Actionable Insights From APT's Retail Practice

Sizing Things Up: How CPGs Can Get Pack Size and Pricing Right

March 27th, 2017 | Posted by APT in Manufacturing

Consumers want convenience, and consumer packaged goods companies (CPGs) must find the winning combination of pricing and pack size to keep up with this demand.  For example, consumers increasingly seek products that fit their on-the-go lifestyles, prompting brands like Campbell’s and Organic Valley to introduce smaller pack sizes. But rolling out new pack size options presents critical challenges, ranging from potential sales cannibalization to shelf space constraints and private label competition. How can organizations determine which pack sizes and pricing will both satisfy consumers and drive revenue growth?

With increased retail pressure for streamlined assortments, it is critical that CPGs determine which pack sizes will drive incremental sales without cannibalizing sales of other pack sizes. For example, consumers may trade down to a new, smaller pack size rather than continue to purchase the larger packs – potentially leading to a decrease in sales.

Ultimately, CPGs need to understand whether a new pack size is directly driving revenue lift, as even small changes can deliver substantial sales increases if executed correctly. A notable example is Kraft’s Slim Cut cheese singles, which include more, but thinner, slices of cheese than the original pack, generating a 30-cent cost savings and a 61 percent price-per-ounce increase for the company.

The most reliable way for organizations to accurately isolate the true impact of a new pack size introduction is to test it in a subset of stores or markets before rolling it out more broadly. By comparing the category and SKU-level performance of “test” stores that received the new pack size to “control” stores that did not, CPGs can pinpoint whether the introduction has a positive impact on net sales. Digging deeper, they can further determine in which types of locations it is most effective, as well as how rollout can be improved. This Test & Learn approach enables organizations to refine broader rollout by ensuring they strategically deliver the most profitable pack sizes possible.

Another emerging challenge CPGs face is optimizing pack price, spurred by competition from other CPG brands and private label products. For example, retailers like Kroger are offering more premium private label options, appealing to price-conscious consumers, driving brand loyalty, and increasing competition at various price points. As CPGs add new pack size options to their assortment, it is critical that they not only determine the optimal price spread between their products and private label competition, but also find the right price spread among their own product portfolio.

There’s no one-size-fits-all model for pack size and pricing. Focus groups and consumer surveys are a good start for generating hypotheses, but ultimately consumers will vote with their wallets. CPGs can confidently determine which pack sizes and pricing options truly drive incremental sales by working with their retail partners to test various iterations of pack size/price combinations in a subset of locations prior to broad rollout.


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