Case Study

Beverage Company Improves Margins and Adjusts Prices While Increasing Market Share

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Challenge

The beverage company’s challenge in one of its key business units was how to improve margins through price adjustments without sacrificing market share. What made this so challenging is the alcoholic beverage sales rules in a particular geography that prohibit special promotions.

The promotional techniques that could have accomplished the objective in other geographies served by the beverage company were off the table. The business unit realized it needed to better understand all pricing mechanisms and sales levers to determine the best strategy. The company approached Antuit to analyze sales data and build an advanced and competitive pricing model that could maximize margin, revenue, sales, and market share.  This model would give the opportunity to adjust the optimization strategy by brand and channel where appropriate when considering a mix of pricing changes to accomplish the goal.

With a deep competitive analysis and more thorough understanding of the many sales levers, this beverage company implemented a strategy that positioned them to achieve what seemed impossible: improved sales and a stronger margin while growing market share in a competitive category.

Solution

Antuit started by identifying the primary competition for the beverage company’s core brands through a ‘choice set’ model. This model identifies which brands, based on a number of factors, are genuine competitors and will be most influenced by price changes. This model also identified those which aren’t. Antuit then used a linear mix model to understand price sensitivity within the beverage company’s brands as well as their competitors to recommend the optimal price for each strategy for maximizing revenue, volume and margin while protecting or growing market share.

Data mining of sales and using a time series approach identified lifecycle trends that exposed a huge drop in sales for a short period for key brands. This drop was the result of one factory that went offline, and without product distributed in the various supermarket chains, the affected brand lost significant market share. What had been a promising sales and market share projection for this brand went sour, as it lost share to a lower-price competitor. 

Using its advanced modeling IP, Antuit showed the beverage company how it could offset market share losses by adjusting prices for the low price brand to match the movement of this competitor to regain market share. This model also provided visibility for the beverage company into consumer shopping preferences for the assortment – price, pack size, private label/national brand, alcohol free, etc. –  to provide insights into the influence of pricing decisions that impact their own brands vs. primary competition.

Products were defined by type, class, package size, seasonality, type of packaging and package size. This enabled the model to address the crucial questions, such as what factors determine success in a competitive environment, how the pricing compares to similar products, and the extent to which price predicts volume share and profitability.

The model also isolated individual brand opportunities within the market. An example is how one brand with the highest alcohol by volume level in a six pack of bottles was the best for adjusting prices lower to be competitive to increase market share and thus generate more margin as a function of more sales volume.

Results

As a result, the beverage company could make assortment decisions that could lead to price changes influencing the entire portfolio or individual brand changes per their strategy to enhance competitive advantage. This advantage was a result of the model showing where price increases, decreases, or non-changes could generate or protect market share and improve price indexing to competition while generating more margin or sales volume. These options, and others generated by the pricing model, allowed the beverage company to make better-informed decisions as to which move was best in the face of its main competition.

The beverage company’s revenue operations unit now has a deeper understanding of its competition at all levels, as well as the price sensitivity connected with its key SKUs. It recognizes the areas of greatest opportunity in its market and has a complete breakdown of SKU elasticities and price recommendations for maximizing revenue, volume share or incremental margin.

The company has now instituted various pricing adjustments and has seen clear performance improvements.

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