The document discusses how Mr. Target, a product manager at a fast-food restaurant, uses Menu Based Conjoint (MBC) analysis to address falling revenues by revamping the menu and optimizing pricing based on consumer preferences. MBC allows for the identification of optimal product combinations and pricing that maximize revenues while minimizing cannibalization between items. Ultimately, implementing MBC led to a 9% increase in revenue for the restaurant through improved menu offerings.

1. Chicago New York London Dubai New Delhi Bangalore SingaporeSan Francisco
www.absolutdata.com
© Absolutdata 2014 Proprietary and Confidential
April 30, 2014
Application of MBC in CPG Industry
through Storytelling

2. 2© Absolutdata 2014 Proprietary and Confidential
About Absolutdata
Market
Analytics
Customer
Analytics
Market
Research
Data
Visualization &
Reporting
Big Data Strategy
& Services
Company Overview
 Founded in 2001
 We are decision engineers and apply decision sciences every day to
improve decisions at the world’s largest companies
 Senior management from McKinsey, Kraft, Pfizer, Mitsubishi, Nielsen,
GE, HSBC and Citigroup
 Headquartered in San Francisco and delivery centre in Gurgaon, India
with regional offices in London, Singapore and Dubai
 Significant Investment in capability building – Deepening existing
competencies and diversifying into new areas
 Continued focus on thought leadership – at international
conferences, NASSCOM paper on Marketing Analytics
Corporate Philosophy
Mission
To empower forward-looking
organizations reach new
heights of business
performance through the
optimal use of data
Services Provided

3. 3© Absolutdata 2014 Proprietary and Confidential
A Short Tale of Intelligent Analytics
Introducing the protagonist of this tale Mr. Target who is Product Manager for a leading fast-food restaurant
THE FAST-FOOD RESTAURANT
His job is to decide the different items of the menu
As a consistent performer in his company, he is the go-to guy for all
business related issues
Product Manager
Mr. Target

4. 4© Absolutdata 2014 Proprietary and Confidential
The Problem of Plummeting Revenue
One day Mr. Target gets a frantic call from his Senior Manager Mr. Hassled..
..who is completely hassled by
the falling revenue shares

5. 5© Absolutdata 2014 Proprietary and Confidential
Strategy to Increase Revenue
Mr. Target identifies a two-pronged strategy to increase the restaurant’s revenues
Ticket Size
Increasing per ticket sale for existing
customers
Guest Count
Incremental volume from new
customers

6. 6© Absolutdata 2014 Proprietary and Confidential
Revamping the Menu – Means to an End
He knows that revamping the menu is the key and narrows down to the following business questions
 Based on demand and revenue, what are the right combos and
optimal price for each?
 Which menu items are profitable complements with the combo
offerings at what price?
 What should be the optimal price for the individual items being sold?
Optimal Menu & Pricing
New Product – Substitute or Complement
 Would the introduction of “Tacos” cause any cannibalization?
?


7. 7© Absolutdata 2014 Proprietary and Confidential
Search for the Right Approach – Does CBC Answer the Questions?
 Mr. Target’s instinctive solution to this problem is Choice Based
Conjoint (CBC)
 But he soon realizes that CBC is not the best approach to this
problem. This is because in a CBC exercise, respondents make a
single choice among pre-designed available options and they
cannot build their preferred choice
 What Mr. Target needs is an approach that mimics the actual
purchase process of a customer who visits his restaurant and
creates his order!
?

With the business questions in place, all Mr. Target needs is the right research approach

8. 8© Absolutdata 2014 Proprietary and Confidential
Mr. Target’s Eureka Moment – Menu Based Conjoint
 MBC is a choice modeling method used for products and services
that allow buyers to choose from one to many items (or bundles)
on each menu where each item has a price associated to it
 MBC is the perfect solution to Mr. Target’s problem as it would:
– Compare preferences for different combos and a la carte menu
items offered in the fixed menu at different prices
– Optimize the product offerings for maximizing revenue and
uptake
– Anticipate the sales and profits
?

