Remember when Coca-Cola first came out with mini cans?
Who doesn’t? A significant, strategic re-architecture of the packaging mix, it “reinvented” the business at a time when consumption had tanked. The Washington Post labeled them, “Coca-Cola’s clever new trick,” but health-conscious consumers drank them up, willing to pay more per ounce, driving sales and profitability.
This past year, facing inflation, changing consumer preferences, and rising commodity costs, Coca-Cola again “bet” on Price Pack Architecture (PPA), as the press noted. With price-sensitive consumers seeking value, the beverage giant continues to drive both affordability and premiumization, tailoring PPA to consumption occasions, and ensuring the right product in the right package in the right channel and at the right price points to meet consumers where they are. As a result, they’re seeing increased consumer satisfaction – and increased profitable sales.
Like Coca-Cola, we all need to be smart about how we meet the challenges of the day. PPA can be the answer -- BUT only if you recognize it’s much more than new formats or sizes, or cutting low-performing SKUs. PPA is about overall portfolio and pack range management. It’s focused on aligning pack and price strategies to meet specific consumer or customer needs in specific channels, directly impacting your P&L. It involves overall product portfolio management, which may include new or existing offerings, channel decisions, and/or portfolio decisions to meet consumer “demand moments.” It may help identify innovation and marry it with the right pricing. Done right, it can deliver profitable growth, attracting new shoppers and increasing usage occasions.
We advise our CPG clients:
• Develop cross-functional PPA muscle within your organization: Create understanding and best practices that can unlock profitable growth. For PPA success, there must be cross-functional knowledge and effort, with Marketing, CD, Finance, CMI, Category Strategy, and Ops/Factory colleagues in the room.
• Dig Deep: Collect and understand data around your current portfolio and what you’re trying to solve. Don’t rush through this stage! Leading companies spend over 60% of their PPA process time in this early stage -- for good reason! Look at consumer behavior, pricing, promotions, and channel performance across all touchpoints.
• Address key questions and implications: What role does the category play for retailers? What’s the strategic role of each brand in our portfolio? What role does each of the packs play for the consumer? Are we clear on the role of our packs across key shopper missions and channels? Do pricing and promotion strategies work in service of our brand and pack roles?
• Consider that competition lives inside and outside of the defined category: When recently supporting a client with items in traditional fruit sauces and cups, we redefined the landscape to include all children’s snacks – spanning multiple other categories and purchase moments. With this heightened understanding of the consumer’s decision-making process, we were able to better build the PPA to make the client more competitive in the total store.
• Segment and prioritize:
Segment your customer base based on needs, preferences, purchasing habits, the shopper's mission within a specific channel, and the retailer's goals.
• Look through the segmentation lens:
For each segment, assess the role of trial and mainstream offerings, stock ups, and upsell-trade ups, among other factors. Analyze how different customer segments react to price changes and inflation to guide pricing decisions.
• Truly understand the purpose of your current packs within their channels:
Fulfilling consumer “demand moments” should drive your approach to pack role allocation. To know you have the right coverage, assess relevant KPIs such as share of market and penetration, and the ability of a pack to cover 100% of the role.
• Optimize product assortment, eliminating redundant SKUs and focusing on the most profitable product-channel combinations:
Focus on offering the right products and pack sizes in each channel to meet specific customer needs. Challenge duplicated packs, and packs with limited distribution to reduce operational costs.
There’s no doubt that an effective PPA strategy can help you successfully navigate today’s complex challenges.
So this new year, why not sit your team down and evaluate your portfolio: What’s the right channel, package, and product mix to continue to drive revenue growth?