Price Pack Architecture
Leading consumer packaged goods companies are realizing that by using an approach known as price pack architecture (PPA), they can deliver huge increases in profitability to capitalize on key consumer trends. Critically, a true strategic approach to packaging allows brands to serve the often very different needs of different customer segments or use occasions and to find new growth. Using a multistage process that includes category diagnostic, ideation, conjoint testing and simulation, executives are able to determine which product enhancements and investments are likely to yield the best results. These pragmatic but effective PPA-based variations can be used to supplement or replace more resource-intensive investments in innovative packaging.
A compelling example of PPA in action is the case of The Coca-Cola Company, which sought to offset the effects of a decline in soft drink consumption in the early 2010s. Through PPA, Coke discovered that consumers not only liked the idea of a more compact serving size (including 7.5-oz. mini cans and 8-oz. glass bottles) but were also willing to pay more per ounce for a smaller Coke than for the traditional 12-oz. cans or larger containers.
L.E.K Consulting’s strategic PPA framework combines deep category understanding, consumer insights, competitive dynamics, and a company’s capabilities to identify ideas, simulate/test results and, in turn, drive new PPA solutions. Our approach builds consensus across functional teams to align strategy, marketing, sales and finance on changes.
|Diagnostic: Compile a category “fact-pack” with channel dynamics, consumer insights and “outside in” market perspectives|
|Ideation and prioritization: Develop a long list of ideas, considering occasions and consumer unmet needs, and a prioritization of attributes to assess in the conjoint testing|
|Testing: Design and field a consumer survey with conjoint elements (to test attribute utilities) and nonconjoint portions (e.g., occasions) testing|
|Simulation engine: Develop an advanced category simulator to derive the “lift” of PPA attributes tested and a deep understanding of cannibalization|
|Financial impact: Develop P&Ls for new SKUs to couple with estimated lift, and quantify the impact with forecasted revenue and EBIT for PPA innovations|
|Channel swim lane strategy development: Develop an overall PPA strategy with channel “swim lanes,” price/pack curves and overarching goals to achieve|
|Training and implementation: Create an implementation plan (with names and key milestones), retail selling presentations and a training/simulator handoff|
Fortune 100 CPG company: We conducted consumer research to evaluate the importance of package characteristics and ran consumer simulations on various pricing/pack configurations to develop pricing strategies around new product formats (e.g., smaller packs, zippers). The PPA strategy is projected to generate an incremental $50 million in sales and around $15 million in EBIT. Learn more
Leading branded CPG food company: Faced with flat sales and a customer flight from frozen to fresh, the company engaged us to conduct consumer research to evaluate claim, flavor, format, package type, package size and protein characteristics. We ran consumer simulations on various PPA configurations to develop a channel-specific product and pricing strategy. The project resulted in a clear product strategy pathway for several marquee brands and significant sales and EBIT increases.