Whitepaper: Product-line optimization

An advanced solution to product-line
optimization challenges

Based on Shapley Value analysis

shopping

The challenge

Many brands compete in categories with numerous product offerings. Consequently, they invest in market research to determine the success of their new product offerings and variants. They also use it to identify the optimal mix of products in a category. Historically, brands have used a variety of research techniques to evaluate such things – from TURF analysis to Discrete Choice Models. But each of these techniques has strengths and weaknesses.

In this paper, we introduce MetrixLab’s two-tier product-line optimization solution. This enables brands like yours to:

  • optimize the range of products they offer to consumers
  • determine the potential sales success of new products/variants and their impact on existing products in the line
  • understand which variant (e.g. flavor) is likely to be most popular, and therefore which to launch
  • identify the strongest rotation of offerings to help retailers to increase their sales
  • understand the appeal of new variants and how they will fit into the line
  • determine the number of new consumers who might be attracted to the product line because of the new product offering/variant

We also share the findings of a Tier II study as well as share highlights of branded use cases.

Introducing our two-tier product-line optimization solution

The cornerstone of our product-line optimization solution is Shapley Value analysis. This solution, which is based on game theory, was developed by Lloyd Shapley in the 1950s. The approach involves assigning a value to each potential product in a product line. This is done by evaluating the overall strength of all possible product offerings that contain the product, minus those same product offerings without the test product. This process produces a similar result to that which can be achieved via TURF analysis.

It was originally devised as a way of allocating profits to players who had each contributed to these in varying amounts. This approach provides a way of calculating the proportional or relative value of products offerings/variants in a product line. Using it, it’s possible to establish the value of existing products in a line before a new product is added. It is then possible to determine the value of all products in the line with the new product included. In turn, the impact of the new product in the line can be revealed.

By applying Shapley Value analysis to product-line optimization problems, a further useful property of this approach has emerged. Imagine for a moment what might be described as typical shopping behavior. That is, consumers enter a store and browse the available product offerings/variants. They determine which products/variants are relevant to them and then make a purchase. In this case, the Shapley Value of each product offering/variant will be equal to its share of sales in its category.

The power of Shapley Value analysis is encapsulated in our two-tier product-line optimization solution.

Tier I – Optimization of product offerings / variants

When determining product assortment, you need to know which new product offerings/variants will work best with your existing product line. In our Tier I study, respondents are exposed to both existing and new product offerings/variants.

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