Price Pack Architecture 101
Congratulations! You’ve developed a winning product, with superior benefits & claims and a beautiful eye-catching brand. But how do you translate this into a compelling offering that consumers will find, try, and repeat purchase?
Figuring out the right product portfolio can be quite nuanced. Some key questions to answer include: What kind of packs should you offer? What sizes? How many flavors / variations? How should you price each? How should the product mix vary by channel?
Altogether, there can be an overwhelming number of permutations for what your product portfolio could look like. And while every situation will vary based on the unique conditions of your business, we have some general considerations that can be helpful when framing your portfolio strategy.
Number of SKUs – How many products do you REALLY need in your portfolio? A common mistake of newer brands is to launch a lot of SKUs and focus on growth through new product launches. But this strains resources, makes inventory management a nightmare, and can split your velocities in-store. Especially early on, when you are building brand awareness and fighting for a spot on shelf, you need to be hyper-prioritized and launch only as many SKUs as you can support. Conversely, if you only have 1 SKU, you are unable to do product bundles (especially important for DTC) or cross-promotion, and you can easily get lost on-shelf. There is no magic number here, but general consensus suggests that 2-3 SKUs for a retail launch is the sweet spot to provide variety and brand blocking without overcomplicating your supply chain.
Roles for each SKU – Plan out your portfolio by defining the roles, usage occasions, and consumer targets that you are solving for with each product. It can also be helpful here to understand the consumer decision tree so you can mirror your portfolio mix to match consumer needs. Generally speaking, there are 4 key portfolio roles:
Portfolio Roles
You don’t need to cover all these roles from the start, and they aren’t necessarily mutually exclusive (i.e. you can drive trial with a hot promotion on your everyday item), but this is a good starting point to map products to their respective portfolio roles. With these principles in mind, you will be better equipped to think about the characteristics, benefits, and pricing and promotion strategies that make sense for each product.
Pack types & formats – The type of package your product comes in can be as much a part of the consumer experience as the product itself, and therefore warrants careful consideration. Again, many choices come into play, such as single vs. multipacks, size, packaging material, features and more. A good starting point is to look at category norms: what do most existing competitors offer? How much volume is in each pack type? Are there new pack types that are gaining traction? Mirroring the category standard for packaging is generally the easiest, most cost-effective solution, and will be most familiar to consumers. However, there can be cases when diverging from the category can provide a meaningful improvement on the retailer or consumer experience. The flip side is that it may require a consumer to change their behavior (not an easy task). A few great examples of this:
Tide Pods – increased convenience for the consumer through pre-measured portions. This was a behavior change, but an easy one to make, and well worth it for the added benefits.
Vinebox – premium, single servings of wine that come in glass tubes allow consumers to try a variety of wines without committing to opening a full bottle.
Boxed Water – while plastic bottles have been the standard for the water category, this brand stands out with a more sustainable solution.
Juliet Wine – this emerging brand aims to elevate boxed wine with beautiful round canisters and a focus on sustainability.
Pricing – There is a ton of literature available that talks about pricing strategy, as well as various research tools that can help a brand optimize their product price. Trying to boil it down to the basics, you can think through the following 5 steps to get to a recommended price point that makes sense for your brand.
Define Your Overall Brand Price Positioning – Generally categories will have brands that fall into various price tiers that correlate to perceived quality and benefits: Private Label & Value Brands, Mainstream, Premium, and (sometimes) Super-Premium. Which tier should your brand fall into? To determine this, it can be helpful to look at what brands are in the category today, map out their pricing (you’ll see groupings), and determine which brands feel closest to yours (from the consumer’s perspective).
Anchor by the Everyday Pack – Since the Everyday Pack size is the highest volume for the category, start by determining how to price your Everyday Pack relative to competitors.
Target price premium: For example, if the mainstream brand is $2, you can justify a 20% price premium or $2.20. This can also be an absolute $ amount, so in that example, maybe you can justify a $1 premium, so should be priced at $3. Consumer research can be very helpful in determining what the right price premium is that generates the most revenue for your brand.
Promo plan: Consider how pricing will be affected by different promotions over time. If you’re priced at $3, can you run a 2/$5 promotion? What will that mean in terms of average price, promo price and non-promo price, especially relative to competition? For DTC, if you offer a 10%-off incentive for subscribe & save, does that get you to an attractive price point?
Define the Price Slope across the Portfolio – Once you have your Everyday Pack price, determine the pricing of other sizes in relation to that on a price/oz basis. The Price Slope is a tool for looking at how price compares by size and is usually expressed as size vs. price/oz (see below figure). Some things to keep in mind, when determining what your price slope should look like:
Bigger size implies better value/oz, though the benefit diminishes as you get to larger and larger sizes.
Competitor comparison – how steep are competitor price slopes? This may be indicative of how price sensitive consumers in the category are.
Pack considerations (larger size vs. multipack, material changes)
Premium-ize Convenience & Alt-usage Occasions – Consumers are willing to pay more for a convenient size or format. Alternative usage occasions are also opportunities to add value in a unique way (e.g. seasonal or customized offerings), and charge a premium for it.
COGS & Company Margin Requirements – Of course, you need to make money on your product, so you must factor in how the pricing impacts your brand P&L and adjust accordingly. But beware of the trap of determining pricing solely based on COGS and desired margin. We’ve seen countless examples of failures in over-priced products because leadership had pushed for 30%+ margin on top of COGS.
Building a Roadmap – With constrained resources, you can’t launch everything all at once, so it’s helpful to build a time-based roadmap of future innovation. This is a helpful visual & strategic tool for many reasons: it illustrates your path to growth, helps you identify what resources will be needed to execute it, provides a forum to capture feedback, and ensures your team is on the same page. The timeline of a roadmap may vary and monthly, quarterly and/or yearly increments are helpful for different reasons. And it is helpful to overlay key internal and external dates (e.g. retailer resets, trade shows, PR opportunities) on the calendar as markers for achieving certain milestones.
Managing your Portfolio – Like everything else in a startup, portfolio management is an iterative trial & error process. New products often fail, and even successful products may lose relevance. That is why it is important to continually evaluate your portfolio and cut out any poor performers to ensure the most optimal set of products.
