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Navigating the CPG landscape requires more than intuition; it calls for a robust, data-driven methodology. That's where revenue growth management (RGM) comes into play. This multifaceted strategy serves as the linchpin in making shrewd, data-backed decisions that steer the course of many crucial business operations—from dynamic pricing models and finely-tuned product assortments to promotional tactics and distribution frameworks.
But what exactly is RGM? How does it influence trade spending? And how can it serve as a catalyst for propelling profitable revenue growth?
To address these questions and more, we've compiled the most frequently asked questions we see coming our way related to revenue growth management. Keep reading as we demystify RGM and help you unlock its full potential.
What is revenue growth management in the CPG industry?
RGM serves as a key strategic approach that is becoming more commonly used in our industry. It enables you to sustainably and profitably expand your sales through informed, data-driven choices on crucial elements including pricing models, product assortment, promotions, and trade management.
Why is revenue growth management important in the CPG industry?
While RGM has been a fixture in business strategy for years, its role has notably expanded from a narrow focus on pricing to a comprehensive approach that covers all facets of commercial planning and route-to-market strategies.
This evolution underscores RGM's critical role in maintaining a competitive edge. Here’s a snapshot of its impact:
- Consumer insight: Advanced analytics within RGM offer you deep insights into consumer behaviors, allowing you to fine-tune your product offerings, promotional programs, and messaging.
- Profit maximization: RGM ensures that the impact of different strategies is quantified.
- Competitive advantage: With the data-driven insights offered by RGM, you can make strategic decisions that set you apart from the competition.
- Innovation: RGM-derived insights can be catalysts for creating new products or entering new market segments rather than merely cannibalizing existing business.
- Product assortment optimization: Helps tailor the product mix to meet the specific needs of various customer segments, channels, and regions while helping to balance incrementality with profitability.
- Market adaptability: RGM allows for proactive decision-making based on continual analysis of sales data and market trends to adapt to market volatility effectively.
Revenue growth management (RGM) Q&A
Revenue growth management (RGM): The people
1. What skill sets are required from a team for successful RGM?
For successful RGM implementation, it's crucial to have a team with diverse skills and competencies. Your team should possess members with the following attributes:
- Analytical prowess: The ability to dissect and interpret large data sets is paramount for making informed decisions.
- Strategic thinking: Adept at long-term planning, balancing immediate gains with sustainable growth objectives.
- Cross-functional communication: Effective interdepartmental collaboration is key for aligning various aspects of the business with RGM strategies.
- Financial acumen: Understanding ROI metrics, budgeting, FP&A, and trade spend optimization is crucial.
- Consumer insight experience: Proficiency in leveraging consumer behavior data for strategy formulation.
2. Where do RGM departments typically reside in the organization?
RGM functions often straddle multiple departments. They are most commonly housed under sales, but they are also found reporting to marketing and finance. Given its cross-functional nature, RGM teams frequently collaborate with other departments like supply chain, operations, marketing, and even IT to ensure a holistic approach.
3. What kind of training is important for RGM personnel?
To build a team capable of successfully implementing RGM, comprehensive training in multiple areas is crucial. First and foremost, your team members should have experience working with advanced data analytics tools and platforms and be highly quantitative. This foundation is essential for making data-driven decisions, a cornerstone of RGM.
Since RGM requires the ability to gain buy-in, strong communication and presentation skills will help the RGM team succeed.
Keeping your team updated on industry-specific insights is also important. Regular briefings on market trends, consumer behavior, and competitive landscapes will provide the context needed to refine and adapt your RGM strategies as market conditions evolve.
Additionally, proficiency in RGM-specific software is imperative. For instance, training in the tools and software provided in the CPGvision platform will help your team perform their RGM activities more efficiently.
Finally, in addition to analytic, cross-function, and technical skills, leadership or management training is also valuable. Workshops in strategic planning and cross-functional leadership will not only help in effective team coordination but also in the seamless execution of RGM strategies.
