So much has been written about the massive shifts in consumer behavior we've seen due to the pandemic. Whether in category consumption, brand preference, channel selection, shopper frequency, or media engagement, the predictable consumer that existed before the pandemic has vanished. This drives the need to rethink category growth strategies and revenue growth management practices.
RGM, according to McKinsey & Company, is "the discipline of driving profitable, sustainable growth from your consumer base via a range of strategies around promotions, assortment, trade management, and pricing." The rethink of RGM demands a shift to a real-time approach.
RGM isn't a new concept. It has been around for many years. With a backdrop of predictable organic growth across many industries, it has traditionally been focused on pricing optimization. However, this strategic area is now becoming an elevated C-suite agenda that needs to bring all commercial planning and route-to-market domains under one roof in real time.
Consumer-packaged-goods leaders have faced strenuous and constrained times over the past decade. Even before the pandemic, growth in the CPG industry was challenging, and margins were sustained primarily via productivity gains to offset the effect of price compression. In this context, CPGs are required to build new abilities to capture more value from RGM.
While 2020 brought humongous volume growth for some CPG categories thanks to pandemic-driven consumption growth, the overarching problems have been exacerbated by the inability to leverage RGM sufficiently. Now, as CPGs look ahead, they are facing some challenges. Let's navigate.
Drawbacks of traditional 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. However, the retail landscape has changed dramatically, making promotion planning problematic. To work effectively, the new omnichannel environment requires more creativity and flexibility for retailers' promotions and pricing strategies across channels.
Lack of granular views of data: Depending only on historical customer data is unproductive and gives a distorted view of only past consumer behavior. With the proliferation of modern retail channels, buying patterns and consumer behavior have changed completely. That is why robust revenue growth solutions are necessary to transform CPGs and become data-driven.
Customer Demand planning: Individual consumer account teams still plan in isolation, resulting in mismanagement and conflict. Trade planning is furthermore hampered by the inconsistency between back-office and field staff utilizing disparate revenue growth management platforms. Many teams are still dependent on manual processes, which are not conducive to meeting time, accuracy, and effectiveness. Conversely, revenue growth consulting based on data analytics can assist CPG teams in developing robust enterprise-wide customer planning.
Cash flow reductions: Confined trade planning by remaining in the comfort zone of focusing only on high growth categories or urgent and most crucial customer segments results in lower cash flow and shareholder value.
Lack of robust business intelligence: Business Intelligence (BI) tools designed for visualizations and manual analysis have limitations such as automatically evaluating the causal factors for the sales decline in particular categories.
Unsustainable quick-win strategies: Numerous CPG organizations find themselves resorting to quick-win strategies as these are high impact and less on effort. While they offer instant expectations and motivation from management every time, they are not scalable or sustainable in the long term.
These shortcomings have necessitated retailers and CPGs to rethink - brand preference, category consumption, shopper frequency, channel selection, and media engagement.
Revenue growth management solutions from a trusted partner can help CPG businesses in overcoming these pitfalls across the RGM spectrum by lowering enterprise risk. With the proper revenue growth management consulting, CPG teams can establish competitive and sustainable RGM plans and capitalize on revenue growth opportunities.
As said before, RGM is an integrated approach covering pricing, trade promotion activities, & assortment at the customer and enterprise levels across all channels to fuel profitable top-line revenue growth.
Let's see how capable RGM platforms help CPG companies.
How can the disciplined use of RGM create value in CPG organizations?
For the most holistic, continuous, and customized approach to revenue growth management, CPG companies should invest in building an RGM platform. Let's explore.
Organizations can capture and track historical data, supporting all business functions and activities, from packaging, production, marketing promotion, and pricing through the channel. Harnessing the data streams originating across customer touch points is crucial. Efficient and effective management of promotions across all channels is essential for market share growth and brand relevance.
RGM is the new method of defining discounting strategies and price tactics. Since RGM has superseded conventional data collection, organizations can easily collect and archive an immense variety of data for faster decision-making. Organizations can leverage this new perspective to allow adaptive or surgical promotion and pricing strategies that deliver lower costs, higher revenues, and sales force efforts.
An effectual trade spending strategy requires close coordination between manufacturers, retailers, and distributors to agree on a category profit pool. Today, CPG marketers require a way to build performance indexes utilizing historical trade data, accounting for spend by category, retailer, and brand. A high-performance RGM platform utilizes advanced analytics to help you derive accurate insights from rapidly evolving sales and trade data. The results provide the information you need to make critical marketing decisions.
Successful brands align their brands with target consumers' needs and generate credibility, relevance, and meaning for those consumers. CPG brands focus more on differentiating their product proposition and product features and benefits. They need to strengthen their brand positioning to convey that differentiation in today's cluttered marketplace.
Marketing mix optimization:
Mix optimization is evaluating and optimizing marketing campaigns via statistical analysis. It assists companies to avoid overspending or under-investing in areas with growth potential. To make sure that business growth is consistent and smooth, marketers should gauge the productivity of promotional campaigns. That is where marketing mix optimization comes into the picture. Mix optimization assists marketing teams generate the latest ideas and test them before implementation. It is a complex process that needs inputting data, running algorithms, and then interpreting results to arrive at actionable conclusions.
RGM Use Cases in the Consumer-packaged industry
Some of the compelling use cases that can be realized when using this RGM solution include:
Return on marketing investment (ROMI): Marketers must understand the ROMI of marketing campaigns comprising different tactics and creatives. For example, accessing granular levels of data and drawing insights across various marketing channels, attributing sales to these marketing activities, and finally, realizing how marketing dollars are spent. Therefore, it helps marketers to optimize marketing campaigns and shape demand for a particular brand or pack.
Forecasting demands of different brands and packs: Forecasting the demands of various brands and groups is vital for retailers and e-tailers to provide the availability of these inventories in their stores and online channels. Demand forecasting per channel also becomes more significant now that CPGs are going with DTC. Simultaneously, CPGs must still meet delivery cycles or the On-Time-In-Full (OTIF) mandate so that products are available on the shelf to fulfill customers' demands.
Promotions and pricing: 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 all of this while keeping an eye on the price elasticity of each brand segment. According to McKinsey & Company'sCompany's third study, some CPG companies invest up to 20 percent of their gross revenues on promotions, thus making it one of the essential items on profit and loss (P&L) accounts.
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.
Henceforth, Revenue growth management (RGM) at scale is the latest and different approach to creating value. The approach involves using data to develop linkages between consumer needs, along the entire supply chain, to growth opportunities.
With a robust focus on the CPG industry and the role of CPG companies in driving growth through creating linkages with consumer demand, Polestar Solutions' team of professional experts across domains works with clients to achieve design-first alignment, integrate their spending data, and launch a continuous analytics cycle. Find out more about our RGM solution today!