What is revenue growth management (RGM) for CPG companies?

Master the principles of revenue growth management for CPG companies with our informative article. Start reading now to transform your strategies!

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Imagine that your consumer packaged goods (CPG) company is a sleek, high-powered vehicle. The products you manufacture and sell are the engine, providing the basic power and performance. What if you could amplify that power, push the performance to its absolute potential? That's where revenue growth management (RGM) serves as the turbocharger for your CPG vehicle, optimizing your income stream and driving sustainable growth.

RGM isn't just a business buzzword; it's a holistic approach that involves strategically managing your pricing, product assortment, trade promotions, and more. With it, you're not just reacting to the market but proactively shaping your revenue growth. Seeing that about 75% of RGM programs lack positive profit growth for both retailers and manufacturers, it’s clear that this area is emerging as a focal point for CPG companies.

Join us on this exciting journey as we delve into the heart of RGM for CPG companies, a concept that, when leveraged correctly, can propel your company towards success.

Revenue growth management in the CPG industry

If you've ever wondered how the top-performing companies in the CPG industry maintain their leading positions, the secret often lies in the effective use of RGM.

RGM in the CPG industry focuses on understanding consumer behavior and leveraging it to make informed decisions. It requires a deep dive into the data, analyzing variables such as price elasticity, consumer segmentation, competitive response, and trade promotion effectiveness. From this wealth of information, RGM formulates optimal pricing, promotions, and product assortment strategies that aim to boost profitability.

Another significant aspect of RGM is its role in gaining shopper insights. By identifying your most valuable customers, most profitable products, and effective promotional strategies, RGM can help shape unique selling propositions that distinguish your brand in the crowded market.

Remember, RGM is not a one-time initiative but a continuous process of learning, refining, and implementing. The power of RGM lies in its ability to adapt to changing market dynamics and consumer behaviors. So, if you're looking to fuel your company's growth and stay ahead of the curve, a comprehensive understanding and application of RGM is a must-have.

How can CPG companies benefit from revenue growth management?

In the CPG industry, RGM isn't just an option—it's a necessity. But why, you may ask, is RGM so crucial for your business? The answer lies in the benefits RGM brings to the table.

  1. Improved trade spend ROI: By optimizing your trade spend, you can ensure that each dollar spent on promotions, discounts, and the like is yielding the highest ROI. With the implementation of comprehensive RGM solutions like those offered by CPGvision, companies have reported impressive growth, registering a noteworthy 24% increase in returns.
  2. Increased forecasting accuracy: Effective RGM utilizes a range of data to help you make informed decisions about inventory management and financial forecasting. 
  3. Improved understanding of consumer needs: With the granular understanding of consumer behaviors and preferences that RGM provides, your company can more effectively satisfy consumer needs by fine-tuning product selection and tailoring promotion strategies.
  4. Enhanced retailer relations: RGM can help foster stronger partnerships with retailers. This can lead to better shelf placement, more impactful in-store promotions, and an uptick in sales.
  5. Market share growth: RGM enables businesses to stand out from the competition and gain a competitive edge, which in turn can help increase their market share.

The core principle of revenue growth management

When it comes to RGM, success hinges on a keen understanding and application of its core principles. While these principles might differ slightly depending on specific industry dynamics, the following fundamental principles of RGM apply universally and hold significant value for CPG companies.

  • Customer-centric approach

At the heart of RGM is a deep understanding of your customers. It's crucial to identify who your customers are, understand their purchasing behavior, and uncover their needs and preferences.

  • Optimal product mix

RGM also focuses on optimizing the product assortment or mix to maximize revenue. By understanding which products are most profitable and popular among your customer base, you can prioritize them.

  • Data-driven decision making

By analyzing a host of data, RGM helps inform your decisions. This analytical approach increases the likelihood of making decisions that will drive growth.

  • Dynamic adaptability

RGM requires constant monitoring, testing, and adjustment to respond to changes in the market or consumer behavior. This ensures your RGM strategy remains effective and relevant over time.

What are the 4 stages of revenue 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 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 (what you would sell without trade promotions) and lift factors (the increase generated from promotions). This is the foundation on which you will run promotions and pricing scenarios.  

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. A strong scenario planning component is integral in your RGM solution suite!

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. By reviewing the outcomes of your strategies, you can make the necessary adjustments. 

Each stage of the revenue management process plays a vital role in shaping your RGM strategy. It's important to remember that this process is iterative and cyclical. As market conditions, consumer behaviors, and business objectives change, you'll need to revisit these stages to ensure your strategy remains effective and relevant.

The challenges of implementing revenue growth management in CPG companies

Implementing RGM can be a game-changer, but it's not without its challenges. Let's discuss some of these common obstacles and explore practical solutions to help you overcome them and successfully integrate RGM into your business strategy.

  • Data overload

With the increasing availability of data, one of the primary challenges CPG companies face is managing and making sense of this data overload.