Revenue growth management (RGM): The process
4. What are the main objectives of revenue growth management in the CPG industry?
As competition intensifies and consumer preferences shift rapidly, CPG companies must adopt sophisticated strategies to stay ahead. RGM can act as a strategic linchpin for organizations aiming to achieve lasting success. The focus of RGM is to yield a range of benefits, such as:
- Maximized ROI on trade spend: With strategic optimization, RGM can yield up to a 24% annual increase in returns, particularly when using comprehensive solutions like those from CPGvision.
- Accurate forecasting: RGM's data analytics improve financial and inventory forecasting, reducing costs and bolstering profitability while improving retailer relationships. Ensuring the right product, in the correct quantity, reaches the right place at the right time can prevent lost sales from stockouts, reduce returns, and improve demand and supply chain planning.
- Consumer-centric focus: RGM utilizes deep consumer insights to tailor promotions and optimize product assortment, enhancing customer satisfaction.
- Strong retailer collaboration: Effective RGM fosters beneficial partnerships with retailers, leading to better in-store promotions, superior shelf placement, and increased sales.
- Increased market share: Through differentiation and targeted strategies, RGM helps you carve out a competitive edge in crowded marketplaces.
5. What are the key components of revenue growth management in the CPG industry?
Whether you're new to the concept of RGM or looking to refine your existing strategies, understanding these key areas is pivotal. These building blocks of RGM are vital in order to maximize your revenue and profitability.
- Pricing and price pack architecture: The strategy concerning how a product is priced in the market focuses on setting the right market price. This is achieved by understanding consumer price sensitivity, competitor strategies, and balancing these factors with profitability. Price pack architecture involves selecting the right product size/packaging and pricing combinations to balance consumer needs with profitability.
- Trade and promotion strategy: At higher levels than simple account planning, what should our strategy be for trade promotions? Are we looking for a trial? Should we be pushing promotions to keep our frequency up? Do we want to encourage pantry-loading to keep competitors locked out? What are our key seasonal must-haves? How do we drive more incremental? Is it more beneficial to pre-empt our competitors for key promotional periods? RGM analytics helps dive into the answers to these key questions and more.
- Optimized trade spend: Manages investment in promotions and discounts with retailers to maximize sales and profit returns. This also involves handling various trade terms, contracts, and pricing models to sustain brand equity and retailer relationships.
- Assortment optimization and product portfolio management: Involves curating the ideal assortment of products across various channels and consumer preferences while also balancing the internal product portfolio for maximum sales and minimal stock-keeping unit (SKU) complexity. It includes innovation management to spur category growth.
- Consumer-driven promotions: Focuses on promotional strategies that fuel consumer demand, relying on insights from omnichannel consumer behavior analysis.
6. How can CPG brands successfully implement RGM initiatives?
Effective RGM necessitates a holistic approach, starting with cross-functional collaboration. Key departments such as sales, marketing, finance, and supply chain should be engaged early in the planning phase to align goals and responsibilities. Data analytics play a pivotal role in this, offering crucial insights that help shape and refine RGM strategies.
Before committing to a full-scale rollout, it's advisable to implement pilot programs that gauge the potential impact of these initiatives. Real-time analytics and key performance indicators (KPIs) should be in place for continuous monitoring of strategy effectiveness, allowing for agile adjustments as needed.
Importantly, the RGM solution you choose should be scalable to accommodate your business growth—something that CPGvision specializes in.
7. What are the challenges faced by CPG brands when implementing revenue growth management strategies?
Implementing RGM strategies in the CPG industry comes with its own set of challenges. Some of the main hurdles you may have to overcome include:
- Data integration: Aligning data from disparate systems and departments for a cohesive strategy can be difficult.
- Change management: Implementing a new RGM system may require organizational changes and careful personnel planning.
- Resource allocation: Determining where to allocate limited resources for maximum impact can be challenging.
