Optimizing revenue growth management in the CPG industry

Shoppers are becoming more empowered every day, and many expect personalized, shopper-centric environments when making purchase decisions. Furthermore, digital access and market transparency provide consumers with greater visibility to product assortment, inventory availability, and price differences, both within their local market geography and across physical and digital storefronts.

These shifts have implications for CPG companies’ approaches to revenue growth management. As shopper behavior changes, the composition of the wallet shifts between retailers, and retail shelf-space becomes more competitive, CPG companies realize the need to crystallize their shopper strategies across customers, brands, and packs.

Once articulated, these strategies, whether penetration, trial, new and niche demographic targeting, channel expansion, etc., must be aligned to intended promotional outcomes. This contrasts with a more “traditional” approach that focuses solely on financial outcomes or treats a broad set of products with a similar promotional technique or intent.

In our view, a more modern approach requires:

1. A granular articulation of shopper strategy across channels, brands, and packs

2. A granular set of shopper behavior insights which includes new sets of data from retailers and other third parties (such as Deloitte’s ConvergeCONSUMER)

3. An investment allocation process aligned to these strategies (keeping in mind broader financial objectives)

4. Promotional intents and techniques to facilitate realization of strategies

5. Constant measurement of shopper outcomes and re-evaluation of strategies

As CPG companies make the transition to modern RGM, this approach may require new data sources and will certainly require an always-on capability to ensure continued strategy/outcome alignment.

Promotional event effectiveness is perhaps the most fundamental RGM evaluation technique, but we believe there’s continued opportunity for refinement. In the traditional approach, promotional spend is often evaluated with a rudimentary, single-metric approach, and often based on sell-in data.

Furthermore, events may be evaluated through stand-alone impact without a holistic impact of the promotion on other packs, brands, and even other retail accounts. In our view, a modern RGM approach includes a nuanced approach to event effectiveness, utilizing multiple metrics, a portfolio mindset, and an insistence on sell-out performance (unless otherwise impossible).

Balanced scorecarding allows CPGs to navigate the increasingly complex landscape of promotional events by leveraging more nuanced analytics. Balanced scorecarding expands a consumer products perspective on a promotion and ensures the promotion considers both performance and strategy as well as the retailer’s outcome from the promotion.

Promo/event ROI can also assist in more thoroughly evaluating a promotion’s revenue impact and ensuring that event spending doesn’t drive negative impact across a company portfolio and customers.

Within traditional RGM, we notice many CPG companies pay little attention to EDLP and long-term price support (LTPS) offered to retail partners. As a result, we believe this can often be a source of hidden value.

With regards to poor performing EDLP, many companies don’t consistently measure ROI, partially due to uncertainty around calculation methodology. However, in modern RGM, CPGs can isolate spend related to everyday price and use advanced models of total demand to monitor the effectiveness of this spend in driving increased base volume. The ability to drive base volume—relative to the total level of spend—can be treated as a measure of ROI and help pinpoint areas of waste or excessive discounting.

Similarly, we find the lack of focus on EDLP can often lead to misaligned “retailer passthrough” (or the amount of price support passed through to the consumer). This practice can not only result in inflated retailer margin but can also dampen the impact of CPG pricing strategies.

Finally, we often view everyday spend through the lens of a company’s current trade terms structure. Observing consistent increases in everyday spend, or total gross-to-net levels outside expectations, may suggest the need for a holistic trade terms reset. Such a reset can help reduce distortion in EDLP/LTPS, returning it to appropriate and manageable levels and may facilitate the active monitoring of such spending going forward.

We believe the modern landscape calls for a more collaborative, shared value mentality where both CPGs and retailers leverage competitive assets to create better experiences for shoppers.

We see several areas of opportunity for increased collaboration between CPGs and retailers within RGM. This includes more straightforward adjustments, such as more complete incorporation of retailer and shopper metrics into CPG RGM decision making.

Beyond these adjustments, we also see opportunity for more transformational changes, such as facilitation of personalized shopper planning/promotions. In our experience, shifting the CPG mentality toward a shared value mindset can help translate into financial results by helping to facilitate the execution of RGM recommendations, transitioning from RGM playbooks to on-the-shelf value creation.

Modern technology solutions can assist with the shift toward shared value creation and transparency. New promotional optimization tools help solve retailer math and provide a view into margin, share, and category performance to help ensure mutual alignment. This ability to quickly adjust and optimize internal and external metrics can provide RGM teams with the flexibility needed to enhance the traditional internally focused analysis.