Solution: Consider using an RGM software like CPGvision, which provides robust data analytics capabilities. It can help you sift through the noise and extract valuable insights from your data. It also offers predictive analytics features to forecast sales and identify potential growth opportunities.

  • Lack of cross-functional collaboration

RGM isn't the responsibility of just one department; it requires a cross-functional approach. However, achieving this collaboration can often be challenging, leading to inconsistent strategies.

Solution: Foster a culture of collaboration and ensure that all departments understand the value and role of RGM in the company. An Effective RGM software can also give your sales, marketing, and finance teams the visibility they need. In-app collaboration keeps everyone on the same page!

  • Resistance to change

Implementing RGM often involves changes in the way a company operates, which can lead to resistance from employees.

Solution: Communication is key. Be transparent about why these changes are being made and how they will benefit the company in the long run. An executive sponsor for the program will help pave the way as well.

  • Pricing challenges

Setting the right prices for products can be a complex task, requiring a deep understanding of consumer behavior, market trends, and competitor pricing.

Solution: Tools like CPGvision can help you understand the price sensitivities across your products, customers, and consumers. It can also provide insights into competitor pricing strategies, allowing you to position your products effectively in the market.

  • Keeping pace with market changes

Staying updated on changing consumer behavior, emerging trends, and competitor activities can be challenging.

Solution: Continuous monitoring and regular adjustments to your RGM strategy are critical. 

What is the future of revenue growth management in the CPG industry?

The worlds of CPG and RGM are ever-evolving. With advancements in technology and shifts in consumer behavior, it’s important to leverage these trends, and position yourself for continued success. Peering into 2024 and beyond, there are a number of trends that we can expect to see:

1. Application of artificial intelligence

Artificial Intelligence (AI) and machine learning (ML) are no longer just buzzwords but an integral part of RGM. AI enables companies to leverage vast amounts of data, optimize decision-making processes, and provide personalized experiences to consumers. BCG reports indicate that by incorporating automated pricing regulations within revenue management systems, businesses can witness a substantial revenue surge of up to 5% in as short a span as nine months.

2. Sustainability and social responsibility

As consumers become more conscious of environmental and corporate responsibility, sustainability and transparency have become critical. From green start-ups (57 percent of all newly founded companies are green start-ups) to brands integrating sustainability into their strategies, there is a growing demand for eco-friendly products and sustainable practices. Having a plan to advance from AI and machine learning to generative AI is important and must include risk mitigation.

To meet these expectations, it's essential to understand your core consumers' values and maintain a balance between corporate values and social trends.

3. Inflation and economic uncertainty

Rising costs of raw materials, transportation, and labor can impact your profitability and pricing strategies. Tools like CPGvision can help you design effective price and promotion strategies as well as stay agile during economic uncertainties. 

4. Increase in quantity and complexity of data

The emphasis is shifting from the sheer quantity to the complexity of the data. Effective analysis and translation of complex data into actionable strategies will be essential.

5. Personalization of the buying journey

Personalization has become a key aspect of the buying journey. By understanding your consumers, you can personalize the buying journey accordingly. A direct to consumer (D2C) approach also looks to become more popular as it allows CPG brands to establish a direct relationship with consumers. Capturing valuable consumer data through direct interactions can help you personalize operations and build trust with your customers.

The future of RGM in the CPG industry promises exciting changes and opportunities. By embracing the evolving industry trends for 2024 and incorporating innovative RGM solutions like CPGvision, you can successfully steer your way through this fluid landscape while preserving and enhancing your competitive advantage.

What is revenue management software?

RGM software is a technological solution designed to execute intricate tasks. This software maintains updated price elasticity models, illuminates competitive pricing impacts, aids in running pricing scenarios, supports fast data synthesis and decision-making, optimizes trade spend and assortment, and provides timely recommendations and decisions based on data insights. 

In essence, effective RGM software like CPGvision provides a holistic approach to managing your revenue growth strategy. It can deliver significant benefits by enabling you to make data-driven decisions, improving your pricing strategies, and helping you understand your customers better.

Transform your CPG company with effective revenue growth management

With the insights gained from effective RGM, you can unlock new growth opportunities for your CPG company. Now imagine having all the capabilities you need at your fingertips. This is what a sophisticated RGM solution like CPGvision can offer. Our platform integrates seamlessly with your existing systems, providing real-time insights, predictive analytics, and strategic recommendations that are specifically designed for the CPG industry. Your revenue growth management efforts with CPGvision can be integrated into our TPM solution or with many competitive TPM tools.

By partnering with CPGvision, you gain access to a solution that can transform your RGM approach and propel your business to new heights. At the end of the day, RGM is more than just a business strategy; it's a journey. And like all journeys, success depends on the companions you choose. So, why not choose a partner with proven expertise, robust tools, and a deep understanding of the CPG industry?

We invite you to embark on this transformational journey with us at CPGvision. Get in touch today to see how we can revolutionize your approach to revenue growth management.

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