No matter how successful they already are, consumer packaged goods companies are always struggling to find what the next big thing will be. You might walk down the aisle at your local grocery store and imagine that everything humanity could ever need in the CPG area has already been invented, but the truth is that even within successful product lines there is still room for innovation. One way that companies are changing the game and gaining more market share is by changing the shape and size of existing packages -- specifically making them smaller.
CPG companies and brands like Coca-Cola, Heinz, and Nabisco have used the last few years to test the waters of tiny packages. And many of these experiments have led to success. So how did these big brands decide to dip their toes into small packages? Data.
The Turn to Tiny is Based on Data
For many years, business decisions were made largely on gut instinct. Top CPG executives knew their customers and built their ideas around hunches and creativity. While business instincts are still critical, big data has meant CPG decisions are based much more on cold hard facts and less on MBA programs or educated guessing.
One way that consumer packaged goods companiesare using data to influence their innovations is something called price pack architecture or PPA. When PPA is put into practice, companies take time between coming up with an idea and implementation to simulate the new product.
Initially, companies go through a diagnostic phase that involves a review of market conditions (including customers, consumers, and competitors) and from there ideas are generated based on this specific data. The data should show where gaps in the market exist and ideas are generated to fill those gaps.
The heart of the PPA process lies in the simulation. According to the Harvard Business Review, “Consumers are presented with a select group of product profiles that can be repeated using various combinations to help determine which attributes would be most attractive to them, and therefore capable of driving higher potential sales volume.”
Market analysis plus product simulation allow CPG companies to create products that they know have a good chance of success. It was this PPA process that led big brands to test small packages.
And the design of the product is not the only thing that companies can test during the PPA simulation. A fully realized simulation includes packaging, product description, and prices. PPA can uncover places where consumers are even willing to pay more than initially expected, and that was just what happened with Coca-Cola. PPA found that Coke drinkers were willing to pay more per ounce for smaller cans and bottles, which was likely quite unexpected.
Conclusions
While PPA is not a silver bullet for any and all CPG companies who are seeking to innovate, it is important for those that are to explore their options. Careful analysis of markets in conjunction with technologically advanced simulation can be a way to test new ideas that have a much higher chance of generating sales and revenue.