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

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Sources:

1. Consumer Good, 2023 - https://consumergoods.com/pg-trimming-skus-part-collaborative-commerce-strategy

2. McKinsey, 2021, https://www.mckinsey.com/capabilities/growth-marketing-and-sales/our-insights/the-value-of-getting-personalization-right-or-wrong-is-multiplying?utm_source=chatgpt.com

3. Moment10, 2022

4. Cool Nerds Marketing, 2025, Top Social Media Trends for CPG Brands in 2025

“More diversified portfolios with more proactive management, will allow CPG companies to cope more effectively with the emerging macro forces.”

Today, different macro forces are violently and rapidly shaping the CPG industry of tomorrow.

In the past, a lot of attention and money was directed towards avoiding complexity and simply focusing on increasing scale which justified the role and importance of mega brands.

Today, and even more so tomorrow, complexity is becoming a key asset in the value equation. Portfolio management needs to recognize the importance of this dimension and provide a strong combination of bigger and smaller brands to answer different needs. Of course, this requires new governance, industrial and distribution models. Similarly, measurement needs to adapt to capture the real performance of the portfolio as a whole.

More diversified portfolios with more proactive management of them will allow international CPG companies to cope more effectively with the emerging macro forces.

The traditional approach of delegating portfolio decisions exclusively to marketing and commercial functions represents a fundamental misalignment with the realities of modern CPG operations. While these functions undoubtedly possess crucial market insights, portfolio optimization extends far beyond consumer preferences and promotional strategies—it’s a complex orchestration that directly impacts operational capacity, financial performance, and strategic resource allocation.

The financial implications of siloed portfolio management extend well beyond immediate P&L considerations, creating cascading effects that demand C-suite oversight and cross-functional integration. Finance teams possess unique visibility into working capital implications, margin structures, and resource allocation trade-offs that marketing-led decisions often overlook. Operations teams understand manufacturing constraints, capacity utilization, and the true cost of complexity that can make seemingly attractive products financially destructive. According to KPMG’s ² survey of 600 organizations, 49% of organizations had suffered a project failure in just a 12-month period, often due to inadequate cross-functional input during critical decision-making phases. When portfolio management becomes a C-suite responsibility with mandatory cross-functional input, companies unlock an optimized allocation of firm resources with maximized market share and revenues, transforming portfolio decisions from marketing exercises into strategic value creation engines.

The following diagram provides a visual representation of the interplay between different functions. When portfolio decisions engage the full C-suite in a cross-functional dialogue, companies unlock superior strategic outcomes by aligning marketing insights with operational realities, financial constraints with growth ambitions, and innovation priorities with supply chain capabilities, ultimately delivering more robust and executable portfolio strategies.

Portfolio Strategic Decisions

Growth and portfolio decisions are strongly linked. In fact, they help to prioritize investment, optimize the product mix and steer the strategic direction.

There is value in trying to understand how different growth strategies impact the portfolio management decisions both in terms of the primary level they need to focus on (categories, brands, SKUs) and the triggers (strategy, financial, consumer, customers).

The following table summarizes the decisions and approaches to have a Strategic Portfolio Management:

Portfolio Need: Revitalization

Reinvigorate underperforming assets and restore competitive positioning.

Strategic Approach:

• Brand identity and Brand Purpose review
  Realign brand positioning with evolving consumer values and market dynamics.

• Complexity Optimization
  Streamline Category/Brand/SKU architecture to eliminate low-performing variants and reduce operational burden.

• Innovation pipeline acceleration
  Fast-track product development cycles to close competitive gaps.

• Channel strategy reformation
  Optimize go-to-market approach and distribution partner alignment.

Portfolio Need: Expansion

Capture new growth opportunities while managing risk and resource allocation.

Strategic Approach:

• Adjacent categories analysis
  Evaluate brand extension, partnership and licensing opportunities leveraging core competencies and consumer equity.

• Geographical expansion analysis
  Assess market entry strategies with localization requirements and regulatory considerations.

• M&A strategic fit analysis
  Evaluate acquisition targets for synergy potential, cultural alignment, and integration complexity.

• Digital ecosystem expansion
  Leverage e-commerce and direct-to-consumer channels for market approach.

• Foresight forecasting
  Quantify expansion scenarios across multiple strategic dimensions (risk, equity and complexity).

• Strategic Supply Network Design
  Configure operational infrastructure to support scalable growth trajectories through integrated technological, logistics, and digital capabilities, while embedding ESG principles and organizational development as foundational elements for all expansion strategies.

Portfolio Need: Profitability

Optimize value extraction and margin enhancement across the portfolio.

Strategic Approach:

• Strategic Revenue Management
  Implement dynamic pricing strategies and promotional optimization frameworks. It considers the mix between products, customer segments and distribution channels.