- Market volatility: Changing consumer behavior and market conditions can make it difficult to maintain long-term RGM strategies. The organization must be set up with the processes to pivot as needed.
8. What are the KPIs for measuring revenue growth?
The quest for revenue growth is an ongoing challenge that separates thriving companies from stagnant ones. Continually evaluating your growth strategies and your company's adaptability to changing market conditions is vital. To measure your business performance in this area, you can/should monitor several KPIs:
- Revenue growth
- Net revenue growth
- Profit margin
- Market share
- Price elasticity
- Promotion efficiency/ROI
- Promotion effectiveness - Lift
- Promotional Effectiveness - Incremental sales
- Household penetration rate
- Household buying rate
- Net sales
- Trade rate
- Margin/contribution margin
- Price realization
9. What are the long-term benefits of implementing revenue growth management strategies in the CPG industry?
In the world of CPG, the focus on short-term results can often overshadow the larger picture. While immediate returns are undeniably vital, it's the long-term vision that creates legacies and builds industry leaders. This is where RGM shines, guiding organizations toward sustained success. When executed well, the long-term benefits are considerable:
- Building a culture of profitability and growth: Transforming the culture is not merely a tick-in-the-box, done and dusted in a fleeting moment. By integrating RGM, companies can infuse a persistent culture of profit-focused decision-making. Over time, this becomes the organizational DNA, where every decision, big or small, is measured against its potential to drive profitable growth.
- Increased operational efficiency: Ingraining discipline across departments ensures that resources (be it manpower, money, or material) are utilized optimally. This harmonized efficiency translates to a better bottom line.
- Adaptability: An organization with a strong RGM foundation will be better poised to spot emerging trends, adapt to changing consumer preferences, and pivot when necessary.
- Collaborative growth: By breaking silos and fostering inter-departmental collaboration, RGM ensures that different parts of the organization work in tandem towards unified goals.
- Future-proofing the organization: As the RGM strategies take root, the organization becomes better equipped to deal with future challenges.
Revenue growth management (RGM): The technology
10. What are the emerging trends and technologies shaping the future of revenue growth management in the CPG industry?
The landscapes of the CPG and RGM sectors are in a constant state of flux. With technological advancements and changing consumer preferences, it's crucial to stay ahead of these developments to ensure ongoing success. Looking ahead to 2024 and beyond, several key trends are emerging that we should keep an eye on:
- Widespread adoption of AI: AI and machine learning (ML), including GAI, are transforming the CPG industry by enabling data-driven strategies and lightning speed to action for revenue growth. It is no longer good enough to evaluate 'what happened.' We must be able to say 'what will happen' and 'what will happen if...' (for example, if inflation increases). From identifying market opportunities and consumer segments to crafting targeted marketing campaigns, AI's predictive capabilities make demand forecasting, pricing optimization, and waste reduction more efficient. Generative AI will add a whole new element and will need to be implemented in a try and prove way to ensure accurate interpretation of the data.
- Sustainability focus: Rising consumer demand for eco-friendly products and transparent corporate practices (57 percent of all newly founded companies in the CPG sector are green start-ups) make sustainability a critical concern.
- Economic volatility: Agile pricing and promotional strategies are needed to navigate economic uncertainties.
- Data complexity: The focus is shifting from data volume to complexity, requiring effective analysis and strategy implementation. Models will become more encompassing, drawing from a wide range of data sources such as in-store metrics, online data, coupons, promotions, macroeconomic indicators, and more.
- Personalization and direct-to-consumer: A growing emphasis on personalizing the customer journey and a direct-to-consumer (DTC) approach allows for deeper customer relationships and valuable data collection. According to a report by McKinsey, companies that customize the consumer experience can achieve 40% more revenue from these tailored initiatives compared to their average-performing counterparts. Tracking the consumer's path to purchase is becoming more complex and vital.
For a more in-depth look at the industry trends impacting RGM, download our free resource.
