Background and challenge
A leading CPG in a well-established category had been challenged by limited category growth, increasing competitive pressure and declining market share in several core product categories. The company needed help understanding evolving consumer preferences and unmet needs relative to its portfolio, and developing a set of recommended near-term margin accretive growth opportunities to pursue. As a result, the firm enlisted L.E.K. Consulting to help it develop a price pack architecture (PPA) strategy and identify new offerings that combined both product and packaging innovation, and pricing strategies.
Approach and recommendations
Leveraging our proprietary PPA framework, we first conducted a detailed diagnostic of the U.S. market to better understand category dynamics. This fact base was used to facilitate a high-energy, cross-functional ideation session in which leaders from across the organization brainstormed how to address unmet consumer needs and pain points. This resulted in a list of potential attributes to test with consumers (e.g., package size, package features such as a zipper or window for consumers to see the product, product claims such as organic or all-natural, and different brands) at various price points.
We then developed a discrete choice conjoint survey to quantify consumers’ willingness to pay for the product attributes identified and prioritized in the ideation session. The results revealed a long list of potential innovation ideas to test. Next, we generated a simulation engine to re-create the category shelf by combining point of sale data with concepts identified through the conjoint with consumers. This enabled us to model changes in the market environment and estimate the impact of new product introductions net of cannibalization. For example, our analysis revealed strong demand for smaller pack sizes, even when sold at a higher price per ounce than larger pack sizes. This recommendation not only addressed the client’s need to improve trial and awareness with a lower unit price (higher price per ounce), but also capitalized on the trend of one-to-two-person households representing the largest and fastest-growing segment of the U.S. population. Lastly, PPA recommendations were customized by channel to develop “swim lanes,” with product differentiation intended to give retail partners something special for their consumers while avoiding conflicts and reducing direct price comparisons across channels.
Finally, we synthesized our findings and designed a holistic PPA strategy including:
- A portfolio with an improved mix of higher-margin products that capitalized on the unmet needs of consumers
- A refined price curve with improved differentiation between attributes and across channels
- A channel strategy with differentiated offerings and “swim lanes” by channel
- An assessment of the financial impact to drive confidence and consensus around the investment and ROI required to succeed, including revenue and expected EBIT impact
- Training materials to enable the client to run market simulations in-house
- A detailed implementation plan and retailer sell-in materials
At the end of the engagement, the client had a clear and actionable PPA strategy that enabled it to better meet customer needs, drive trial among new consumer segments and increase brand awareness. The new products are projected to generate millions in incremental revenue and EBIT.