Revenue growth management (RGM) is a set of strategies that consumer packaged goods (CPG) businesses use to harness profitable and sustainable growth from both their customers and end consumers. These profit-driven strategies target consumer groups by optimizing product assortment, pricing, packaging, promotions and channel distribution.
What makes RGM unique is that it expands on traditional trade promotion management (TPM) strategies by capturing past knowledge from TPM processes and re-incorporates it into new datasets for more informed decision-making.
In light of today’s inflationary environment, coupled with dramatic shifts in consumer purchasing behavior, CPGs are increasingly implementing RGM strategies to make data-driven decisions. Shifts in online versus in-store shopping have opened up an opportunity for new brands to gain visibility in front of consumers who might not traditionally have found them in brick-and-mortar stores. CPGs are therefore under greater pressure than ever to drive sustainable revenue growth in this new landscape.
Fortunately, new AI and ML tools are entering the market, allowing CPGs to stay ahead of the curve and create new revenue streams to prevent brand switching. AI and ML technologies present a golden opportunity to no longer just design and review traditional trade promotions, but also to design, implement and track more effective revenue growth strategies.
In this blog, we uncover some of the key challenges CPGs face today, what the core principles of effective RGM are, and how new technologies can deliver commercial benefits.
Since 2020, there has been a dramatic rise in online shopping - with online retail growing by up to 50%1. As a result, consumers have been trying new brands more than ever before. Research by McKinsey shows that globally, 25-40% of consumers2 have tried different brands since 2020, and in Europe, private labels now account for 25% of sales3.
Such significant changes in purchasing behaviors are estimated to result in a shift in spending worth $3 trillion4. This distinct shift in brand loyalty highlights the importance of ensuring promotion and distribution strategies align with new shopper habits.
From increased customer demand to global supply chain disruptions, CPGs are experiencing higher input costs. This trend is showing no signs of stopping soon, meaning CPGs need to be even more creative—particularly with increasingly price-sensitive customers trying to beat inflation.
Subsequent stresses on retailers to meet customer demand have made price reductions the ‘norm’, with many customers prioritizing these cuts when deciding what to purchase.
As a result, CPGs are having to catch up with all of these pressures and be even more effective in their strategies. For some, this is a major challenge if they are not able to adapt fast enough to the changing market dynamics. Those CPGs who don’t keep up are likely to miss out on the staggering value that is up for grabs.
CPGs that follow these shifts and respond with products and offers directly relevant to shoppers and in the relevant channels are capturing more share than their competitors. This means that implementing better revenue growth management strategies in the right channels to reach target consumer groups is becoming ever more critical.
So, how do you begin to create and embed RGM in all your strategic decisions? And, crucially, how do you prioritize?
There are three core principles that CPGs should hone in on to crete a successful RGM program:
Setting up and ensuring you and your organization have access to data-led insights is the first step in making value-driven decisions at every level. But how?
The first step in any RGM program is collecting relevant data such as sales, pricing, promotions, market trends, and customer behavior. Modern RGM solutions can integrate with your ERP system and other data sources, but data cleansing can be a common barrier. Implementing advanced data analytics and statistical methods can help CPGs identify meaningful patterns. For example, embedded predictive analytics can help RGM teams forecast sales trends using various data sources.
Now that your data has been collected in one system and cleaned, it is ready to use. Many CPGs struggle at this stage. It can be challenging to understand what problems exist and how to frame them without some sort of corporate muscle memory guiding the way. Luckily, advanced RGM solutions can learn from previous datasets and use predictive forecasting, uplift modeling, and automatic pattern detection to identify problem areas as well as where true ROI opportunities exist.
Developing an advanced data collection and analysis process across your organization begins to unlock the next stage in your RGM program.
So, your data process is now in place, and you are starting to generate meaningful insights. Next is establishing exactly where to focus for your CPG business, which is no easy feat. Channel or category? Price, promotion, or assortment? Many factors should inform what you choose to prioritize to generate sustainable ROI.