• Premiumization
  Elevate product positioning through innovation, packaging, and brand storytelling.

• Design to Consumer Preference (DCP)
  Engineer products that maximize willingness-to-pay while optimizing cost structures.

• Portfolio architecture optimization
  Rationalize product lines to focus resources on highest-margin opportunities. This may include assets divestiture assessment.

A hint for long-term sustainable growth: Stop bleeding cash cows!

Long-term Total Shareholder Return requires balanced cost structure interventions to ensure sustained growth. According to BCG⁴, revenue and costs drive three-quarters of financial performance over five-year periods, making their optimization critical for shareholder value creation.

Strategic decisions regarding high-margin core SKUs must balance sustained volume growth, profitability, and competitive differentiation. These SKUs, representing major portions of both revenue and income, face two primary challenges:

1. Continuous cost pressures that risk quality degradation through incremental reformulations using cheaper ingredients and lower cost sourcing strategies, ultimately jeopardizing long-term brand equity.

   

2. These SKUs receive less attention in relation to innovation products, behind these potential reasons:​ concern in touching a major sales contributor​, quest to keep up with emerging consumer needs​ and need to respond to competition​.

The breakthrough solution is to apply Sevendots Design to Consumer Preference (DCP) methodology which combines the wealth of your internal knowledge with external knowledge on consumer understanding and product and process benchmarking​. This proven methodology will allow to extract more value from the core products and moving their design into today's and tomorrow’s consumer preference.

Design to Consumer Preference is a proven five steps methodology:

The process results into tangible deliverables:

1. Comprehensive understanding of competitive landscape and consumer trends​.

2. Consumer feedback on current brand and product design vs competition and benchmark products​.

3. Evaluation of tradeoff between top line and bottom-line growth​.

4. Development of Business Case

5. Implementation plan and timings

A case study of applying DCP comes from Unilever Ice Cream in Indonesia.

Conclusions

Multinational CPG companies face a pivotal moment. Overcoming stagnant volume growth and ensuring long-term shareholder returns necessitates strategically portfolio management. Companies applying the right methodologies to balance immediate opportunities with long-term strategic growth will achieve sustained market success and superior shareholder value.

At Sevendots, we advise CPG companies on how to win in today’s dynamic environment. If you are looking to extract greater value from your core business and evolve the design of your core products to align with current and future consumer preferences, we would be glad to support you through the application of our Design to Consumer Preference methodology.

Premium access for CPG leaders ready to go deeper.

Unlock expert frameworks, in-depth case studies, and practical diagnostic tools designed to help consumer goods businesses navigate complexity, uncover growth opportunities, and drive measurable results with confidence.

Sources:

1. 2024. “Portfolio Management Growth series”

2. KPMG International. 2005. “Global IT Project Management Survey.”

3. Sevendots. 2025. “Design to Consumer Preference”

4. BCG 2025

presents advice for decision makers to better leverage growth strategies in the CPG industry.

The evolution of portfolio management

In 2019, as part of our Sevendots Growth Series, we released a pivotal study on portfolio management within the Consumer-Packaged Goods (CPG) industry. At the time, our exchanges with senior brand owners revealed a surprisingly limited focus on this critical area. Also, it appeared that many decisions surrounding portfolio management were being made without a clear strategic roadmap in mind. To address this gap, we developed a straightforward framework linking the three levels of portfolio management (Categories, Brands and SKUs) with their corresponding decision triggers, providing a clear snapshot of both passive and active decision-making processes.

Adapting to new dynamics of product portfolio management: the 2024 update

If we fast forward to today, the landscape has evolved significantly due to various trends and events that have reshaped the CPG sector. The pandemic, followed by high inflation and the devastating consequences of wars in different regions have further impacted CPG companies’ priorities and focus. Our updated study delves deeper into how these changes have influenced approaches to portfolio management. The above framework remains valid, but we have also explored the correlation between portfolio management and business growth, hypothesizing a logical connection between these decisions and tangible business outcomes.

In fact, as many studies and reports proved over the years, one of the most effective ways for a company to sustain long term Total Shareholders Return is through an active management of its portfolio both making sure to revisit it periodically and ensure resource allocation and investment occurs in the most productive way, prioritizing these in alignment with the wider business strategy(1).

Exploring growth strategies to your product portfolio: a four-pronged approach

There is value in trying to understand how different growth strategies impact portfolio management decisions both in terms of the primary level they need to focus on (categories, brands, or SKUs) and the triggers (i.e. strategy, financials, consumers, customers). After having reviewed many cases, data sets and literature we identified four prevailing CPG company growth strategies that can be related to portfolio decisions. They are represented in the slide below and the implications of each are then analyzed.

