How a Wine and Spirits Manufacturer Improved Their Sales Performance by More Than 7% with the Help of Pricing Analytics
The Business Challenge
A leading alcoholic beverages client, specializing in manufacturing wine and spirits, wanted to develop a more precise pricing and promotion strategy by leveraging their customer, procurement, and manufacturing data. The primary concern of the wine and spirits manufacturer was that they had to conduct their business either through distributors or state government agencies due to the regulatory norms prevalent in the US. Since the wine and spirits producer had to conduct their business either through distributors or state government agencies, they wanted to establish a desired shelf price for each SKU, which would also include distributor price. The wine and spirits manufacturer also had to account for various parameters – distributor margins, state or local tax, pack size, promotion support, freight, production and supply chain costs, etc.
Due to the complexities associated with the regulatory environment, product portfolio, and huge volumes of data, the wine and spirits manufacturer approached Quantzig. With the help of this pricing analytics engagement, the wine and spirits manufacturer wanted to gain strategic insights on how to optimize the prices and promotions across the entire product portfolio and ensure maximum margins.
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Starting with discussions to define use-cases to solve the business problem, our analysts created a data dictionary for each source of data. Our experts also integrated the datasets at the product ID and account ID level to create a single analyzable dataset for EDA and executing statistical modeling algorithms. Additionally, to meet the wine and spirits manufacturer’s specific category requirements, the pricing analytics experts:
- Applied clustering methods to define distributor or agency segments based on key demand drivers, type, product, and pricing data
- Based on the evaluation of the client’s internal pricing infrastructure and processes, the team built multivariate regression models for:
- Quantifying elasticity and redesigning the pricing strategy
- Product demand and purchase behavior
- Promotion response
With the help of our solutions, the wine and spirits manufacturer established a centralized and consistent approach to the ongoing setting and managed distributor pricing – resulting in improved margins. Price performance measurement based sales volume and margin forecasts at the SKU level helped them gain a complete visibility on the prices of wines and spirits, discounts, sales and distributor segments to the organization hierarchy based on the designation. Moreover, pricing analytics also enabled the wine and spirits client to simulate scenarios and see how price changes affect the overall profitability and estimate the volume of SKUs.
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Global Wine and Spirits Market Overview
The global market for alcoholic beverages includes products such as beer, wine and spirits. Among the different types of liquor available in the market, the consumption of beer, lager, and cider is the highest – accounting for approximately 89% of the total alcohol consumed across the globe. However, the future of the alcoholic beverages industry depends on numerous factors, which are dynamic in nature. Let’s take a look at some of the key factors that will influence the growth prospects of the wine and spirits industry over the next few years.
- Traditionalism/Authenticity: With the recent political and geopolitical events, such as Brexit, ongoing unrest in Middle-East, the election of a new US president, and constant changes in technology, the future of the alcoholic beverages industry is more unpredictable than ever before.
- E-commerce: E-commerce platforms are rapidly changing the consumers’ buying experience and will have a huge impact on the alcoholic beverages industry.
- Brexit: Nobody really knows the extent to which it’s going to affect the alcoholic beverages industry. Recent studies show that UK-based alcoholic beverages will lose traction in other markets, but the wine and spirits market in Europe will witness a boom of locally produced liquor.
It is due to such factors that players in the wine and spirits industry are leveraging solutions such as pricing analytics. Pricing analytics helps businesses in the wine and spirits market deal with the economic slowdown and devise effective strategies to retain the most profitable consumers. With companies focusing on how to retain their best customers, many consider implementing price optimization strategies. For most consumers, the price of a product connotes its real value. Therefore, understanding price and what it means to a consumer is a critical aspect of determining the person’s lifetime value to a company.
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