Optimisation / Brazil / FMCG
Consumer perceptions and risks of downsizing
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Business issue
Our client was evaluating the potential impact of a cost optimisation strategy for one of its brands, replacing the existing 750g packaging with a smaller 670g version. The company aimed to understand if this change, with a price increase, would negatively impact sales or if consumer price sensitivity would allow for a price increase without significant pushback.
Our solution
To understand the impact of this change, a qualitative phase and a conjoint analysis were conducted, featuring a simulator as a deliverable that enabled the simulation of numerous scenarios to enhance client understanding regarding this change. Moreover, there was a need to translate the simulator numbers to current market data. Then, GMU provided an extra file that could predict the potential loss in gross volume and units for each SKU with this change. This was crucial for our client, considering they needed this data to determine if this downsizing made sense for the company as a whole.
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Impact
Downsizing to 670g presented a challenge in the context of Brazilian consumer behavior. While consumers are accustomed to downsizing strategies, they remain price-sensitive and demonstrate strong brand loyalty in this category.
The removal of the 750g option led to an expected decrease in share of choice, however, a significant portion of consumers migrated to the smaller 370g, reflecting in a significant loss in gross volume, but in a willingness to adapt within the brand.
This resulted in a higher average gross margin (as smaller packages have higher margins). Despite potentially boosting our client’s revenue, when we translated all information into real data, we could see that this downsizing would result in a substantial decrease in gross volume for the 670g SKU, which may also affect the manufacturing infrastructure. This was an important consideration for our client in evaluating the overall impact of this change.
Having this data was crucial for the client to accurately assess the feasibility and implications of the proposed downsizing within their business case. It enabled the company to present a well-informed project to the leadership, illustrating potential impacts and strategic considerations, thereby supporting effective decision-making at the highest level.
