyday)(price(of($1.89(and(2,000(units(were(sold(
on(promotion(at($1.39,(then(the(average(price(for(Product(X(is($1.79…((8,000(*(
$1.89)+(2,000(*($1.39)(=($17,900(total(dollar(sales(divided(by(10,000(total(units(=(
$1.79(
(
Contribution!to!Margin!(CTM)!
- Expresses(a(given(product’s(contribution(to(the(overall(category’s((or(segment’s)(
margin(based(on(the(product’s(share(of(sales(and(specific(margin.(
!
- Calculation:(
(
%(of(Sales(for(Product(x(Product’s(Margin(%(
!
Days!of!Supply!
- Estimates(how(long(the(inventory(holding(power(will(last(before(selling(out(based(
on(the(average(sales(velocity(for(a(given(product(
- Calculation:(
(
Full(Shelf(Unit(Inventory(
x(7(
Unit(Movement(per(Week(
!
- Example:((For(Product(X,(if(the(shelf(holds(10(units(and(on(average,(Product(X(sells(
35(units(per(week,(then(Days(of(Supply(for(Product(X(is(2(days…((10(/(35)(*(7(=(2(
!

Learning(Evolution,(LLC( 1(
Fair!Share!Opportunity!Gap!
- Identifies(the(dollar(value(for(a(retailer(if(they(were(able(to(achieve(overall(fair(
share(of(market(in(an(underdeveloped(category.(
- Calculation:(
(
Retailer’s(Point(Gap(*(Value(of(1(Share(Point(
(
Where…(
Retailer’s(Point(Gap(=((Retailer’s(overall(ACV(market(share(MINUS(the(
retailer’s(market(share(for(a(specific(category)(
And..(
Value(of(1(Share(Point(=((Total(market’s(category(dollars(DIVIDED(by(100)(
!
- Example:((Retailer(X’s(category(dollars(are($20M(and(the(overall(market’s(
category(dollars(are($100M,(then(Retailer(X’s(category(dollar(share(is(20%.((Further,(
Retailer(X(has(an(overall(25%(ACV(market(share.((The(category(gap(is(therefore(5(
points((25%(E(20%)(and(the(value(of(one(share(point(in(the(overall(market(is($1M(
($100M(/(100points).((So(the(opportunity(gap(value(is($5M(($1M(per(point(TIMES(5(
points(gap)(
(
Gross!Margin(((
- Difference(between(retail(price(and(the(cost(of(goods(sold(
- Also(known(as(gross(profit(
- Several(ways(to(calculate,(including:(
(
Retail(Price(–(Cost(
Gross(Profit(Dollars(
(
Retail(Dollars(x(Margin(%(
Gross(Profit(Dollars(
(
Units(Sold(–(Gross(Profit(per(Unit(
Gross(Profit(Dollars(
(
Gross!Margin!Return!on!Investment!(GMROI)(((
- Shows(relationship(between(total(dollar(operating(profits(and(the(average(
inventory(investment((at(full(retail)(by(combining(profitability(and(salesEtoEstock(
measures(
- Several(ways(to(calculate,(including:(
(
Gross(Margin(
Inventory(Cost((at(full(retail($)(
(
(