Mergers and acquisitions (M&A) driven growth

M&A remains a dominant strategy and revolves around buying companies that can provide an accretive margin level and a more solid growth trend versus the existing business. For example, Unilever’s attempted acquisition of GSK’s consumer health business aimed to capitalize on the high margins of the consumer health sector. Unilever offered a very high purchasing price (considered too high by some analysts) but the bet was to expand profit considering that consumer health, in addition to double digit projected growth, is generally running at 15%-25% net margin(2) vs. Unilever’s which is just above 10%(3). At the same time, the recent decision from Unilever to sell off their ice cream business can be seen as a reactive decision to remove lower margin business among their five business areas(4). These actions highlight the strategic use of M&A to refine company portfolios and enhance financial performance.

M&A driven growth can be valid also within the same category, allowing companies to increase their market share, but in this case, the way to get accretive margin is mainly linked to scale and operational efficiencies (besides the possibility of reaching a new segment of the market or a new geography). However, we can see that the bet associated with these acquisitions is generally bigger as they represent a higher risk of failing to meet expectations. A well-known example of this was the Coty acquisition of P&G beauty brands in 2016 that did not produce the expected results and drove the company to take a nearly $1bn write down on the assets in 2019(5).This is why we see that M&A growth strategies are increasingly linked to a category level decision within the portfolio, with the main driver being expansion.

Growth from scale

This is a strategy based on further leveraging existing assets. As in the M&A growth strategy, we can see a shift from scaling an existing brand in the same category to stretching it across different categories, mainly adjacent ones. In this case, scale is reached primarily through intangible (and sometimes tangible) brand equity elements that are spread across different categories (normally through a selected single or multiple stretching driver). This is the concept of ‘Powerbranding’: the ability for a brand to cover a much broader territory. A great example of this growth from scale is represented by Nivea. With a well-structured and long-term stretching strategy, Nivea became a €5 Billion plus revenue brand in 2023(6). Nivea strongly expanded its territory with close to 100 different products, and is now seeing its future more in beauty (where margins could be more interesting) than in personal care(7). This expansion was well governed and reinforced the equity of the brand, and was made possible mainly thanks to strongly differentiated and highly performing products. The main driver of this growth strategy is well governed and smart stretching.

Higher margin development

This could be considered as an ongoing premiumization strategy, where the company periodically substitutes the lower margin units from its portfolio in favor of new higher margin ones. This can normally be played both at a brand and SKU level.

A good example within the first area was Danone YoPro (with slightly different branding from country to country). This was a successful protein-based dairy brand that boosted and targeted more specifically the functional element of the yogurt category. The strong and well-articulated targeting exercise attracted fitness and sport-oriented individuals, which allowed the brand to build a broad consumer base and a strong brand profile. Also, the product, thanks to its functionality linked to high protein content, is premiumizing the category by developing a new segment The high-protein platform in 2022, just after a few years from the launch, sales exceeded €500M in sales (8). The main driver of this growth strategy is mainly innovation and or renovation.

Cost-cutting margin expansion

This growth strategy is focusing mainly, but not only, on the bottom line. It aims to streamline the portfolio, removing those items that not only have a low margin but also a low rotation. Cutting low rotation items can boost the performance on other items that better leverage their scale. An example here is P&G USA. For the company, the bottom 25% of SKUs in the categories it operates in, deliver a very small contribution to absolute retail sales. In an initiative created in conjunction with the customers, P&G leveraged POS data and their own proprietary algorithms to determine which SKUs they should focus on across all regions and all categories(9). In this case the main driver of this growth strategy is a well thought and grounded rationalization.

The synergy of strategies

While these growth strategies may appear distinct, they are often employed in synergy to enhance a company’s growth trajectory. It could be relevant to look at a distinction between proactive and reactive portfolio management decisions that impact incremental or decremental units within the portfolio. This simple perspective can provide CPG companies with a robust framework to evaluate possibilities as well as measure the potential impacts on revenue and margin growth.

While a reactive approach, accompanied by removal of low value items, should remain an integral part of an ongoing portfolio optimization process, strengthening competitive advantage through a more proactive approach should also be a considered as a strategic priority.

Premium access for CPG leaders ready to go deeper.

Unlock expert frameworks, in-depth case studies, and practical diagnostic tools designed to help consumer goods businesses navigate complexity, uncover growth opportunities, and drive measurable results with confidence.

Sources:

(1) BCG, 2016, McKinsey, Harvard Business Review

(2) Reuters, 2022

(3) IQVIA, 2022

(4) Unilever, 2024

(5) Financial Times, 2019

(6) Beiersdorf, 2024

(7) Cosmetic Design, 2022

(8) foodbusinessnews.com. 2024, Danone, 2023

(9) consumergoods.com, 2023