Category Roles are together with Key Value Items, one of the concepts that can be used to create a more sophisticated pricing strategy within your retail or ecommerce business, where you can create more granular rules where different articles, within different categories, may have different objectives within your strategy than others.
For example, imagine a grocery store where you have categories such as Milk, Meat, Batteries, Hair Products and Candy. Some of these categories (Milk, Meat) may be the main driver where you revisit the store for your weekly shopping, others such as Batteries or Hair Products may simply be there because customers "except" them to exist in a grocery store, and finally Candy may be there to upsell customers during checkout as they pick up a candy bar on their way out.
In our example above, it does not necessary make sense for Milk and Meat product to adhere to the same pricing strategy as Batteries. The solution to this is to cluster your products into "Category Roles" that allow you to create strategies across your store in a more granular level.
As mentioned in the introduction above, it often makes sense for retail businesses or ecommerce stores to differentiate their strategy across articles and categories instead of simply having a global pricing strategy. Different articles drive different amount of price perception (Key Value Items), and different categories may have a different business role for you as the business owner or merchandiser.
By tagging each category within your product hierarchy with a Category Role, it will allow you to create strategies for similar categories that is granular enough for you to achieve your business objectives, but not too granular where it becomes unmanagable.
Common ways to differentiate your strategy for different category roles may be:
Category Roles is a concept and tool that is there to assist you with your pricing strategy, and to allow you to differentiate strategy for different type of categories, without having to go down to an extreme micro level where you have to potentially have different strategy for hundreds (or thousands?) of individual categories.
Unlike Key Value Items that mostly focus on how important an item is for a customer and their price perception of your store, a category role is also defined by how important that category is for you as a business or merchandiser. It should both consider things such as customer purchase behavior and order history, but also profitability and internal business metrics.
After you have defined the dimensions and scores across both the "Customer dimension" and the "Business dimension" you will be able to cluster your categories across both of these dimensions to get a final set of category clusters or roles.
A common way to do it is to simply make it into a 2x2 matrix with 4 quadrants where you have:
After you have fit your categories into these quadrants/types/clusters/roles, you can see how you could now differentiate the pricing strategy based on the categories that have a similar role within your company.
Grindbyte's data platform gives you an existing tool that leverage data science and big data analysis that looks at your product details, order history, customer purchase behavior and more to automatically give you a view of the category roles within your business.
All you have to do is to signup to the Grindbyte's platform and connect it to your ecommerce store using one of our existing integrations (e.g. Shopify, Prestashop, WooCommerce etc) and you will have a view of your category roles in just a few days.
If you require a custom enterprise integration, you can simply contact our sales team and we will work with your company to create a custom data integration.
So what dimensions are we looking at when defining category roles of a retail company or ecommerce store? We look at plenty of data points but some examples that we should ask from the data when defining the roles are:
These questions can be answered with the data available in your store, and we can use those answers to score each category across the different dimensions and both plot and cluster them on a matrix that help us define which one belongs to what role. When this is complete, we can use this together with Key Value Items as one of the inputs to our overall ecommerce product pricing strategy.
As mentioned in the earlier section of this article, category roles are used to help differentiate your pricing strategy across different categories while still keeping things on a relatively managable high level. They are used together with inputs such as Key Value Items or Price Hygiene Rules to steer the optimization and price recommendations that can be generated from our price recommendation engine.
In the end you will be able to define strategies such as:
As you can see, these concepts allows you to do targeted price investments in the articles that your customer truly care for, depending on that category's role within your business organization.