ingredient substitution: how to deliver perceived value AND increase profit margins
The democratic process has recently demonstrated that Australians see a need for more ambitious targets for emissions reductions. We know you know: Today’s commercial environment is especially challenging for FMCG manufacturers. Pressure is mounting due to the increasing cost of goods, freight and even pushback from retailers. Politically charged topics, such as food miles and standards, are all high on the agenda too.
Here at PLAY, we talk a lot about innovation, but at times like these, “costovation” is often the best way forward.
So, how can you innovate your core products to meet consumer expectations while simultaneously delivering margin enhancement to the business?
It might seem impossible, but in this article, we’re showing you how to successfully navigate the need for ingredient substitution in product reformulation - without sacrificing that all-important win-win.
it’s a complex issue
When playing with ingredients, it’s not just about taste but also consistency, sourcing, ethics and ensuring your product still fits the brand message or purpose.
There are large-scale issues to tackle too:
1. Economic and political pressures impacting the supply chain, both globally and locally
2. Environmental and social pressures affecting sourcing and stability
Due to the COVID-19 chaos, consumers are also feeling unsettled, so buying behaviours have shifted. Shoppers are seeking high-trust transactions, but turbulent economic conditions are causing them to proceed with caution. As interest rates rise and product prices climb, everyone is extra conscious about escalating household bills.
This baffling backdrop is why many manufacturers are looking to find defensible, flexible ways to adapt their products and meet consumer price expectations while still achieving consistent product performance AND meeting stakeholder needs. Let’s explore the “how” of getting to that idyllic end result.
it makes sense to do sensory
Sensory research and/or bundle testing (of your brand, claim, pack and product) is vital to the process of ingredient substitution, but please breathe a sigh of relief when we tell you that it does not have to be an “all-in’ affair.
You either need to find a “match” to what you currently have OR a product solution that is at least as good. You must also find a way to communicate any perceived change effectively (more on that later).
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a menu of options
The research approach you require will be determined by the nature of change:
1. A “triangle test” can show you whether people can tell the difference between two different formulations (giving you the confidence to proceed if there is no noticeable impact)
2. A sensory evaluation (either in-home or CLT) can tell you how formulations are different, as well as whether the new or current option is superior (and why)
3. You can also combine concept and claims testing within the process to assess key messaging if required
And it’s pick and mix! These methods can be staged or bundled depending on the size of your attempted stretch.
communication is key
Going one step further to ensure success with food reformulation, you may want to consider messaging that can support a potential change; for example, ethical sourcing, going local and other CSR benefits.
Of course, if you can create a super slick match to your current product, you may not need to communicate anything. However, we suggest you prepare to respond just in case the broader marketplace notices some kind of difference (which can get messy pretty fast).
beware the salami effect!
It’s important to bear in mind that when substituting ingredients, manufacturers often seek a result of “no significant deficit” versus what they currently have. But have you considered that the product could still be very different, even if not “significantly worse”?
The real problem comes if you go through this process once, twice or even three times over - and every time you do, you’re taking “slices” off the original standing. This is what we affectionately call “the salami effect”: one slice doesn’t necessarily matter right now, but if you keep taking more, you’ll eventually run out of salami!
The outcome? Product drift; where your offering gets a little bit worse over time due to systematic cuts OR competitors incrementally improve - and you don’t notice!
Our advice is to remain conscious about what you’re doing. Always aim for AT LEAST parity to the current product, if not better, and focus on maintaining perceived value in your overall proposition. This might include targeted dips into product promise, packaging, price point and beyond as you evolve. It’s worth all the faff - we promise!
over to you
However, if you’d like to remove said faff from your plate, get in touch with our team today. PLAY is your partner in Consumer-led Product Development that helps lift the productivity and effectiveness of your NPD process, supported by timely, robust and relevant consumer insights. We do this by making consumers’ lives better – by unearthing insights to help make products they truly want.
If you’d like help navigating your ingredient substitution situation - from an FMCG-focused agency that takes an agile approach to experiential research - then subscribe to our newsletter below. We can’t wait to share more of our NPD superpowers and solutions with you.