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How to strategically balance brand equity and profitability: Pernod Ricard's pricing and portfolio optimisation

min. read
Business question

Value over volume

What does it take to be an avant-garde leader in the wine and spirits industry? 

The secret of Pernod Ricard, the world number one brand for premium spirits, lies in a decentralised, customer-centric organization that understands the importance of brand equity. 

The story started in 1975 when 2 prestigious French anise-based spirits companies - Pernod, founded in 1805, and Ricard, created in 1932 by Paul Ricard – decided to merge together to create the Pernod Ricard company. A lot has changed since then. Today, the company is a multinational business located in 73 countries, with more than 18,700 employees across the world, and distribution channels in more than 160 countries. 

In every enterprise, agility and efficiency are crucial for the "machine" to operate successfully. The same goes for Pernod Ricard. "At Pernod Ricard, we have three key principles which help us in gaining and maintaining agility and operational efficiency: mutualising, prioritising, simplifying. These principles are essential to prepare our future and growth in a sustainable way, especially in times of crisis like today," explains Eloïse Lapp, Pricing Insights Planner at Pernod Ricard. 

Value over volume for higher brand equity

As part of Pernod Ricard Shopper Insights Centre of Excellence, Eloïse and her colleagues work on understanding consumers and shoppers, point of purchase and optimizing pricing and targeting. Recently, her team undertook large-scale research to optimise their pricing strategy. The "Shopper Pricing and Portfolio Optimisation" initiative came as a combination of two different objectives, consumer-centricity, and prioritisation of value over volume. For Pernod Ricard, Revenue Growth Management is a foundation of the long-term value creation strategy.

Eloïse is clear about Pernod Ricard's Centre of Excellence mission...

"We believe it's crucial to understand better how our shoppers perceive our brands, how they relate to pricing and promotion, what their motivations are as well as their shopping habits. By knowing these parameters, we can assess the pricing strategy in the right way and generate sustainable value growth." 

The research consisted of several shopper pricing studies on our strategic brands run in key markets. 8 studies have been done so far and more are planned for next year.

Increasing the overall understanding of consumers’ willingness to pay and the importance of promos weren't the only questions that prompted this research. According to Eloïse, there were far more things to reveal. 

"We wanted more visibility on strategic shoppers' decisions so we could give concrete recommendations for optimal pricing and promo mechanics to maximise the growth of key financial KPIs," she adds.

Working as one team

Having a great partnership with an external team who can bring their expertise to the table and lead the project was mandatory. Based on the previous successful collaboration, Pernod Ricard's Centre of Excellence decided to also team up with Boobook on this research. 

"Boobook always exceeds our expectations! They are truly a tech-savvy team of exceptional data scientists and consultants," says Eloïse. 

A good consulting agency listens carefully to get to the gist of business challenges. A great consulting agency will be dedicated to the project as if they are a part of the company - something that, in Eloïse's opinion, Boobook does extremely well.

"We are thrilled to work with the Boobook team because our partnership is based on trust, respect and open and constant feedback. I felt as if they were a part of our core team! Creating a "team spirit" between your client and your company should be the ambition of every consulting company. And Boobook is doing this with great ease!"

"Another important differentiator was Boobook's understanding of brand equity, revenue growth strategy and pricing optimisation. They extract concrete business questions and implications from a brand strategy perspective which is critical for an organisation like Pernod Ricard," continues Eloïse.

Finding a new perspective 

Given the Pernod Ricard objective to be a consumer-centric organisation, it was important to inject shopper insight into pricing strategy and decisions.

pernod ricard cocktail making

So what did they learn to support and optimise their vision?

From a global overview, it's difficult to answer what the key insights were, especially if we consider that each market and different brands have different context and market share. However, after finalising the studies, together with the Pernod Ricard team, Boobook mapped out the pricing strategy around three focal points:

  1. Finding a balance between the market share (value or volume) and profitability depends on the current brand equity, its market position and market context
  2. To build a brand strategy and optimise KPIs, every variant of the portfolio plays a different role
  3. The balance between "standard price" and "promo price" depends on promo perception and shopper motivations

There were also some unexpected findings. "We noticed different elasticity levels between different retail channels (meaning different store sizes and models). In some markets, the difference can be quite important, and this demonstrates the importance of understanding the shopping behaviour as well and not only focusing on your brand and product offering," Eloïse adds.

Converting insights into actions

"What I find interesting about shopper insight and pricing studies is that they reveal valuable insights we can share and apply to different departments across the organization," says Eloïse. 

Understanding the brand perception compared with your current price positioning, clarifying the pricing and promo sensitivity and what drives the decision of purchase are invaluable insights for Pernod Ricard's Marketing and Sales departments. 

"Pernod Ricard is a decentralised organisation, and this type of research shows us how to unlock growth in certain markets," says Eloïse. "Our ambition for the upcoming year is to turn insights into actions successfully. This final stage is also the most crucial one, as we do not conduct studies for the beauty of research but really to turn those Insights into Actions.

Optimising the pricing strategy seems like a basic objective at first sight; however, it brings out many other strategic questions, challenges and adjustments. We asked Eloïse what advice she would give to other companies that want to optimise their pricing strategy. 

"Optimising pricing strategy is more complex than it seems because often there are trade-offs to be made between volume, value, or margin gain. Be prepared to face some trade-off and be clear in advance on your objectives (not so obvious as it seems!), allocate the right time and resources in this ambition to optimise your pricing strategy,” recommends Eloïse.

Reconnecting with the consumer in times of crisis

A few months ago, when the pandemic hit globally, and the lockdowns followed, our lives changed drastically. The "new normal" was a challenge for Pernod Ricard, as their on-channel (bars, hotel, restaurants, etc.) and travel retail were directly impacted. However, thanks to their high brand equity and strategic positioning, they saw growth in their retail and e-commerce channels.

Pernod Ricard continuously invests in marketing and innovations to answer consumer's and shopper's needs. Understanding the changes in consumers' behaviour and attitude and listening to consumers' needs was a high priority.

Eloïse reveals how they approached the pandemic: "We ran multiple shopper and consumer studies pre-COVID, during and after the first wave. The results confirmed our assumptions; in times of crisis, consumers turn to 'trusted', familiar, and high-quality brands - which was very positive for the Pernod Ricard portfolio."

Consumer insights and research are essential to plan the future of shopping and consuming, as well as adapting to the new concept of human interactions. And precisely “human interactions” are at the heart of Pernod Ricard.

"As a "createur de convivialité", Pernod Ricard aims to support and allow moments of happiness and carefree social engagements. During the (ongoing) COVID crisis, it's important to redefine what conviviality means for people," explains Eloïse. "Social distancing, several waves of lockdown and gathering restrictions, do not mean the end of conviviality. As humans, we need interaction, but we will need to redefine it," concludes Eloïse.

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