application of mbc through storytelling in cpg industry

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Application of MBC in CPG Industrythrough Storytelling

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About Absolutdata

Founded in 2001 We are decision engineers and apply decision sciences every

day to improve decisions at the world’s largest companies Senior management from McKinsey, Kraft, Pfizer, Mitsubishi,

Nielsen, GE, HSBC and Citigroup Headquartered in San Francisco and delivery centre in

Gurgaon, India with regional offices in London, Singapore and Dubai

Significant Investment in capability building – Deepening existing competencies and diversifying into new areas

Continued focus on thought leadership – at international conferences, NASSCOM paper on Marketing Analytics

Customer Analytics

Market Analytics

Market Research

Data Visualization & Reporting

Big Data Strategy & Services

Services

Company Overview

To empower forward-looking organizations reach new heights of business performance through the optimal use of data

Mission


A Short Tale of Intelligent Analytics

Introducing the protagonist of this tale Mr. Target who is Product Manager for a leading fast-food restaurant

THE FAST-FOOD RESTAURANT

His job is to decide the different items of the menu

As a consistent performer in his company, he is the go-to guy for all business related issues

Product Manager Mr. Target


The Problem of Plummeting Revenue

One day Mr. Target gets a frantic call from his Senior Manager Mr. Hassled..

..who is completely hassled by the falling revenue shares


Strategy to Increase Revenue

Mr. Target identifies a two-pronged strategy to increase the restaurant’s revenues

Ticket SizeIncreasing per ticket sale for existing customers

Guest CountIncremental volume from new

customers


Revamping the Menu – Means to an End

He knows that revamping the menu is the key and narrows down to the following business questions

Based on demand and revenue, what are the right combos and optimal price for each?

Which menu items are profitable complements with the combo offerings at what price?

What should be the optimal price for the individual items being sold?

Optimal Menu & Pricing

New Product – Substitute or Complement Would the introduction of “Tacos” cause any cannibalization?

?


Search for the Right Approach – Does CBC Answer the Questions?

Mr. Target’s instinctive solution to this problem is Choice Based Conjoint (CBC)

But he soon realizes that CBC is not the best approach to this problem. This is because in a CBC exercise, respondents make a single choice among pre-designed available options and they cannot build their preferred choice

What Mr. Target needs is an approach that mimics the actual purchase process of a customer who visits his restaurant and creates his order!

?

With the business questions in place, all Mr. Target needs is the right research approach


Mr. Target’s Eureka Moment – Menu Based Conjoint

MBC is a choice modeling method used for products and services that allow buyers to choose from one to many items (or bundles) on each menu where each item has a price associated to it

MBC is the perfect solution to Mr. Target’s problem as it would:

– Compare preferences for different combos and a la carte menu items offered in the fixed menu at different prices

– Optimize the product offerings for maximizing revenue and uptake

– Anticipate the sales and profits

?

Mr. Target suddenly remembers his notes from a conference where they spoke about Menu Based Conjoint (MBC)


Root of all Hassles – Underperforming Menu

This shows the current menu available at the fast food chain

COMBO MEALS

Classic Combo $3.00 Cheese Burger Combo $3.50 Pizza Combo

$4.00

SIGNATURE MAINS

Basic Burger$2.00

Cheese Burger$2.50

Pizza$3.5

SIDES & BEVERAGES

Fries$1.50

Drink$1.00


Point of Arrival – Hypotheses to Test

Note: Respondents are shown several scenarios with variations in products and price. The selections in the scenarios is indicative of their preference.

Mr. Target carefully puts down certain hypotheses he plans to test using Menu Based Conjoint

SIGNATURE MAINS

Basic Burger$2.00

Cheese Burger$2.50

Pizza$3.5

COMBO MEALS

Classic Combo $3.00

Cheese Burger Combo $3.50

Pizza Combo $4.00

SIDES & BEVERAGES

Fries$1.50

Drink$1.00

Signature Mains

Change prices of individual items to identify optimal price

Introduction of “Tacos”

Combo Meals

Change prices for different bundles to maximize revenue and uptake

Sides & Beverages

Change prices of Sides and Beverages to identify profitable complements with the combo offerings


Please Make your Selection (1 of 3)Change in Price of Drink

Note: This is only for illustrative purpose

Classic combo selected with a la carte as pizza, fries & drink on the screen shown

Hey!! I think I’ll buy an extra drink along

with the Pizza.

