Unlocking Business Value and Boosting ROI through Revenue Growth Management – Part 1
Did you know that if CPG companies effectively scale their Revenue Growth Management (RGM) capabilities, it can result in a 3-5% increase or more in margin?
RGM enables stakeholders to gain a holistic view and identify gaps such as low ROI trade spends, ineffective assortment, or poorly executed distribution channels. It helps integrate decision-making with clear insights to improve problem areas across consumer and organizational levels resulting in increased margins.
As industries wade through unprecedented challenges, there is a shift in the retail structure with evolving consumer behavior & market trends, and competition from smaller & nimble players for market shares. To remain relevant and steadfast in this uncertain economic climate, many companies have turned to data-driven revenue management, to reap significant value with its fundamental capabilities such as optimizing pricing, promotions, assortment, and other levers to drive growth. However, owing to inefficacy and underutilization of these tools, decision-makers fail to grasp a holistic view of the business leading to inefficient investments. This is why, we urge businesses to redefine their traditional RGM strategies, to capture value with solutions powered by AI and analytics.
RGM solutions lend businesses a competitive edge by increasing the accuracy of decision-making while leveraging existing data to its full potential. It allows stakeholders time to channel their efforts to make the best possible decisions, without being bogged down by relentless data analysis.
Here’s something to think about,
Is there a disconnect of information in price, promotion, mix management, or KPIs within your business units?
Are you leveraging your data to its full potential to gain actionable insights?
Are your RGM solutions easily integrable into your existing ecosystem?
If your company is plagued by these issues, let’s dive in deep and inspect them closely. RGM capabilities are integral to elevate a company’s commercial strategy and should be built on deep analysis and insights to derive granular choices and inspect potential opportunities. Based on our experience, we have observed that while CPG companies face several challenges, three primary problem areas can be eased or resolved through the efficient utilization of RGM capabilities. They are,
1. Organizational Challenges
2. Data Integration
3. Technological Challenges
In this three-part series, we will take you through each of these challenges to help you assess your RGM capabilities and identify the next steps that could potentially boost your business growth and help you derive your desired ROI.
What are the primary Organizational Challenges and how can you surpass them?
Work towards breaking business unit siloes
Solutions commissioned in silos are built and deployed for a specific purpose, often failing to account for the requirements of other markets. For instance, the custom price optimization solution for the business unit (BU) in Hong Kong remains relevant only to the specific region without the flexibility to modify or reuse the solution in another market. Building a similar solution for a different BU will require more investment in capital, data, and tools, resulting in duplication of effort and processes. Hence, it is vital to build solutions that can be reused and modified in tandem with the KPIs across BUs. Therefore, to break silos, CPG companies must,
- Build a unified system to identify growth opportunities and devise growth plans
- Monitor impact of commercial execution
- Nurture a level of consistency & identify KPIs that are uniformly followed across the company
- Focus on building solutions that are customizable to enable reusability with minimal investment
Establish an agile business process flow
RGM as a practice, flows across business functions – primarily marketing, commercial/trade, and finance. Another organizational challenge faced by many CPG companies is the lack of agility in this business process flow, resulting in information being consumed in silos. Hence, it is important to create a single process while establishing empowered ownership to avoid silo-driven behavior, knowledge loss, and inefficient management. RGM enables CPG companies to create a virtual-drive data hub that can be accessed across functions. It helps CPG companies create an efficient process to support profitability tracking and analysis that can help stakeholders define the process of governance and accountability. Through this, RGM fosters an end-to-end view of the growth levers, across categories and functions, helping stakeholders systematically draw actionable insights that can drive strategic and tactical decisions. CPG companies should:
- Foster transparency to boost collaboration between internal teams, thereby eliminating duplication of tasks to improve ROI
- Build comprehensive and simplified dashboards to improve efficiency and reduce turnaround times
- Unify multiple sources of data to create a centralized platform to drive actionable insights powered by analytics
- Create agility in processes to easily evolve business strategies and to quickly adapt to capitalize on new opportunities
Build a multi-levered approach to capture value
Once companies have successfully broken down silos and there is an established business process flow, they must adopt a multi-levered approach to amplify RGM performance The essential RGM levers are Pricing, Promotions, Assortments, Marketing, and Distribution. The extent of the importance of each lever will vary depending on category dynamics. Some CPG companies attempt to elevate ROI by merely tugging at just one or two levers.
Several CPG companies fail to capture consumer value by underpricing or overpricing products, relative to competition or consumers’ willingness to pay. The reason being, they lack a well-structured view of strategic pricing opportunities in their categories and markets. Such CPG companies often adopt a black-box pricing approach that recommends lowering price points based on individual price elasticity, only to see a reduction of prices by the competitors. Several CPG companies even spend 7-10% of their gross sales on trade promotions, while failing to reap value despite identifying clear-cut opportunities. Mentioned below are the few facets that constitute a multi-levered approach. Adopting these will help CPG companies,
- Achieve optimal mix management with a clear segmentation of SKU and channel, based on profitability and growth potential
- Assess price ladders in comparison to the competition and evaluate brand-price elasticities to set a clear brand pricing strategy
- Gain a deep understanding of the effectiveness of the existing category promotions and key performance drivers through close assessment of promotion performance
- Create alignment between list prices, target consumer prices, and trade structures to gain a fair share of the category profit pool
While there are many more other facets that could be included, these are merely a few to start with.
To truly unleash the power of insights in pricing, promotions, assortments, distribution, and SKU mix, CPG companies must roll out their RGM capabilities across their global endeavors. This also requires a strong degree of endorsement from top-level management and dedication from mid-level management.
Now that we have discussed the organizational challenges, let’s embark on the second part of this series – to learn how RGM capabilities can help your organization leverage data to its full potential to capture business value.
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