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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.
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© Absolutdata 2014
Chicago New York London Dubai New Delhi Bangalore SingaporeSan Francisco
www.absolutdata.com
Application of MBC in CPG Industrythrough Storytelling
© Absolutdata 2014 2
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
© Absolutdata 2014 3
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
© Absolutdata 2014 4
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
© Absolutdata 2014 5
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
© Absolutdata 2014 6
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?
?
© Absolutdata 2014 7
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
© Absolutdata 2014 8
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)
© Absolutdata 2014 9
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
© Absolutdata 2014 10
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
© Absolutdata 2014 11
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
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
P
PP P
© Absolutdata 2014 12
Please Make your Selection (2 of 3)Addition of Tacos & Change in Price of Classic Combo, Basic Burger, Cheese Burger
Note: This is only for illustrative purpose
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
Cheese Burger Combo $3.50
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
© Absolutdata 2014 13
Please Make your Selection (3 of 3)Change in Price of Pizza Combo, Pizza and Fries
Note: This is only for illustrative purpose
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
Cheese Burger Combo $3.50
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
© Absolutdata 2014 14
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
© Absolutdata 2014 15
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
© Absolutdata 2014 16
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
© Absolutdata 2014 17
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
© Absolutdata 2014 18
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
Cheese Burger Combo $3.50
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
© Absolutdata 2014 19
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
© Absolutdata 2014 20
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
© Absolutdata 2014 21
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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