Managing profit through price-pack architecture
One of many profitability drivers for businesses, particularly in a cost-of-living crisis, is to ensure that the existing portfolio and price-pack architecture is working as effectively as it can at shelf. This is particularly relevant in categories with a strong own-label presence, or heavily promoted categories, where consumers are more likely to demonstrate switching behaviours.
While much of what is published about price-pack architecture, focusses purely on data, successful pack-price architecture actually requires a healthy dose of left and right brain thinking. Data-driven at its heart, it must backed up by strong consumer storytelling and creativity. This blended approach identifies profitability drivers, makes a compelling case for the optimised range, and identifies and realises incremental white-space business opportunities.
Managing the price-pack architecture to optimise profitability increases brand relevance and conversion in the short-term, generating more revenue for other brand building activities such as innovation and brand equity in the long-term.
At its core, price-pack architecture is about getting the right format available in the right place, for the right customer at the right price. Our principles provide an approach for developing a common framework that can be used across the business.
Put consumers at the heart
Data analytics is essential, but this must be made meaningful with a narrative around consumers’ needs, occasions and evolving behaviours. This is critical to understanding the shopper missions and linked consumption moments. Without fully understanding the consumer, getting the format, place and price right becomes guess work. Having a compelling narrative also aids with sell-in to retailers, all of whom have limited shelf space.
Use data to identify profitability
Products on shelf need to drive adequate profitability to be sustained. Make the most of your data analytics team to identify which formats are performing well, which aren’t and whether there are any under-served spaces. This should be done both for your own brand and for the competitors within the category that you compete within.
A close look at the data will also throw up questions and hypotheses as to what the business doesn’t know and needs to explore.
Use structured analysis
Understanding whether share is increasing or decreasing and whether your SKUs are a lower-than-average price index or higher than average is a key start point. Understand your share of sales within this and it becomes a good guide for whether your brand is outperforming the market, or whether it is subject to unsustainable growth in the longer-term. Real growth comes when volume and price can outperform the market.
Other useful analyses include: understanding the role of channel by shopper occasion; understanding key barriers to trial and increased frequency of consumption to develop strategies to overcome them.Supplement business knowledge gaps with fresh insight
The data analysis will identify gaps and hypotheses that warrant further exploration. Use a combination of qualitative and quantitative research to fill gaps and explore ideas before developing the final framework.
Innovate and renovate to stay relevant
In 2019 Coca-Cola’s CEO James Quincey attributed at least some of the fast profitable growth of his business to the right price-pack architecture. This included the launch of 90-calorie mini cans to help consumers manage their calorie intake, and entry pack PET to improve sustainability credentials.
According to IRI, when Tide laundry detergent pods were introduced in the USA, their growth outstripped the liquid detergent market 10 times despite its higher price point. This accelerated growth was fuelled by consumers’ readiness to pay for convenience.Involve different stakeholders
To avoid automatically defaulting to price promotions which can create a race to the bottom, creativity and analytics are needed. Insights, marketing, finance, and supply chain are all essential to get price-pack architecture and shopper marketing executions right. Where innovation is the solution to fill white spaces, having this cross-functional collaboration can lead to better solutions and activations.
The additional benefit of engaging a cross-functional team at the framework development stage is that they are bought into the end destination before it’s developed.Develop a common framework
Evidence-based stories must be tailored to their audience’s use-cases. In the case of price-pack architecture, this is likely to include: brand teams responsible for campaigns, innovations new products; business managers who work with manufacturers and retailers; and the C-suite. A playbook that forms a repeatable model that is useful to all stakeholders forms a structured approach across the business.
Pilot then roll out
Pick a lead market as the pilot to develop the framework for the price-pack architecture. Once the market is happy with the framework, expand on it in other markets by using a market-cluster approach. This can be done by clustering markets together which have similar characteristics, be it stages of market development or types of channels etc.
We have recently worked with a big multinational to identify how to improve their in-market performance. Deep diagnosis, using a combination of sales and research data, and consumer psychology along with fresh qualitative research helped us to identify key routes to optimise range and execution. We also developed a playbook for pack across penetration, frequency and innovation opportunities.
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