CPG Trends, Portfolio Management 07 March 2025

Balancing portfolio simplification with shopper-centric customization in consumer goods

In the evolving landscape of Consumer Packaged Goods (CPG), companies are often advised to simplify their product portfolios to reduce costs and enhance agility. However, this strategy can appear contradictory when juxtaposed with the increasing demand for personalized, shopper-centric offerings tailored to diverse channels. Striking the right balance between simplification and customization is crucial for meeting consumer expectations and maintaining market competitiveness.

The Case for Simplification

Simplifying a product portfolio involves reducing the number of brands or SKUs, standardizing formulations, and eliminating underperforming products. This approach can lead to streamlined operations, cost savings, and improved supply chain efficiency. By focusing on high-performing products, companies can allocate resources more effectively and respond swiftly to market changes. 

P&G, similarly to many other manufacturers, claimed that the bottom 25% of SKUs in the categories it operates in deliver a very small contribution to absolute retail sales. So, in 2023 they partnered with major retailers in the US, to leverage POS data and their own proprietary algorithms, to determine which SKUs they should focus on across all regions and all categories. (1)

The Imperative of Shopper-Centric Customization

Conversely, today’s consumers increasingly expect personalized experiences. A study by McKinsey highlights that 71% of consumers expect companies to deliver personalized interactions, and 76% become frustrated when this doesn’t happen. (2)

This expectation extends to product offerings, with consumers seeking products that cater to their specific preferences. In a study conducted by Moment10 in 2022, on more than 1,500 consumers across USA, France and China, 54% of respondents claimed that personalization in consumer goods allows them to buy products best suited to their personal taste and needs. (3)

Additionally, the retail landscape is becoming more fragmented, with products distributed through various channels such as multiple retailers, wholesalers, online platforms, and niche marketplaces. This fragmentation poses unique challenges for businesses aiming to reach their target audiences effectively. 

As an example, social commerce is on the rise and will play a fundamental role in the next years. All the major platforms are improving the shopping features following a growing consumer interest to discover, evaluate and buy products without leaving the social media app. Shoppable posts, live events and more personalized shopping experiences will be fundamental features for successful CPG brands. (4) This requires specific adaptations and formats, which impact portfolio choices.

Navigating the Contradiction

The challenge lies in reconciling the drive for simplification with the necessity for customization. While simplification aims to reduce complexity, shopper-centric customization inherently introduces it, by requiring tailored products for different consumer segments and channels.

Strategic Portfolio Optimization: A Balanced Approach

To address this dichotomy, CPG companies should adopt a strategy of strategic portfolio optimization, which involves:

1. Eliminating Non-Value-Added Complexity: Identify and remove products or variations that do not significantly contribute to revenue or consumer satisfaction.
2. Investing in Value-Added Customization: Develop tailored products or packaging for high-value channels or consumer segments where personalization can drive growth.

To successfully implement this approach, CPG companies must harness the power of data and technology. By leveraging advanced analytics, they can gain deeper insights into consumer preferences and channel performance, allowing them to make informed decisions about where customization will have the greatest impact. This data-driven strategy ensures that personalization efforts enhance value without introducing unnecessary complexity.

Conclusion:

In conclusion, while portfolio simplification offers clear operational benefits, it must be balanced with the growing consumer demand for personalized products and the complexities of a fragmented retail environment. By strategically optimizing their portfolios, CPG companies can reduce unnecessary complexity while delivering tailored offerings that meet the diverse needs of today’s consumers. 

Contact Sevendots today to set up a presentation of our latest Growth Series on Portfolio Management, where we provide a framework to understand and leverage the triggers that drive portfolio decisions.