Mr. Target suddenly remembers his notes from a conference where they spoke about Menu Based Conjoint
(MBC)

9. 9© Absolutdata 2014 Proprietary and Confidential
Root of all Hassles – Underperforming Menu
This shows the current menu available at the fast food chain
COMBO MEALS
Classic Combo
$3.00
Cheese Burger Combo $3.50
Pizza Combo
$4.00
SIGNATURE MAINS
Basic Burger
$2.00
Cheese Burger
$2.50
Pizza
$3.5
SIDES & BEVERAGES
Fries
$1.50
Drink
$1.00

10. 10© Absolutdata 2014 Proprietary and Confidential
Point of Arrival – Hypotheses to Test
Note: Respondents are shown several scenarios with variations in products and price. The selections in the scenarios is indicative of their preference.
Mr. Target carefully puts down certain hypotheses he plans to test using Menu Based Conjoint
SIGNATURE MAINS
Basic Burger
$2.00
Cheese Burger
$2.50
Pizza
$3.5
COMBO MEALS
Classic Combo
$3.00
Cheese Burger Combo
$3.50
Pizza Combo
$4.00
SIDES & BEVERAGES
Fries
$1.50
Drink
$1.00
Signature Mains
 Change prices of individual items to identify optimal
price
 Introduction of “Tacos”
Combo Meals
 Change prices for different bundles to maximize
revenue and uptake
Sides & Beverages
 Change prices of Sides and Beverages to identify
profitable complements with the combo offerings

11. 11© Absolutdata 2014 Proprietary and Confidential
Please Make your Selection (1 of 3)
Change in Price of Drink
Note: This is only for illustrative purpose
Classic combo selected with a la carte as pizza, fries & drink on the screen shown
Hey!! I think I’ll buy
an extra drink along
with the Pizza.
Respondent
COMBO MEALS
Classic Combo
$3.00
Cheese Burger
Combo $3.50
Pizza Combo
$4.00
SIGNATURE MAINS
Basic
Burger
$2.00
Cheese
Burger
$2.50
Pizza
$3.5
SIDES & BEVERAGES
Fries
$1.50
Drink
$1.00
P
PP P

12. 12© Absolutdata 2014 Proprietary and Confidential
Please Make your Selection (2 of 3)
Addition of Tacos & Change in Price of Classic Combo, Basic Burger, Cheese Burger
Note: This is only for illustrative purpose
With change in menu items and introduction of tacos, classic combo selected with tacos, fries & drink but NOT
pizza
COMBO MEALS
Classic Combo
$3.00
Cheese Burger
Combo $3.50
Pizza Combo
$4.00
Tacos Combo
$4.00
SIGNATURE MAINS
Basic
Burger
$2.00
Cheese
Burger
$2.50
Pizza
$3.5
Tacos
$2.0
SIDES & BEVERAGES
Fries
$1.50
Drink
$1.00
P
P PP
Respondent
Oh!! they now have
Tacos and its cheaper
than the Pizza. So, I’m
going to go with that
for now

13. 13© Absolutdata 2014 Proprietary and Confidential
Please Make your Selection (3 of 3)
Change in Price of Pizza Combo, Pizza and Fries
Note: This is only for illustrative purpose
With Pizza at a lower price and classic combo at an increased price, both these items selected along with fries &
drink
COMBO MEALS
Classic Combo
$3.00
Cheese Burger
Combo $3.50
Pizza Combo
$4.00
Tacos Combo
$4.00
SIGNATURE MAINS
Basic
Burger
$2.00
Cheese
Burger
$2.50
Pizza
$3.5
Tacos
$2.0
SIDES & BEVERAGES
Fries
$1.50
Drink
$1.00
P
P P
P
P
The Tacos are more
expensive and the
Pizza is cheaper.
Hmm.. I think I will
buy Pizza instead.
Respondent

14. 14© Absolutdata 2014 Proprietary and Confidential
Insights (1 of 4): Right Combos at the Right Prices
MBC helps identify the most preferred combo at the right price by allowing to compare performances of combos
at different prices
Classic Combo is the most preferred
combo amongst the combos offered
Optimized Price for
Classic Combo is
$3.25
-20%
-10%
0%
10%
20%
30%
$2.5 $2.75 $3 $3.25 $3.5 $4
Price Curve for Classic Combo
Revenue Transaction
0%
20%
40%
60%
80%
100%
Classic… Cheese Burger… Pizza…
Preference Curve for Combos
PreferenceShares Base price%agechangeoverBaseCase

