Optimizing revenue growth management in the CPG industry

The current state of revenue growth management

Today’s CPG companies operate in a dynamic marketplace with investors demanding a balance between maintaining top-line revenue growth and managing sustainable profit margins. Revenue growth remains challenging as the widening income gap creates consumer micro-markets with unique strategic needs.

Consumers are increasingly evaluating new brands, purchasing channels, and service models as they fulfill their needs in ways that add convenience to their lives and allow them to tailor purchases to unique needs.

The rise of "mass-to-micro" has resulted in the emergence of smaller, nimble competitors that are better able to win market share and consumer loyalty through more localized settings and the ability to offer more personalized offerings.

CPG companies are looking for new ways to find the appropriate balance between growth and efficiency. Based on our experience, the most immediate and impactful means of improving growth while protecting margins is through the approach known as revenue growth management (RGM). RGM, which focuses on pricing, promotions, product assortment, brand-pack price architecture, and the management of the gross-to-net spend isn’t necessarily a new concept among most CPG companies. However, many CPG companies continue to use basic, rudimentary methods, including limited internal data to find value across price-volume mix, trade spend, and promotion. This is shocking, considering trade spending often accounts for 20 to 30 percent of gross sales and is typically the second largest area in the P&L behind the cost of goods sold.

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Driving organizational maturity in RGM

The environment described above requires a new approach to the revenue/margin balance equation. We believe revenue growth management is a key component of this equation, but it often requires a shift away from traditional models. In our experience, there are several tell-tale signs of an organizational RGM maturity:

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A modern approach to revenue growth management

While RGM may never be an easy practice, we believe emerging technology, artificial intelligence, and tools can help accelerate the shift toward a more modern approach. While it would require additional investment (though it need not be significant), we believe CPG companies, seeking an industry advantage, can follow a two-step approach to facilitate the shift from traditional to modern:

Step one: Uncover hidden value, based on rigorous—and often overlooked—areas of analysis.

We believe these analyses can not only drive financial results, but they can also force organizations to think differently and enhance RGM capabilities. This ability to generate top- and bottom-line results can help build organizational momentum and create a self-funding business case for step two.

Step two: Make data and technology investments to build sustainable, always-on capabilities.

The CPG industry is unlikely to become less dynamic or less challenging and, as such, a RGM microscope will be in constant use. Organizations need new solutions and capabilities to drive continued market success.

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Investing in sustained success

We believe many CPGs can still create a virtuous RGM cycle. By focusing on the hidden areas of opportunity in the near term, they can create the value and business case needed for long-term, sustained success. Recent technology advances have created smarter, easier-to-use RGM tools, which can integrate data sources and provide continuous, always-on solutions with digitized decision pathways.

Data collection and integration

Data is more available—and more dynamic—than ever before and consumers increasingly expect CPGs and retailers to harness this information to deliver more personalized experiences. Getting the right data in the right place at the right time is critical for CPGs to deliver robust insights and data-driven analytics.

Predictive analytical insights using artificial intelligence and cognitive capabilities

Analytics can and should inform all RGM decisions. Once CPGs connect the dots between different data sources, data ingestion can be automated. This can make it easier for CPGs to develop and test hypotheses and make more informed strategic decisions more frequently and more accurately.

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An incremental approach to modern RGM

Often this automated, always-on vision appears to be a bridge too far for many CPG companies. Questions from CXOs include how to “eat the elephant” and whether the retail partners are ready for a more dynamic and collaborative planning and execution cycle.

By focusing on near-term value capture and by selling into retail customers with data and insights based on the consumer and category dynamics, CPG organizations can gain permission to test and pilot more advanced approaches and build the business case for scaled investments. Though it may be an incremental journey, we don’t believe it needs to be a slow one, and CPGs should have the courage to start on the path toward modern RGM.

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