Magnifying revenue growth management in consumer products has been saved
Magnifying revenue growth management in consumer products
Unexplored areas of opportunity
Disruptive forces are creating opportunities for consumer products (CP) companies to modernize revenue growth management (RGM) by magnifying complex, action-oriented analytics. We believe such actions can generate benefits equal to three to five percent of gross profit, while creating value for retailers and consumers.
- Revenue growth management for consumer products companies
- Driving organizational maturity in RGM
- A modern approach to revenue growth management
- Uncovering “hidden” value today
- Investing in sustained success
The current state of revenue growth management
Today’s consumer products (CP) 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. Furthermore, discretionary spend across consumer segments hasn’t changed significantly over the past two decades, but younger shoppers are disrupting the status quo based on new preferences and new economic pressures.1
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 these micro-markets 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.
CP 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 CP companies. However, many CP 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.
1 Deloitte Center for Consumer Insights (CCI). The consumer is changing, but perhaps not how you think. May 2019.
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:
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 CP companies 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 CP 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.
Uncovering “hidden” value today
Our recent experience suggests that many CP companies still have scope to generate significant top-line growth and margin optimization by focusing on strategic areas of RGM. We believe the right set of analytics that engage price and promotional levers can generate benefits equal to three to five percent of gross profit per year. In addition to these financial benefits, we believe these four opportunities can help build organizational capabilities and increase understanding of growth dynamics in the market:
Investing in sustained success
We believe many CPs 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 CPs 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 CPs 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 CPs connect the dots between different data sources, data ingestion can be automated. This can make it easier for CPs to develop and test hypotheses and make more informed strategic decisions more frequently and more accurately.
An incremental approach to modern RGM
Often this automated, always-on vision appears to be a bridge too far for many CP 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, CP 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 CPs should have the courage to start on the path toward modern RGM.
Driving profitable growth through strategic revenue management
Act now to prevent margin erosion