Advanced Strategies for Revenue Growth Management in CPG: Navigating Modern Challenges

Why Revenue Growth Management in CPG matters now more than ever?

The answer becomes obvious when you see how the impact of issues such as cannibalization, improper trade spend management, and suboptimal pricing strategies, can significantly impact a company's bottom line.

Whether in category consumption, brand preference, channel selection, shopper frequency, or media engagement, the predictable consumer that existed before has vanished. But is this the only factor driving the need to rethink category growth strategies and revenue growth management practices?

Factors impacting Revenue Growth Management in CPG

Traditional Trade Promotion Management (TPM) and scenario-based Trade Promotion Optimization (TPO) were used in earlier Revenue Management (RM) strategies to improve promotion efficacy and daily pricing within a single retailer. It kind of worked, but to build comprehensive RGM solutions, businesses need to integrate them with other strategies and tool that address the broader aspects of it

Hence, it’s not surprising to see more than 80% of CPG CEOs aren’t satisfied with their RGM results.

Rightly so, the industry leaders understand the importance of keeping pace with the changing market and how that’ll require more creativity and flexibility for retailers' promotions and pricing strategies across channels.

However, the question arises: what are the common barriers that are preventing managers from achieving this?

Common Pitfalls of Traditional Revenue Growth Management in CPG

Strategies of Revenue Growth Management that Create Value for CPG Companies

As we shift our focus to key strategies for driving revenue growth, let's explore how it works together to enhance overall business performance.

1. Mastering Pricing optimization:

When a consumer perceives a price as fair, they are 75% more likely to make a purchase which proves that pricing pulls direct influence on customer behaviour. By introducing innovative methods for defining discounting strategies and pricing tactics, RGM has evolved beyond traditional data collection practices. Organizations can now easily collect and integrate various types of data for faster decision-making.

Hence, making the most out of that data, RGM managers can–

- Conduct Price Elasticity Analysis: To know how sensitive your customers are to price changes.

- Implement Dynamic Pricing: Utilize it to adjust prices in real-time based on market conditions.

- Experiment with Price Pack Architecture: Test different pack sizes and price points.

2. Enhancing promotional effectiveness:

Accounting for 20%-30% of sales, promotions for a fact are a significant investment for CPG companies. However, many promotions fail to deliver the expected ROI. As observed with one of our clients, who operates in over 160 geographical locations faced significant revenue management challenges. These issues stemmed from a lack of a proper pricing strategy supporting their promotional initiatives. But in course of time they saw an increase of 5-7% increase in market share.

Now how RGM helps in turning the tables in such situations is through:

- Utilize Promotion Response Modeling: Before launching a promotion, use predictive analytics to forecast its impact. For example, if you plan a "Buy One, Get One Free" offer, analyze past promotions to estimate potential sales uplift and ROI. This modeling helps in selecting the right promotional mechanics.

- Optimize Promotion Budgets: It helps in allocating the promotional budget strategically across channels. If social media ads have historically yielded higher ROI than traditional print ads, prioritize digital promotions. This targeted approach ensures that your marketing dollars are spent where they can generate the most impact.

- Track and Learn: After each promotional campaign, conduct a post-mortem analysis. What worked? What didn’t? Use these insights to refine future promotions. For instance, if a specific discount type drove significant sales, consider repeating it with variations. This iterative learning process fosters continuous improvement.

3. Optimizing Trade Spending:

An effectual trade spending strategy requires close coordination between manufacturers, retailers, and distributors to agree on a category profit pool. CPG marketers require a way to build performance indexes utilizing historical trade data, accounting for spend by category, retailer, and brand. Now with RGM place the organizations are:

- Optimize Promotional Allocations: Historical performance data as the decision foundation, strategically allocate the trade spend to most impactful promotional activities.

- Negotiate Smart Trade Terms: Insights help in establishing mutually beneficial terms.

- Measure trade effectiveness: Continuous measurement allows for informed decision-making and strategy refinement.

Through derive accurate insights from rapidly evolving sales and trade data. The results provide the information you need to make critical marketing decisions.

4. Brand Positioning:

Successful brand positioning is necessary for aligning with target consumers' needs as it establishes credibility, relevance, and meaning for the consumers. Hence, CPG brands focus more on differentiating their product proposition and product features and benefits to seem more at par with consumer wants. Now here how RGM helps CPG companies get an edge is through:

- Consumer Insights: By understanding what drives consumer choices, brands can tailor their messaging and product offerings to resonate more effectively with their target audience.

- Differentiation Strategies: RGM enables companies to analyze competitive landscapes, allowing them to pinpoint unique selling propositions (USPs). By focusing on differentiating factors—such as innovative packaging or superior quality—brands can carve out a niche in the market.

- Continuous Adaptation: RGM is not a one-time initiative; it involves ongoing analysis and adjustment. By regularly assessing brand performance against market trends and consumer feedback, companies can refine their positioning strategies.