15. 15© Absolutdata 2014 Proprietary and Confidential
Insights (2 of 4): Profitable Complements with Combo
MBC helps identify the most profitable complement at the optimal price which can be offered with the combo
People purchase pizza with Classic
combo and its removal would lead to
decrease in combo off takes
Optimized Price for
Pizza is
$3.00
-20%
-10%
0%
10%
20%
30%
$2.75 $3.0 $3.25 $3.5 $3.75 $4.0
Price Curve for Pizza
Revenue Transaction
Base price
$3.0 is the optimal price point for Pizza
since a decline from $3.5 to $3 shows a
significant increase (~8%) in the number of
customers as well as the total revenue
over current menu

16. 16© Absolutdata 2014 Proprietary and Confidential
Insights (3 of 4): Optimal Price for Sides & Beverages
MBC also helps understand the profitable sides & beverages at their optimal price points
Price of fries can be increased to
$1.75 from $1.5 as it would only lead
to a drop of 3% in purchase
Price of fries can be increased to
$1.75 from $1.5 as it would only lead
to a drop of 3% in purchase
0%
10%
20%
30%
$1.0 $1.5 $2 $2.5 $3 $3.5
Price Curve for Drink
0%
10%
20%
30%
$1.0 $1.25 $1.5 $1.75 $2 $2.5
Price Curve for Fries
DemandDemand

17. 17© Absolutdata 2014 Proprietary and Confidential
Insights (4 of 4): New Product – A Substitute or Complement?
MBC helps understand the cannibalization of a la carte items when prices are changed or new items added to
the menu
Pizza & Tacos are purchased by
different consumer segments and do
not cannibalize each other
Optimized Price for Taco
Launch
$2.00
0%
10%
20%
30%
$1.5 $1.75 $2 $2.5 $3 $3.5
Price Curve for Tacos
Demand
After $2 there is sudden decrease in the
demand for Tacos and hence $2 is the
optimal price point to introduce Tacos for
maximum off take

18. 18© Absolutdata 2014 Proprietary and Confidential
Mr. Target hits the Jackpot – The New and Improved Menu
MBC helped Mr. Target to decide his new and improved optimized menu to increase his company’s revenue
shares
COMBO MEALS
Classic Combo
$3.00
Cheese Burger Combo
$3.50
Pizza Combo
$4.00
SIGNATURE MAINS
Basic Burger
$1.50
Cheese Burger
$1.50
Pizza
$3.0
Tacos
$2.0
SIDES & BEVERAGES
Fries
$1.75
Drink
$1.50
Note: Addition of Tacos at $2; Classic Combo, Fries & Drink price increased; Pizza price decreased

19. 19© Absolutdata 2014 Proprietary and Confidential
Mr. Target wins the Market
9%
5% 4%
Ticket Size Guest Count1 2
Increase in total
revenue
The results yielded a 9% revenue growth from both existing and new consumers

20. 20© Absolutdata 2014 Proprietary and Confidential
Industry Application of Menu Based Conjoint
Industry
Applications
of MBC
Software as a Service (SaaS)
Different packages with certain features
Automobile Industry
‘Build Your Own’ Car
Pharma – Drug Therapy
Combination of drugs for prescription
Financial Sector
Multiple services that can be add-ons
Shared Resources & Outsourcing IT
Bundling services from different vendors

21. 21© Absolutdata 2014 Proprietary and Confidential
Conclusion – A Short Summary
MBC gives more power to consumers by allowing consumers to select one to multiple options
from a menu to indicate their preference. It is most useful in in markets where customers have
freedom to customize an existing product or build their own package.
It can help answer the following business questions:
 Understanding trade-offs between pre-configured bundles versus single features (à la carte
options)
 Identify the right bundle of products to offer
 Price the bundle and individual products optimally
 Identify substitutes vs. compliments from the menu
 Does reducing the price for an item cause a different item on the menu to be chosen more
likely (or even less likely)?
 Enables to maximize configurations for revenue and uptake

22. 22© Absolutdata 2014 Proprietary and Confidential
For more information visit www.absolutdata.com
For queries, please write to info@absolutdata.com

23. Name
Designation
Phone:
Email:
Follow us on: