How we applied our Pachinko Model™ to help a global food manufacturer refocus their innovation strategy
A global food manufacturer was losing share in a declining category. Although myriad analyses had been conducted on the various elements of the business, there was no connective framework to tie the results together. A strong organizational hypothesis existed that they were being “out-innovated,” yet an alternative reading of the situation suggested that innovation could not make up for an unhealthy base.
What is the role of innovation in the future growth strategy for the category?
The Pachinko Model™ service allows clients to make commercial decisions and evaluate trade-offs between revenue “building blocks” such as growing distribution of innovations (directing their sales force to convince more outlets to store their products) vs. increasing velocity of innovations (investing in marketing activities aimed at increasing same store sales of said products), increasing depth of promotions (the degree with which certain products might be discounted / promoted in a store) vs frequency of promotions (the frequency with which these promotions are offered), increasing product price by changing the actual price of the product vs increasing price by trying to sell a more expensive variant (called price mix, e.g., a small 8oz bottle has a higher price per oz than a 2 liter bottle, so the average selling price of a product can be increased if more small bottles are sold vs 2 liter bottles) etc.
The Pachinko Model™ service allows us to provide these strategic insights by:
- Decomposing historical sales into the various building blocks to understand their contribution to past sales growth or decline, using multiple data sources
- Through a mathematical model that allows prioritization of such building blocks – and related marketing actions – by assessing the future growth potential offered by each one of them (e.g. priority number one is to increase frequency of promotions from 1 per month to 2 per month, offering a 10M$ opportunity; priority number two is to increase distribution from 70% to 75% – with 100% meaning that all outlets store the product) etc.
- By presenting this information using easy to follow / no black box visualization, which at first looks resembles the look of a pachinko slot machine – hence the name.
STEP BY STEP APPLICATION
- Deploy the Pachinko Model™ and framework, which uses item level data to decompose historical performance in a market, segment, or brand into MECE business drivers.
- Start from volume vs. price/mix impact and drill down to: category trend, portfolio allocation, core distribution & velocity, and innovation – also broken into distribution/velocity/premium vs. the core business, price vs. inflation, promotional depth/frequency, and UPC mix.
- Use the KPIs from this analysis (e.g. TDP, velocity, $/KG, amount and sustainability of innovation, etc.) to conduct a competitive benchmarking and feasibility of improvement exercise for each driver, rolling up into a forward-looking set of priorities and clear roadmap for how to achieve them.
- Incorporate financials, elasticities, and media ROIs to translate the opportunities into a realistic P&L impact.
- Perform decision-tree analysis to identify the combination of drivers most responsible for global share gains across the category.
EXAMPLE OF FINDINGS AND CLIENT'S IMPACT
- The #1 driver of share gain in the category is strong velocity of core products, which is also the #1 growth opportunity worldwide.
- For innovation to be leveraged effectively for growth, the business must maintain a strong core velocity, align its portfolio to growing segments, and sustain its innovations.
- Successfully driving growth from innovation requires focusing on the largest, highest equity brands in the portfolio.
- Launching fewer, bigger innovations that are sustained over time represents a key gap versus the competition.
- Pricing lags inflation rates globally; a main driver of sales losses and a key gap versus competition.
- The client re-evaluated their licensing strategy for new products and refocused innovation towards long-term growth.