Thinking like a Portfolio Manager

In the blog “Evaluating Price Response as Opposed to Price Elasticity”, I reinforced the powerful impact of transforming the marketing mindset from the “brand management” approach (which has dominated the FMCG market) to a “portfolio management” approach. My comments referenced in that blog as well as the Mercer Consulting paper from 2002 tie nicely together with an article published by the SKIM Group titled “The 5 Portfolio Management Mistakes You Don’t Know You’re Making”. There is much merit to what this article addresses and it is great to have a fresh commentary on this to go along with my original reference from fifteen years ago. The mistakes the SKIM Group identifies below can also be embraced as opportunities for Middlegame:

In a previous blog titled, “Measuring the Complete Lift for Merchandising and Promotions”, Middlegame highlighted a recent assessment of 339 FMCG promotions from a single retailer for our client. We found that more than 41% of these promotions generated negative value incrementality for the portfolio and more than 87% of them generated negative value incrementality for the category. Taking a portfolio perspective and leveraging the appropriate analytics might have led to a very different use of resources than developing these elaborate calendars.

Some people call this the “rank and yank” approach to assortment assessment. You rank your SKUs by sales rate velocity and then yank the ones that fail to meet the threshold criteria that have been pre-established. Resistance to this approach is really the crux behind our assessment of incrementality versus transferred demand like we highlighted in the article, Making the Case for Transferred Demand Versus Incrementality. The SKIM Group calls for the measurement of “flow back”, but that is a special case of transferred demand that we regularly outline as cannibalization. Pete Fader once shared with me that the goal of assortment is to “maximize variety and minimize redundancy” which is the foundation of the CIA® platform.

Like in my opening comments, the blog titled – “Evaluating Price Response as Opposed to Price Elasticity” addresses the concept that price elasticity is not static across price points. Given a change in price, the relative presence of value versus the competition changes. Many analysts use “price gap” to try to capture this single SKU model, but this still assumes a constant elasticity. Here’s a great description provided by Market Share Analysis: in section 2.6.  Like the SKIM Group, we think bad pricing decisions have been made using tables of elasticities as opposed to simulating price response in the context of the immediate competition.

We are pretty much on auto-repeat at Middlegame with this concept. You can reference my blog How Can You Translate Insights Into Action?”, where I reinforce the importance of acknowledging and addressing all of the “stakeholders.” Until we consistently look at the solution we anticipate from the wide-angle view, we will continue to miss the nuances that can either win or lose acceptance from our retail partners. Generating a win-win outcome is hard. But having the right analytics in place to quickly pivot to those separate views is where we started.

This is one mistake that Middlegame has also frequently witnessed within our own business strategy and came to similar conclusions as SKIM. For example, Middlegame recently conducted a significant number of analyses addressing size changes among snacks in the United States. The findings suggested that there was more of a loss of market share when size was decreased and price remained constant versus when sizes remained the same and price increased. Basically, the relative price per volume in this category overwhelmed price per unit in terms of displaying value. However, we have to be careful by explain that different categories can have different results. When explaining the snacks study to one of the large multinational FMCG firms, we were quickly corrected that smaller sizes and similar prices was the core of their pricing strategy for the last decade.

Although we haven’t directly worked with the SKIM Group, we obviously like their way of thinking. The SKIM Group takes the same category-wide perspective that we do at Middlegame. Their approach appears to be somewhat more based on the use of sophisticated conjoint analyses leveraging surveys, whereas we go directly for the transactional data available from retail scanners. The reasoning for our dependence on the scanner data was explained in reliance on retail tracking data to deliver category wide analytics. Regardless, check them out at http://skimgroup.com.

Middlegame is the only ROMI consultancy of its kind that offers a holistic view of the implications of resource allocation and investment in the marketplace. Our approach to scenario-planning differs from other marketing analytics providers by addressing the anticipated outcome for every SKU (your portfolio and your competitors’) in every channel. Similar to the pieces in chess, each stakeholder can now evaluate the trade-offs of potential choices and collectively apply them to create win-win results.

Contact us at info@middlegame.com