Learning(Evolution,(LLC( 2(
 Margin(%(
x(Turns(
100(–(Margin(%(
!
- Example:((If(the(gross(margin(dollars(is($100(and(the(inventory(dollars(at(full(retail(
is($60,(then(the(GMROI(is($1.33…($100/$75(=($1.33(
- NOTE:(The(difference(between(GMROI(and(GMROII((Gross(margin(return(on(
INVENTORY(investment)(is(that(the(inventory(cost(in(GMROI(is(at(full(retail(while(
the(inventory(cost(in(GMROII(is(at(cost.(
(
Gross!Margin!Return!on!Inventory!Investment!(GMROII)(((
- Shows(relationship(between(total(dollar(operating(profits(and(the(average(
inventory(investment((at(cost)(by(combining(profitability(and(salesEtoEstock(
measures(
- Several(ways(to(calculate,(including:(
(
Gross(Margin(
Inventory(Cost((at(cost)(
!
- Example:((If(the(gross(margin(dollars(is($100(and(the(inventory(dollars(at(cost(is(
$40,(then(the(GMROII(is($2.00…($100/$50(=($2.00(
- NOTE:(The(difference(between(GMROII(and(GMROI((Gross(margin(return(on(
investment)(is(that(the(inventory(cost(in(GMROII(is(at(cost(while(the(inventory(
cost(in(GMROI(is(at(full(retail.(
(
Gross!Profit(((
- Difference(between(retail(price(and(the(cost(of(goods(sold(
- Also(known(as(gross(margin(
- Several(ways(to(calculate,(including:(
(
Retail(Price(–(Cost(
Gross(Profit(Dollars(
(
Retail(Dollars(x(Margin(%(
Gross(Profit(Dollars(
(
Units(Sold(–(Gross(Profit(per(Unit(
Gross(Profit(Dollars(
(
Inventory!Turns!
- The(ratio(of(units(sold(vs.(unit(inventory(in(stock(
- Calculation:(
(
Annual(Unit(Sales(
Inventory(Units(to(Fill(Shelf(

Learning(Evolution,(LLC( 3(
!
- Example:((If(the(shelf(holds(50(units(and(over(the(course(of(the(year(2,000(units(
were(sold,(this(would(equal(40(Inventory(Turns…(2,000(/(50(=(40(
!
Level!of!Discount!
- The(amount(of(discount(for(a(given(product(vs.(everyday(pricing(for(that(product,(
expressed(as(a(percentage.(
- Calculation:(
(
(NonEPromoted(Price(–(Promoted(Price)(
x(100(
(NonEPromoted(Price(
!
- Example:((If(Product(X’s(everyday(price(is($5.45(and(a(retailer(had(Product(X(on(
promotion(for($4.70,(then(the(level(of(discount(is(13.8%…((($5.45E
$4.70)/$5.45)*100(=(13.8%(
!
Margin!(same(as(Profit)(
- Expressed(as(dollars(or(percent(
- Can(also(be(expressed(as(Margin(Dollars(per(Unit((aka(“Penny(Profit)(
- Calculation:(
(
Retail(Price(–(Cost(
Retail(Price(
!
- Example:((If(Product(X’s(everyday(price(is($5.00(and(its(cost(to(the(retailer(was(
$4.25,(then(the(margin(is(15%...((($5.00(E($4.25)(/($5.00)(
!
Markup(((
- Difference(between(merchandise(costs(and(retail(selling(price.(
- Calculation:(
(
Retail(Price(–(Cost(
(
- Example:((If(Product(X’s(everyday(price(is($5.00(and(its(cost(to(the(retailer(was(
$4.25,(then(the(markup(is($0.75...(($5.00(E($4.25)(
!
Net!Profit(((
- Equals(gross(profit(minus(retail(operating(expenses(
(
Net!Profit!Before!Taxes(((
- Profit(earned(after(all(costs(have(been(deducted(
(
!
!