Respondent

COMBO MEALS

Classic Combo $3.00


Pizza Combo $4.00

SIGNATURE MAINS

Basic Burger$2.00

Cheese Burger$2.50

Pizza$3.5

SIDES & BEVERAGES

Fries$1.50

Drink$1.00

P

PP P


Please Make your Selection (2 of 3)Addition of Tacos & Change in Price of Classic Combo, Basic Burger, Cheese Burger


With change in menu items and introduction of tacos, classic combo selected with tacos, fries & drink but NOT pizza

COMBO MEALS

Classic Combo $3.00


Pizza Combo $4.00

Tacos Combo$4.00

SIGNATURE MAINS

Basic Burger$2.00

Cheese Burger$2.50

Pizza$3.5

Tacos$2.0

SIDES & BEVERAGES

Fries$1.50

Drink$1.00

P

P PP

Respondent

Oh!! they now have Tacos and its cheaper than the Pizza. So, I’m going to go with that

for now


Please Make your Selection (3 of 3)Change in Price of Pizza Combo, Pizza and Fries


With Pizza at a lower price and classic combo at an increased price, both these items selected along with fries & drink

COMBO MEALS

Classic Combo $3.00


Pizza Combo $4.00

Tacos Combo$4.00

SIGNATURE MAINS

Basic Burger$2.00

Cheese Burger$2.50

Pizza$3.5

Tacos$2.0

SIDES & BEVERAGES

Fries$1.50

Drink$1.00

P

P P

P

P

The Tacos are more expensive and the Pizza is cheaper.

Hmm.. I think I will buy Pizza instead.

Respondent


Insights (1 of 4): Right Combos at the Right Prices

MBC helps identify the most preferred combo at the right price by allowing to compare performances of combos at different prices

Classic Combo is the most preferred combo amongst the combos offered

Optimized Price for Classic Combo is

$3.25 $2.5 $2.75 $3 $3.25 $3.5 $4

-20%

-10%

0%

10%

20%

30% Price Curve for Classic Combo

Revenue Transaction

Classic Combo

Cheese Burger Combo

Pizza Combo

0%10%20%30%40%50%60%70%80%90%

100% Preference Curve for Combos

Pref

eren

ce S

hare

sBase price

%ag

e ch

ange

ove

r Bas

e Ca

se


Insights (2 of 4): Profitable Complements with Combo

MBC helps identify the most profitable complement at the optimal price which can be offered with the combo

People purchase pizza with Classic combo and its removal would lead to

decrease in combo off takes

Optimized Price for Pizza is$3.00

$2.75 $3.0 $3.25 $3.5 $3.75 $4.0

-20%

-10%

0%

10%

20%

30% Price Curve for Pizza

Revenue TransactionBase price

$3.0 is the optimal price point for Pizza since a decline from $3.5 to $3 shows a

significant increase (~8%) in the number of customers as well as the total revenue

over current menu


Insights (3 of 4): Optimal Price for Sides & Beverages

MBC also helps understand the profitable sides & beverages at their optimal price points

Price of fries can be increased to $1.75 from $1.5 as it would only lead

to a drop of 3% in purchase

Price of fries can be increased to $1.75 from $1.5 as it would only lead

to a drop of 3% in purchase

$1.0 $1.5 $2 $2.5 $3 $3.50%

5%

10%

15%

20%

25%

30%Price Curve for Drink

$1.0 $1.25 $1.5 $1.75 $2 $2.50%

5%

10%

15%

20%

25%

30% Price Curve for Fries

Dem

and

Dem

and


Insights (4 of 4): New Product – A Substitute or Complement?

MBC helps understand the cannibalization of a la carte items when prices are changed or new items added to the menu

Pizza & Tacos are purchased by different consumer segments and do

not cannibalize each other

Optimized Price for Taco Launch $2.00

$1.5 $1.75 $2 $2.5 $3 $3.50%

5%

10%

15%

20%

25%

30% Price Curve for Tacos

Dem

and

After $2 there is sudden decrease in the demand for Tacos and hence $2 is the

optimal price point to introduce Tacos for maximum off take


Mr. Target hits the Jackpot – The New and Improved Menu

MBC helped Mr. Target to decide his new and improved optimized menu to increase his company’s revenue shares

COMBO MEALS

Classic Combo $3.00


Pizza Combo $4.00

SIGNATURE MAINS

Basic Burger$1.50

Cheese Burger$1.50

Pizza$3.0

Tacos$2.0

SIDES & BEVERAGES

Fries$1.75

Drink$1.50

Note: Addition of Tacos at $2; Classic Combo, Fries & Drink price increased; Pizza price decreased


Mr. Target wins the Market

9%5% 4%

Ticket Size Guest Count1 2

Increase in total revenue

The results yielded a 9% revenue growth from both existing and new consumers


Industry Application of Menu Based Conjoint

Industry Applications

of MBC

Software as a Service (SaaS)

Different packages with certain features

Automobile Industry

‘Build Your Own’ Car

Pharma – Drug Therapy

Combination of drugs for prescription

Financial Sector

Multiple services that can be add-ons

Shared Resources & Outsourcing IT

Bundling services from different vendors


Conclusion – A Short Summary

MBC gives more power to consumers by allowing consumers to select one to multiple options from a menu to indicate their preference. It is most useful in in markets where customers have freedom to customize an existing product or build their own package.

It can help answer the following business questions:

Understanding trade-offs between pre-configured bundles versus single features (à la carte options)

Identify the right bundle of products to offer

Price the bundle and individual products optimally

Identify substitutes vs. compliments from the menu

Does reducing the price for an item cause a different item on the menu to be chosen more likely (or even less likely)?

Enables to maximize configurations for revenue and uptake

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application of mbc through storytelling in cpg industry

Data & Analytics

pizza combo

cheese burger combo

combo offerings

confidential strategy

fixed menu

carte menu items

confidential revamping

confidential search