The first factor to consider to drive true ROI is choosing where to play in the market. RGM teams can use the actionable insights from an RGM solution to create more informed plans. For example, an RGM team might start by reviewing ERP data for shipping and pricing trends, syndicated POS data for market trends, and customer data trends to determine which markets to play in. Additionally, they assess channel-specific metrics like growth rates and execution quality. Based on these analyses, a CPG company might decide to prioritize online sales channels in certain markets due to an increased trend of online shopping amongst its consumer target.
The next ROI challenge for CPGs is defining how to win. To do this they need to generate true ROI that is not at the expense of other strategies at play, and is not merely tactical. RGM solutions have evolved beyond tactical adjustments to align actionable insights from across the organization and recommend ROI-generating opportunities. Rather than a simple sprinkle of headline pricing, successful CPGs now consider a multiyear journey using a strategic blend of RGM insights across categories, competitors, consumers, events, and channels.
Using actionable insights from their RGM solution a CPG can understand exactly where to play and how to win to drive ROI. But there’s one more step in creating a successful RGM program.
Building an ecosystem where your entire organization has access to these decision-making insights, ensures everyone is on the same strategic page.
It sounds obvious, but establishing cross-functional teams ensures that insights and decisions flow seamlessly through the organization. These teams could include members from sales, marketing, finance, technology, and operations. Today siloed data sets, systems, and decision-making can lead to cannibalization of revenue growth efforts. Using an RGM solution should make it easy to break down siloes, improve communication, and establish cross-functional governance systems to increase adoption and performance.
Keeping a CPG organization aligned can be difficult without the right reports and rituals in place. Regular reporting, whether via monthly reviews or regular email updates, ensures that everyone across the organization is aligned and working towards common goals. Advanced RGM solutions can deliver both regular automated reports and event-driven insights instantly. For example, some platforms can send alerts when a strategy has gone off plan and is no longer performing.
A successful RGM program extends beyond data collection and analysis—it’s about orchestrating collaboration, maintaining alignment with the plan, and leveraging cutting-edge solutions to deliver true ROI.
There is no one-size-fits-all approach to creating an RGM program because each CPG has unique focus areas that need to be considered in its planning.
Let's say you're the RGM lead at your company. Your product portfolio includes snacks, beverages, and personal care items across various regions. Each category has its unique dynamics, consumer behaviors, and competitive landscape. While you might initially consider applying similar strategies across categories, it's important to dive deeper and consider the critical nuances.
Using RGM technology, you can leverage AI and machine learning capabilities to analyze historical data, market trends, and consumer preferences for each category. For example, you may find that snack sales peak during weekends, while demand for personal care items remains steady throughout the week. Beverages, on the other hand, show seasonal fluctuations tied to weather patterns.
If your goal is to improve revenue growth in a specific profitable category, you may want to deprioritize activity in another category. Advanced RGM solutions allow you to set goal-based scenarios and automatically recommend the best course of action to meet each scenario's goals.
Without advanced AI and ML technology, processing such diverse data efficiently would be challenging. This technology can instantly analyze vast amounts of data, revealing hidden patterns. The increased data visibility in these RGM solutions also tracks strategy execution, identifying priority areas where interventions are needed using a continuous monitoring system. As soon as trends change, you can make better-informed decisions to get back on track.
The results and decisions are automatically fed back into your RGM solution, making your insights even richer with every decision you make. It creates an interactive cycle of improvement for refining and optimizing insights.
With deeper insight, you can adapt your strategies to cater to changing consumer behaviors and preferences. This puts you at the forefront of achieving better top- and bottom-line growth.
AI and ML-led insights also enable you to spend more strategically, ensuring every dollar spent on promotions and new product development is aligned with maximum ROI. On average, CPGs that include AI within their RGM strategies see a 305% increase in margin5.
These enhanced insights also lead to more accurate forecasting, unearthing data-driven predictions to help CPGs make more informed decisions around future spending and inventory management. CPGs can also relay this data to retailers, helping improve transparency and nurture customer relationships. Costs are ultimately optimized and profitability is increased, delivering a positive impact on your bottom line.
Find out more about how RGMInsight can help transform your revenue growth management.
4https://www.accenture.com/us-en/insights/strategy/big-value-shift