11. What are technology challenges in revenue growth management?
Implementing RGM can be a game-changer, but it's not without its challenges. Let's take a look at some of the most common obstacles and explore practical solutions to help you overcome them and successfully integrate RGM into your business strategy.
- Data overload: Managing abundant data and ensuring it is clean is an ongoing task. Many companies are employing data governance specialists to oversee this and ensure there is no “garbage in, garbage out” occurring.
- Poor cross-functional collaboration: Lack of team synergy leads to inconsistent strategies.
- Resistance to change: New RGM processes may meet employee pushback.
- Pricing challenges: Accurate pricing needs in-depth market understanding and multiple scenarios - what will happen if my competitor doesn’t match my increase, inflation increases or declines, etc.
- Keeping up with market dynamics: Challenging due to the need for real-time processing of vast, diverse data sources, scalability, and adaptability to multifaceted market influences amidst continuous market flux.
12. What are the stages of revenue growth management?
The journey to effective RGM typically encompasses four primary stages, each representing a milestone on the path to refined revenue optimization. These stages include:1. Data collection
Every successful RGM journey begins with data. But it's not just about having data; it's about having the right data and knowing how to interpret it. The first stage involves collecting, cleansing, harmonizing, and analyzing data.2. Forecasting and optimization
Once you've collected and segmented your data, the next stage involves using this information to forecast future sales and identify optimization opportunities. The first order of business for the data science team (or vendor) is understanding baselines and lift factors. This foundation enables you to run promotion simulations, execute scenario planning on everyday prices, wargame various pricing strategies, and quantify their impact on sales and profit.3. Strategy implementation
With your forecasts and optimizations in hand, you're ready to implement your strategies. This could involve adjusting your prices, launching new promotions, or refining your product assortment. Implementing strategies based on forecasts directly influences target setting by ensuring realistic benchmarks and optimizing the AOP process, leading to strategic resource allocation, enhanced predictability, and better alignment with company goals.4. Review and adjustment
The final stage of revenue management is arguably one of the most critical: review and adjustment. RGM is not a static process; it's dynamic and requires regular evaluation. How do your actuals compare to your plan? Can variances be explained? By reviewing the outcomes of your strategies, you can make the necessary adjustments.
13. What is the best revenue growth management (RGM) software?
While there are many options on the market, CPGvision stands out as the industry's best-in-class integrated RGM suite. Our platform is designed to manage and optimize trade spending effectively, providing solutions tailored for maximal revenue growth and ROI. With a focus on advanced analytics and user-friendly interfaces, CPGvision is the ideal partner for any CPG brand aiming for sustainable and profitable growth.
Real-life revenue growth management examples
Consider a CPG company noticing dwindling sales of a particular detergent brand in their portfolio. Through in-depth market research and data analytics, they find out that this specific brand is not resonating well with younger consumers. Armed with this knowledge, they decided to launch a targeted campaign, introducing eco-friendly packaging and aligning with sustainability values, a theme that resonates well with the younger demographic.
The result? A significant boost in sales, better shelf turnover in retail outlets, the introduction of lower cost to manufacture items, and enhanced brand loyalty among younger consumers.
This example emphasizes the fundamentals of successful RGM: harnessing data to drive decisions, formulating targeted strategies, and swiftly adapting to consumer preferences. Whether it's managing a detergent brand or overseeing a global CPG conglomerate, the essence of RGM remains consistent, centered on understanding and responding to consumer behavior.
CPGvision: Your RGM solution
Today, traditional approaches to revenue growth are fast becoming obsolete. The key to sustainable success lies in embracing data-driven RGM strategies that are both dynamic and holistic. Companies that leverage cutting-edge, integrated solutions like CPGvision are positioning themselves ahead of the curve, capturing new opportunities for profitable growth.
Don't let your brand lag behind in the ever-evolving CPG industry. Book a discovery call with our team and see how we can accelerate your journey to sustainable, profitable growth.