Price Pack Architecture (PPA)

Leading consumer packaged goods companies are realizing that by using cutting-edge research known as price pack architecture (PPA), they can deliver huge increases in profitability to capitalize on key consumer trends. Using a multistage process that includes category diagnostic, ideation, conjoint testing and simulation, executives are able to determine which product enhancements are likely to yield the best results. These basic 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 Coca-Cola, which sought to offset the effects of a decline in soft drink consumption at the start of the decade. 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.

Our Approach

The PPA framework combines consumer insights, competitive dynamics and a company’s capabilities to identify ideas, simulate/test results and, in turn, drive new price pack architecture solutions. PPA projects are split into four large initiatives (further divided into smaller processes):

Diagnostic: A detailed review of current market conditions, customers, consumers and competitors is compiled through a situation assessment, ensuring that “outside in” perspectives are also incorporated.

Ideation: An ideation phase where potential ideas for capitalizing on opportunity gaps is compiled, and the best prospects are subsequently tapped as suitable targets for the ensuing consumer conjoint survey and conjoint analysis phase.

Testing: Interactive consumer testing (e.g., conjoint analysis) is utilized where consumers are presented with a select group of product profiles that can be repeated, using various combinations, to help determine which attributes would be most attractive to them and therefore capable of driving higher potential volume. Although conjoint analysis is not new, simulation advances this process by creating a more efficient and predictable outcome.

Solutions: The last phase of the PPA process is to transform the results from the prior phases into solutions and a PPA strategy for the category. This begins with building a “simulation engine” by effectively re-creating the shelf of the evaluated category in order to test volume “lift” from the newly designed SKUs through third-party software. The volume lift is combined with fully loaded P&Ls (derived from detailed cost modeling completed in parallel) to generate an accurate revenue and profitability forecast. Armed with this data, CPG companies can subsequently invest in new SKUs with greater confidence, and they can easily create selling materials to share with retailers in order to activate the strategy.

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Successes

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 price pack architecture strategy is projected to generate an incremental ~$50 million in sales and ~$15 million in EBIT.

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.

Leading vitamin brand: We evaluated the impact of changing promotion strategy and conducted consumer research to understand the importance of promotions in the purchase process. We ran consumer simulations on various pricing/pack/promotion configurations to develop a pricing strategy, and identified a potential ~$20 million in direct contributions through a new pricing and trade promotion strategy.

For more information, please see our latest Insights and publication at HBR.

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