For a recent client, a large food manufacturer, for example, TCG's team developed an optimized pricing strategy for a range of product offerings around the respective strategic roles each product would play in the overall portfolio. Specifically, the team optimized the pricing strategy for the client's mainstream and existing premium products, and even identified an untapped opportunity for a new super-premium product.

As discussed in our prior mailings, from the previously completed Demand Landscape^TM and Consumer Demand Analysis^TM, the team had determined that the ideal role for its existing mainstream offer was that of 'protect and maintain'. It was a product platform with significant existing volume, but not projected to grow substantially in the future beyond its existing base. Its existing margins were average, but the team had already identified opportunities to improve margins by decreasing cost of production by eliminating expensive ingredients that consumers did not value and whose removal did not negatively impact the overall taste and consumer acceptance of the product. Through the Consumer Demand Analysis^TM methodology the team was able to quantitatively confirm that holding product pricing constant at current levels was the optimal strategy to maximize both product and portfolio profitability.

In addition, the team plotted the observed Nielsen product price points for the total category (client and competitive products) versus the category dollar market share, which both highlighted the four distinct price tiers in the category and confirmed the validity of the mainstream product pricing as determined through the Consumer Demand Analysis^TM.

The agreed to strategy then was to hold pricing at its current level – within the second pricing tier observed through secondary data – and realize margin improvements through cost reductions. In addition, the team reduced the brand's reliance on promotion spending recognizing these mainstream consumers did not remain loyal to the product/brand after the promotion ended. In a sense, they recognized they had been investing in 'borrowed volume' and those promotion dollars would be better spent elsewhere.

The team determined that the existing premium products should be leveraged to 'fuel strategic growth' as they had both strong existing economics and exhibited significant incremental growth potential. The team determined they should increase the price on these premium products slightly to position them more solidly in the third price tier as determined based on secondary data, and as validated through the Consumer Decision Analysis^TM methodology. Further, it was determined that this price increase was supported by communicating the motivating product features/benefits – high quality ingredients, no artificial flavors/colors/fillers, etc – more clearly to the consumer.

Finally, the team identified an opportunity for a new super-premium product at the fourth price tier identified in the secondary data – a price point where the client did not currently have a product available. Playing its role as a 'build high potential platform' this new product would clearly communicate similar quality ingredient and no filler features, but with additional benefits of superior taste (e.g. "Chef's Best") and reduced fat would command a higher price point. In addition, the team selected to shift promotion dollars from its 'protect and maintain' brand to this 'high potential platform', realizing that these moms are motivated to try the product while on promotion, but when satisfied, remained highly loyal...a much better investment for the dollars. Ultimately, the optimized pricing strategy created a clear portfolio of offers aligned to specific segments of demand with a compelling trade-up logic.

In all cases, The Cambridge Group's unique approach to optimizing demand and supply insights enabled the team's decisive action. In the premium tier, for example, the team was able to determine that consumers would bear a price premium significantly in excess of the marginal cost to improve the product delivery – the team knew the precise gross margin impact of these choices thanks to The Cambridge Group's deep understanding of the key business cost drivers.

In addition, this strategy not only provided a clear role and position for each brand in the portfolio, but it simplified it significantly as well. The brand went from maintaining at least five different product platforms at upwards of 10 price points to maintaining three product platforms and price points.

For several years running this brand has enjoyed +20% sales growth CAGRs and has recently surpassed a very strong, entrenched competitor to achieve the #1 share position. The management team – a team of very seasoned marketing professionals – recognizes that while their previous strategy seemed solid, it actually lacked precision. Had they continued to follow their previous strategy, with little precision around target segments, need states and brand and price strategy, the brand would certainly not have realized the record-breaking growth it has achieved recently.