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Case Study: Food and Beverage Company: Optimizing Product Pricing

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Food and Beverage Company: Optimizing Product Pricing

An interview with Stefan Boedeker

The Company

Multinational food and beverage company.

The Challenge

The company wanted to optimize product pricing after a series of new brand acquisitions had taken place. In particular, the products in the breakfast-related categories had to be consolidated, and new price setting was necessary.

The Solution

BRG experts collected transactional data for products in the breakfast category over a period of several years. These data were supplemented with scanner data from Nielsen for competing products. Econometric models were specified based on supply and demand for the different individual products in the category. Estimates of own-price and cross-price elasticities enabled the quantification of a premium that the consumer would be willing to pay for certain branded products over non-branded products or less-known brands. The estimated elasticities and brand premiums were used in consolidating the company's product mix in the breakfast product category, and also to optimize its price setting. 

The Results

The company received a model that was updated on a regular basis. The model allowed real-time adjustment of product mix and price setting in the breakfast food category. Another advantage of the econometric model was to allow for assessment of whether the company's products across the different brands were "cannibalizing" each other. The consumer demand–driven product mix and price setting optimized sales while minimizing the effects of potential brand cannibalization.