Maybe it's not.

What if when you buy the 8-pack,

your consumption goes up by 20%, okay?

You just have more paper towels on hand,

and when you see that spill happen on you counter, you're just more likely to

pull 3 paper towels instead of 2 paper towels per se, all right?

So, that can easily happen a lot in these kind of markets.

How do we take that into account?

Well, we take that into account through consumption-adjusted margins.

And the way we calculate these, and we can think about these as unit margins.

So CA, that's consumption-adjusted unit margins.

If we use the 4-pack as a baseline, and

we know that the margin on the 4-pack is equal to $0.25 per unit.

Now, what's the consumption-adjusted margins on the 8-pack,

taking into account this 20% consumption expansion we know occurs?

The way you do that is for the 8-pack, you take the $0.25,

which is the standard unit margin that we calculated before, and

you multiply that by 1 + 0.2.

Where's that 0.2 coming from?

It's coming from that 20% expansion.

If you that, what you'll get here is, and

you can check my math, you'll get a $0.30 margin per unit on that.

Now, what do you do with that number?

You can do a lot of different things with that number and

we'll see some things in the Heinz case that we can do with that number.

But, one quick thing that you can do is determine how aggressively you can

promote the 8-pack, and still make as much money as you were on a 4-pack?

You might reasonably believe that, look we're making more money on

the 8-pack because of the consumption expansion, maybe we ought

to be a little bit more aggressive in our marketing and promotion on that.

So, the way we would do that, you can think about this as a break-even analysis.

So, a break-even.

As you ask yourself, okay, if what is the margin

per unit on that 8-pack size that we could charge, and

make just as much money as we're making on the 4-pack?

Well, let's call that margin x.

And I know that 1.2x and 2 is coming from that 20% expansion again.

Whatever that number is, that has to equal 0.25.

Of course, that x is going to be lower than 0.25, right?

Because we can depress that price and

still make that money on the consumption expansion.

If you do this mathematics, you're going to get about $0.21.

I'm rounding a little bit.

That's not precisely correct, but it's pretty close to correct.

And that's the per unit margin.

What that implies is, if there's 8 units,

I can charge $0.21 per unit, and what does that equal?

That equals $1.68.

That means I can charge not, I can make a $1.68

rather than $2 on the 8-pack size, and

be making just as much money as if I sold 2 4-packs.