Learning(Evolution,(LLC( 4(
!
Net!Profit!Margin(((
- Performance(measure(based(on(a(retailer's(net(profit(and(net(sales(
- It(is(equal(to(net(profit(divided(by(net(sales(
(
Net!Sales(((
- Revenues(received(by(a(retailer(during(a(given(time(period(after(deducting(
customer(returns,(markdowns,(and(employee(discounts(
(
Net!Worth(((
- Retailer's(assets(minus(its(liabilities(
(
NonKPromoted!Price!
- Reflects(the(average(product(price(in(retail(stores(when(NO(merchandising(
(displays,(features,(temporary(price(reductions)(was(in(effect.(
!
- Calculation:(
(
Total(NonEPromoted(Dollars(
Total(NonEPromoted(Units(
(
P&L!Equation!
((((((((((((Gross(Sales(
minus(Returns(&(Discounts(
equals(Net(Sales(
minus(Cost(of(Goods(Sold((COGS)(
equals(Gross(Profit(
minus(Operating(Expenses(
equals(Earning(before(Income(Tax(
minus(Income(Tax(
equals(Net(Income(or(Loss(
(
Price!Index(
- Helps(us(understand(one(price(vs.(another(
- For(example,(a(retailer’s(price(of(Product(X(indexed(against(the(overall(market’s(
price(for(Product(X(
- Calculation:(
(
Product’s(Price(in(Geography(1(
x(100(
Product’s(Price(in(Geography(2(
!
- Example:((If(Product(X’s(at(Retailer(Y(is($17.77(and(the(same(product’s(price(at(
Competitor(Z(is($16.27,(then(the(Retailer(Y’s(price(index(vs.(the(Competitor(Z(is(
109…(($17.77/$16.27)*100(=(109…(or(9%(higher(than(Competitor(Z.(

Learning(Evolution,(LLC( 5(
!
Profit!(same(as(Margin)(
- Expressed(as(dollars(or(percent(
- Can(also(be(expressed(as(Margin(Dollars(per(Unit((aka(“Penny(Profit)(
- Calculation:(
(
Retail(Price(–(Cost(
( Retail(Price(
!
Promoted!Price(
- Reflects(the(average(product(price(in(retail(stores(when(ANY(merchandising(
(displays,(features,(temporary(price(reductions)(was(in(effect.(
(
- Calculation:(
(
Total(Promoted(Dollars(
Total(Promoted(Units(
(
Return!on!Net!Assets!(RONA)!
- Measures(fixed(asset(productivity(and(is(more(inclusive(than(GMROI(because(
RONA(looks(at(net(inventory(costs(which(includes(payment(terms,(etc.(versus(
GMROI(which(looks(at(gross(inventory(costs.(
- Calculation:(
!
Operating(Income(
Net(Assets(
(
Where...((
Operating(Income(=(Gross(Margin(–(Operating(Expenses(
Net(Assets(=(Inventory(+(Property,(Equipment,(etc.(
!
(
( (

Learning(Evolution,(LLC( 6(
Additional(financial(resources((definitions(from(Investopedia.com):(
(
• Annual!Report!
o An(annual(publication(that(public(corporations(must(provide(to(shareholders(
to(describe(their(operations(and(financial(conditions.(The(front(part(of(the(
report(often(contains(an(impressive(combination(of(graphics,(photos(and(an(
accompanying(narrative,(all(of(which(chronicle(the(company's(activities(over(
the(past(year.(The(back(part(of(the(report(contains(detailed(financial(and(
operational(information.(
• Profit!&!Loss!(P&L)!Statement!
o A(financial(statement(that(summarizes(the(revenues,(costs(and(expenses(
incurred(during(a(specific(period(of(time(E(usually(a(fiscal(quarter(or(year.(These(
records(provide(information(that(shows(the(ability(of(a(company(to(generate(
profit(by(increasing(revenue(and(reducing(costs.(The(P&L(statement(is(also(
known(as(a("statement(of(profit(and(loss",(an("income(statement"(or(an(
"income(and(expense(statement".(
• Balance!Sheet!
o A(financial(statement(that(summarizes(a(company's(assets,(liabilities(and(
shareholders'(equity(at(a(specific(point(in(time.(These(three(balance(sheet(
segments(give(investors(an(idea(as(to(what(the(company(owns(and(owes,(as(
well(as(the(amount(invested(by(the(shareholders.(
• 10KK(
o A(comprehensive(summary(report(of(a(company's(performance(that(must(be(
submitted(annually(to(the(Securities(and(Exchange(Commission.(Typically,(the(
10EK(contains(much(more(detail(than(the(annual(report.(It(includes(information(
such(as(company(history,(organizational(structure,(equity,(holdings,(earnings(
per(share,(subsidiaries,(etc.(
(

Learning(Evolution,(LLC( 7(