Summary
In response to a consistent decline in profits over the last five years, a top 10 frozen desserts manufacturer undertook strategic measures to reverse the trend and regain competitiveness in the market. The company executed a comprehensive re-branding strategy, encompassing the introduction of new packaging, an updated assortment and merchandising approach, a refreshed logo, and product reformulation to achieve superior taste, positioning itself to reclaim market share and volume in the fiercely competitive market landscape. Recognizing that the success of the re-brand hinged on optimizing pricing strategies, the company sought to extract maximum value from their investment. The company engaged Revenue Management Labs to identify the correct pricing position within the market, ensuring the extraction of the maximum sustainable financial value from the re-branded product offerings. As a result, the company increased both the category position and their share of the market.
Challenge
Rebranding provides a strategic opportunity to optimize pricing, ensuring that the pricing strategy aligns with the new brand positioning and resonates with the target market. For the frozen desserts manufacturer, the declining profits over the past five years was the predominant issue that the rebrand and a pricing strategy would solve. At the time of their rebrand, the company relied on a cost-plus model driven by a heavy emphasis on input and commodity costs such as milk and sugar. At least one of their pricing inputs, milk, is inherently volatile due to seasonality, its perishable nature, and unanticipated variation in supply in combination with inelastic demand. Cost volatility leads to difficulties in tracking and pricing with the cost-plus pricing model. The second significant drawback in their current pricing method is that it overlooks the perceived value of their products and the customer willingness to pay.
Solution
The pricing experts at Revenue Management Labs developed a value-based pricing strategy through a comprehensive approach to data analysis, which examined customer willingness to pay and market conditions. Our research uncovered several key insights, leading to segmenting their offerings into two categories, premium and core, and tiered pricing. We recommended a price increase of $0.50 for the premium category to $5.49 and maintaining the price of the core category at $4.99. The second part to the solution focused on sales strategy and execution with retailers. We established hard guidelines on which programs to offer each retailer, combining elements of displays, feature, and price, to increase return on investment for both retailer and the company. We also provided sell stories specific to retailers that focused on the margin upside to smooth the acceptance of the price change.
