Brand Strength Model
The Brand Strength Tool, is in fact a Price Elasticity Model. If you do an analysis today, it is an elasticity model, but over time, it becomes a relative and robust brand tool. Well; even if you do a one time analysis, it shows the brand strength as of today, but you will not be able to see the development. Then you need time. The model is user friendly, and very simple to understand, where you only look at price difference, and volume ratio. If there is a difference in the distribution, you can adjust for that.
Step 1: Make your selection
This analysis is a comparison between two rivals; one challenger, and the market leader within its category / segment. To enable you to do the analysis, you first have to select what you want to look at. The ‘selected’ product will be the challenger, whereas the market leader will be the ‘benchmark.
As soon as you have done the analysis for one analysis, you have done them for all. The slicer option simplifies the process, and minimizes the probability for errors across the various analysis.
Step 2: Snap Shot
The Snap Shot analysis enables you to get a simple first hand overview. This analysis can either be seen as a weekly analysis, or on an annual level. What you see here is that Product A (The Challenger) has a 6% price premium to Product B (The Leader), and that it sells 49% of the volume.
It is supposed to be easy, and that is what it is. In absolute money (NOK), the leader is twice the size of the challenger. That is due to a higher off-take of bigger packs.
Step 3: The core graph at a glance
One a weekly basis the Volume Ratio (A/B) and Price Difference (A-B) creates a simple plot. On an annual level, this becomes a pattern with a ‘trend line’. Y-axis explains the volume ratio, and the X-axis shows the price difference. So, if Y=1, then A and B would sell the same volume, and if X=0, then there is no price difference between the products. Then what about this graph? Well; the Y-intercept at 0.5387 (see the golden circle), means that A is selling 53.87% of B when having the same price. What we saw in the Snap Shot, was that A had a NOK 1.30 premium to B; hence the volume difference is somewhat lower.
There are a few red flags when looking at elasticity models.
a) The model becomes ‘weaker’ the more extreme approaches that are taken
b) The model becomes ‘weaker’ over time
c) The model becomes less predictable with a low R2 (also knows as the truth factor).
With a factor of 0.0945, means that is not too solid. Personally we prefer a R2 of > 0.65 to say that the model is strong enough. In this case, there might be a more holistic growth plan that is needed. Below we will look at the development over time.
Step 4: Interpret the core graph
We saw above that the Y-intercept explains the volume ratio when there is no price difference. An extrapolated thinking, then gives us two areas for consideration; green (+) and red (-). The green area shows us weeks where A costs more than B, and sells more products. On the contrary, the red area shows us when A is cheaper than B and sells less. Comparatively, the green weeks occur three times more frequent compared to the red weeks. That is a positive signal it itself
The equation can be used to calculate desired outcome. Let’s say A wants to sell the same as B (Y=1). That will happen when A is NOK 10.25 cheaper than B. In theory that is correct, but just remember the red flag above. Such a price discount would destroy the reference price over time. Before we move on, take a last look at the graph above. Can you spot a week, where A was slightly cheaper than B, and sold only a bit less? The exact numbers were X=-0.34 and Y=0.91. That means A can almost sell at par, even if there is only a slight difference in price. That is one of the reasons why R2 is as low.
Step 5: Sales per day per store (Lift analysis)
If we only look at the top-line numbers, we might lose our beauty sleep, but if we break the sales down per store per day, we get less worried. A lot can be done with a valuable sell-in story, improved planograms and an improved execution per store. It does not take that much.
Improvements per day per store
Each store only needs to sell 12 extra consumer units per day across the various formats in the grocery channel. That equals only two 6-packs / or / three 4-packs / or / six 2-packs. With some smartness and eagerness, this is more then possible to achieve; even without a price decrease. Good that hypers contribute to less than 5% of total sales.
Step 6: Brand Strength Development?
The brand strength can be measured over a three year period. For our challenging product, we can see from the graph below that it slowly and steady, is closing the gap toward the category leader. With some Cat Man and RGM methodology laying the foundation for the operations team, the challenger will accelerate the speed to become a real rival in a shorter period of time.
Given the same price points as the category leader, our challenger is closing the gap year on year. By closing the gap, the brand is becoming stronger.
