From category management to customer relationship management

Werner Reinatz, associate professor of marketing at INSEAD, explains through this case study, how Franz Speer, director of international key account management, tried to guarantee Henkel's leadership position in the German market, and reverse its declining market share growth by moving beyond traditional category management (CM) and engaging in customer relationship management (CRM).

by Werner Reinartz
Last Updated: 23 Jul 2013

On September 6, 2005 Henkel won a prize for its innovative and cooperative approaches toward retailers. Considered as one of the most international German-based companies in the marketplace, Henkel operates in three strategic competence areas, which are home-care, personal care and adhesives, sealants, and surface treatments.

To adapt CM for specific target groups, key questions needed to be answered by Henkel. How should CRM be practiced in the fast moving consumer goods (FMCG) industry? Is the target-group-specific CM the way to go? If yes, how to enact it?

If no, could Henkel develop its own direct-to-consumer CRM strategy? The main challenge was to convince Henkel's executives to invest more resources into the idea and find the right retail partners to pilot the program.

In the German home care products market, Henkel was the main player with a 33,9% market share. To gain and maintain this status, it differentiated itself with a significant breadth of brands and presence across the market.

The leading distribution channels for those products in Germany were the supermarkets and hypermarkets. The top five retailers accounted for 66.2% of total retail but proliferation of discount stores and continuous promotions undermined brand and store loyalty by encouraging consumers to shop around. Growing consolidation and the introduction of private-label products generated a further shift in retail market dynamics.

To cope with such adversity, innovation and very strong brands seemed to be the answer. In partnership with dm-drogeriemarkt, an open-minded retailer, willing to share information, Henkel built the concept and template for sharing inventory and POS data from scratch, and create an efficient customer response (ECR) in order to eliminate wasteful practices and implement efficient operating methods.

A key ECR development has been category management driven by a more customer-oriented and less internal efficiency-oriented perspective. Consumer relationship management based on knowledge of consumer preferences was the next step.

Henkel favoured applying CM principles to key shopper segments, prioritising segments offering the greatest economic value or holding the highest potential.

Henkel then built a flexible model that could be customized for various manufacturers and retailers. The project was named target-group-specific category management. The aim was to boost both Henkel's and the respective retailers' business by defining and using operative target groups to achieve efficient and effective marketing actions. To achieve this, Dm-drogiermarkt consumer database played a critical role.

This whole approach was based on Speer's belief that this project could both reverse the downward trend in sales and represent an open door for bringing other major retailers into the fold.

INSEAD 2006

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