Category management proves a big hit in Hollywood

Discount Store News, Feb 9, 1998

Category management has landed a lead role in Hollywood. Driven by the growth of sell-through home video, a number of leading Hollywood studios are adapting category management practices to sell movies in much the same manner that packaged goods companies sell shampoo or soup--only with requisite doses of show biz pizzazz.

Buena Vista Home Entertainment, the home video division of Walt Disney Co., pioneered the use of category management techniques in home video sales during the late 1980s.

The company took the step as a means of getting a handle on its distribution system, which was still adjusting to what was then the new concept of selling millions of videocassette copies of its popular animated classic films at sell-through prices through mass merchants.

"At the time `The Little Mermaid' was just breaking onto the scene theatrically, and animation was having a revival of sorts. We aggressively went after home video as a consumer product item that people would collect and save," said Dennis McGuire, Buena Vista Home Entertainment's executive vp of sales.

"We knew that consumers would collect movies, and we certainly knew that they would collect Disney movies. As sell-through started to explode, we wanted to manage the volume of hit releases more accurately; we had to develop these [category management] skills," McGuire said.

Buena Vista began bringing in executives from the packaged goods industry to help refine and implement category management techniques that were already being put to use within the company, McGuire said.

"Our interest in what the consumer wanted, and of the Disney consumer, helped us," McGuire said. "It all starts with the consumer."

Bringing Disney's consumer information and brand name clout to the table, Buena Vista formed partnerships and direct sales alliances in the early 1990s with some key mass merchants.

"We shared that information and that understanding of the consumer with key retailers, and they partnered with us and shared with us their understanding of the retail market place," McGuire said. "That meshed into a great partnership where we pushed the limits of this business and pushed this category even further."

Buena Vista's retailer partnerships hastened the adoption of category management methods at the studio.

"We developed [systems] to get products to the right stores and how much product to place. From there, we had to put an initial allocation of product across a wide array of volume stores, read sales, figure out how to ship to those stores efficiently, use merchandisers, put the product up for sale, again read sales and replenish to the demand. It followed our direct relationships very quickly."

The value of category management has not been lost on Buena Vista's competitors.

Universal Studios Home Video has been developing its category management approach for about 21/2 years, said Andrew Kairey, executive vp, Universal Studios Home Video.

"The whole concept of category management is really a simple one when you think about it. It's taking the right assortment of product, the right inventory levels and putting it in the right place at the right time," Kairey said.

"The way you get there is by creating fact-based decision making from historical records that allow us as a supplier to understand our customer's customer even better than they do in some cases."

Getting to the point where category management can be effectively implemented at Universal took some work, and the studio's management had to convince itself that the approach would work, Kairey said.

For the first 12 months to 18 months of its category management initiative, Universal worked to change its internal processes while also convincing retailers to buy into the studio's new approach, Kairey said.

"After that, it all became relatively easy in terms of just how successful category management and our direct account initiative that we'd been doing really well," Kairey said.

The move to direct sales of video to major retailers also prompted Universal to begin using category management.

"We wanted to bring a level of education and sophistication to the direct sales relationships because we felt it was such a crucial stage for us in the industry and what it meant in terms of the potential inventory risk,"Kairey said.

"It really gets into creating a data warehouse where we can pull all of this information from all different sources, inclusive of their point-of-sale information plus third-party syndicated data that allows us to really get a handle on what's happening in the marketplace," Kairey said.

Universal approaches category management in two ways.

"There's category management opportunity that is really serving the account on a direct basis but not really being in total control of the inventory," Kairey said. "Then we have the concept of vendor management that includes all of the category management techniques."

Universal has been able to use category management to varying degrees with many of its customers, Kairey said.

"The accounts that are the most visible are the mass merchants, but that has also been involved in relationships that cross over from mass merchants and into some of the more sophisticated supermarkets such as Meijer," Kairey said. "This crosses over into opportunities with warehouse clubs, and we are looking at all different channels of distribution and looking at where the deployment will take place."