A top 10 manufacturer of frozen desserts was experiencing a steady decline in profits over the past five years. The client was losing market share and volume in a highly competitive market. To regain relevancy in the market, the company implemented a re-branding strategy, which included the following:
- New packaging
- New assortment and merchandising
- New logo and branding
- Reformulated product to achieve best-in-class taste
The RML Approach
Understand the Market
How is the market evolving and what does that mean for the client?
Understand the Consumer
How much value is the client creating for consumers?
Execute, Monitor, Report, Adjust
What training is needed to create a sustainable change?
Understand the Retailer
How do we grow the category and drive foot traffic?
For the re-brand to be worth the investment, the client needed to extract the maximum value from pricing. The previous pricing structure was a cost-plus pricing strategy driven by a heavy focus on input/commodities cost (e.g. milk, sugar). Revenue Management Labs (RML) was engaged to identify the correct pricing position in the market and extract the maximum sustainable financial value.
1. Understand the Market
The first phase of the project involved taking a broad look at the market and any recent consumer shifts. Using national data from Nielsen, we gained the following key insights:
a) Pricing across national brands was compressing (Figure1).
b) Volume was shifting away from Premium Brands to Super Premium and Value (Figure 2).
c) Retailers were increasing the frequency of frozen dessert promotions (+12% year-over-year).
2. Understand the Consumer
The RML team then evaluated the consumer purchase decision process.
b) In order to verify the survey’s conclusion—that the new premium offers had more value than the core products—the team used transaction analysis. Premium products experienced a larger lift in sales when on promotion. This confirmed we had two unique offerings, requiring different price positioning.
c) To determine the optimal price gap between core and premium products, we researched consumers’ willingness to pay. Consumer research of 2,000 respondents between premium and core products.
a) An online survey of 1,000 ice cream purchasers was used to simulate the consumer buying decision. The research allowed for the identification of the following:
i. Customer segments
ii. Price sensitivity
iii. Key purchase attributes
iv. Relative competitive positioning
3. Understand the Retailer
With a clear understanding of target price positioning, the next phase focused on creating the right retailer sell story and execution in-store.
a) The first element in the retailer story centered around creating an optimized promotion plan. We assessed the return on investment for both company and retailer, associated with displays, feature, and price (Figure 5). The analysis uncovered the multiplicative effect of combining these elements and helped establish hard guidelines on what programs to offer each retailer.
b) Retailer specific selling stories were provided for the client to implement the price change. The stories centred around margin upside. The shift to tiered pricing levels would deliver a 1.8% increase in margin/unit and a 13.2% increase in total margin dollars.
+ 4% Share Improvement
+ 300% Category Position Increase
The client realized both quantitative and qualitative benefits following the execution of the re-brand and two-tiered pricing strategy including:
- Double-digit improvement in percent margin and four percent improvement in share
- Clear consumer segmentation strategy and brand guidelines to support sales team
- Identification of future pipeline initiatives to drive incremental sales
- Category position increased by 300%