5. Marketing mix optimization:

To make sure that business growth is consistent and smooth, marketers use market mix optimization to evaluate and optimize marketing campaigns via statistical analysis. It is a complex process but as part of revenue growth management in cpg, it helps in interpreting results to arrive at actionable conclusions through:

- Budget Allocation: With insights gained from RGM, marketers can avoid overspending or under-investing in high-potential areas. This involves strategically distributing budgets across channels based on performance metrics and anticipated market trends.

- Campaign Effectiveness Tracking: By implementing robust tracking mechanisms, companies can evaluate the success of each campaign in real-time and make necessary adjustments. This iterative process allows for continuous improvement and maximizes the impact of marketing efforts.

- Scenario Planning: RGM supports scenario analysis to forecast potential outcomes based on different marketing strategies. This proactive approach enables companies to anticipate market shifts and prepare adaptive strategies ahead of time.

Revenue Growth Management Use Cases in CPG Industry 

By now it has become clear that effective revenue growth management in CPG is not just a theoretical framework; it’s a vital strategy especially when 70% of consumers are willing to switch brands based on price or value.

With this in mind, let’s see some of the compelling use cases that can be realized when using these RGM solutions include:

1. Campaign Performance Measurement:

RGM in CPG is helping companies analyze granular data across various channels, attributing sales accurately. This helps them to optimize marketing spend for better campaign performance.

2. Forecasting demands of different brands and packs:

Retailers and e-tailers now have enhanced visibility into inventory availability across their stores and online channels. Supported by Demand forecasting within Revenue Growth Management (RGM), they can accurately predict future product demand across various sales channels and brands. This capability is crucial for improving supply chain efficiency and meeting delivery requirements, particularly the On-Time-In-Full (OTIF) mandate.

This helps them to make sure their products are available on the shelf to fulfill customers' demands.

3. Promotions and pricing:

Now one of the most popular methods to boost and shape demand is by making the right bundle and promoting and recommending the right brands and packs at the right price. And RGM really does all of this while keeping an eye on the price elasticity of each brand segment.

4. Customer analytics:

Although acquiring new consumers is essential, it's also imperative to understand the challenges existing ones are facing and the reasons for inconsistent churn rates. Moreover, we must consider how they can be optimized for a specific brand or pack.

Now by using RGM to optimize their existing customer base, companies are driving sustainable revenue growth while reducing the costs associated with customer acquisition.

However, we still frequently come across many questions. So, let’s get into that.

Frequently Asked Questions about Revenue growth Management in CPG and its implementation

Q1. What are the long-term benefits of implementing revenue growth management strategies in CPG industry?

Ans: As revenue growth management experts, what we've seen in the industry is that adopting Revenue Growth Management (RGM) strategies can really pay off for CPG companies in the long run. RGM not only drives sustainable revenue growth but also helps improve profit margins by using data to make smarter decisions. According to a study, an effective RGM strategy can enable 2%-3% growth in sales and boost margins by up to 5%. It’s great for building customer loyalty, too, since it allows companies to tailor their offerings to what consumers actually want. Plus, it encourages teamwork across different departments, which leads to better overall efficiency.

In a nutshell, companies that embrace RGM are setting themselves up for lasting success in a constantly changing market.

Q2. What are the emerging trends and technology shaping RGM in cpg?

Several key trends and technologies are currently shaping Revenue Growth Management (RGM) in the CPG industry:

- Sustainability Focus: Sustainability is increasingly influencing RGM strategies. Companies are incorporating eco-friendly practices into their pricing and promotional strategies to meet consumer demand for sustainable products, thereby enhancing brand loyalty and market differentiation.

- Personalization and DTC Consumers: As brands adopt direct-to-consumer (DTC) models, there is a growing emphasis on personalization. RGM strategies now prioritize understanding consumer preferences to tailor offerings, enhancing customer engagement and loyalty.

- AI in Revenue Growth Management: Artificial intelligence is revolutionizing RGM by enabling dynamic pricing, demand forecasting, and personalized pricing strategies, thus enhancing operational efficiency and responsiveness to market changes.

This is just the start!

Hence, Revenue growth management (RGM) at scale is the latest and different approach to creating value. However, its true potential of lies in its ability to transform the way CPG companies operate.  But realizing this vision requires more than just implementing the right tools and strategies. It demands a fundamental shift in mindset, a willingness to embrace change, and a commitment to continuous learning and improvement.

As organizations work to implement RGM, effective collaboration and data utilization will be essential. By focusing on consumer demand and adapting to market dynamics, CPG companies can improve their responsiveness and efficiency.

In this journey, having partners like Polestar Solutions can really make a difference. They can offer insights and support that help companies navigate the complexities of RGM. By aligning strategies with what consumers truly need, CPG organizations can better position themselves for sustainable growth in today’s ever-changing marketplace.

Find Out More about our RGM solutions today!