Categories are used to group similar listings together and separate different kinds of listings from each other. Categories help to organize your marketplace better. Users can find relevant listings by selecting the category they are interested in.
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For example, if your marketplace is for selling, your categories could be Dresses, Mobiles, Accessories, Furniture, and so on. Each category can also have a set of subcategories.
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Following the example above, the category Dresses could have subcategories such as Kid's Dresses, Men’s Dresses, Women’s Dresses, etc. It is up to you to choose whether you want to create categories and how to use them.
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When creating categories, it is important to consider the ease of use for both the sellers and buyers. If a listing could fit into two categories, it is harder for the user to know which category to browse.
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Users may miss relevant listings that were placed in another category. It is also good to think about the number of categories you have. Too many categories can be confusing for all users.

Subcategories are used to further classify and organize items within a larger category. They help to create a more specific and structured hierarchy of information, making it easier for users to find what they are looking for.
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For instance, let's say you have a marketplace for selling clothing. Your main category could be "Apparel," and you could have subcategories such as "Tops," "Bottoms," and "Dresses." Each of these subcategories could then have even more specific subcategories, such as "Blouses" and "T-Shirts" under the "Tops" category.
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When creating subcategories, it's important to consider their relevance and usefulness to the users. Too many subcategories can make it difficult for users to navigate and find what they are looking for, while too few subcategories may not provide enough detail or differentiation.
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It's also important to ensure that items are placed in the appropriate subcategory to avoid confusion and help users find what they are looking for quickly and easily. Additionally, subcategories should be labeled clearly and accurately to prevent any misunderstandings or misclassifications.
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Creating a subcategory follows the same steps as creating a parent category. Choosing a "Parent category" makes the category the subcategory for the chosen parent category.

When you edit the category settings, all new listings created in that category will use the new settings. However, listings created before the category was edited will not change automatically.
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To update an older listing to the new settings, the admin or the seller must manually edit the listing by clicking “Edit listing” and saving it again. After this, the changes to the category will be applied.
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When a seller creates a listing, they first choose the category and then the order type. They can only choose one of the order types that are available for that category.
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When you create or edit a category, you can choose which order types are used with it. When a new order type is created, the admin has to assign that order type to the Relevant category.

You can set custom listing fields for each category to help your users filter listings further. Different listing fields and filters can be used for different categories.
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Example: Let’s take a selling marketplace

Having 2 categories “Men’s Fashion” and “Women’s Fashion”

Under Men’s fashion, there are the following subcategories “Shirts”, “Jeans” and “T-Shirts”.

I need the following fields for the Shirts category “Fit”, “Size” “Sleeve” and “Color”

Under Women’s fashion, there are the following subcategories “Sarees”, “Kurtas” and “Salwar”

I need the following fields for the Sarees category “Color”, “Size”, “Style” and “Material”

In the above example, we can see that the “Color” and “Size” fields are similar. Here we can create these as a single field and assign these fields for both the categories. It is not necessary to create 2 separate fields for both categories.
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For the other unique fields, we can create them separately and assign the categories.
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Custom fields used with any category can be changed in Listings-> Listing fields & Filter” in the Admin panel.
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If there are existing listings and custom fields for the category then on trying to delete the category, a popup will be displayed saying “There are {count of listings} listings and {count of custom fields} custom fields associated with this category” This category can be deleted only on moving the associated listings and fields to another category.
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A category drop-down will be displayed with a list of all available categories for the user to choose from. Users have to choose a category to move these listings and custom fields to a new category.
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On choosing the category and clicking Delete, all the listings and fields that are assigned to the current category will be moved to the chosen category and the current category will be deleted.
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If there are no listings or fields assigned to this category then the system will ask for a confirmation popup and if the user chooses Yes, the category will be deleted.

No, a listing can belong to only one category or subcategory at a time.
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Yes, you can create any number of categories, but before creating too many categories consider their usability for the users. Too much can confuse users.