Today, more than ever, CPG companies are struggling to achieve profitable growth, with the industry’s economic profit growth dropping to 3.2% between 2010 and 2019, a sharp decline from the 10.2% growth recorded in the previous decade. One of the reasons for this is that the traditional methods of driving growth are not as effective as they were in the past.
CPG companies typically used to invest anything between 11% and 27% of their gross revenue on trade promotions in a bid to drive growth. Unfortunately, 72% of trade promotions end in losses, and retailers are demanding more trade promotion support from CPGs than ever, increasing the CPG’s cost of serving retailers without any real return from the gross revenue growth.
In today’s market, leading CPGs are adopting Revenue Growth Management (RGM) as a discipline to improve growth. This article looks at RGM, and how digitization of RGM can help CPGs further drive growth in the current industry landscape.
What is Revenue Growth Management?
Revenue Growth Management (RGM) is the process of analyzing data to understand how customers perceive a product’s value, predict the customer’s purchase journey, optimize the product and take advantage of shopping occasions for profitable revenue growth. Revenue Growth Management has four fundamental elements: pricing, product assortment, promotions and trade investment. By implementing revenue growth management strategies, CPGs are learning to capture significant value.
One of RGM’s core principles is the align the price of a product to the customer’s perception of value. While there is no direct link between customer value perception and pricing in traditional trade promotion, value perception is foundational to all analytics in RGM. Understanding the RGM paradigm provides brands with an outside-in and deeper micro-segmented understanding of the consumer and the factors that influence their buying decisions.
Strategic RGM: The key to long term revenue growth
To get the maximum impact out of RGM, it must shape the company’s commercial strategy, rather than just enabling it. This is called strategic RGM and is built on deep insights that provides CPGs with more granular choices about where to compete and how to win. These insights can only be gotten detailed analyses of data from both primary and secondary sources from the company itself and its industry partners, which gives a clear picture of the available opportunities.
In the context of customers, strategic RGM requires an in-depth understanding of ‘purchase structures’ – such as how customers make buying decisions. Which products are substitutes for each other, and what happens when a customer can’t find a particular product? Do they choose an alternative or leave without buying anything? With these and other types of insights, brands can design and execute several short- and long-term initiatives to drive market growth.
Strategic RGM provides the right foundational elements to unlock and deliver commercial growth for CPGs, but are FMCGs equipped with the processes, capabilities, tools, and skills to drive a successful RGM agenda? Only a third of business leaders think so, and without proper equipping such as access to all important data, brands will lack the ability to drive revenue growth and their RGM strategies will not deliver expected results.
Digitalizing RGM to drive CPG Growth
In today’s market, it is vital that brands build the competencies, skills and processes needed to run successful RGM initiatives. Retailers are increasingly getting better at all the elements of (RGM), as many have embraced new technologies, including data gathering and analytics systems. By doing so, have overtaken brands in their knowledge of what, why, and how consumers buy.
Therefore, brands must increase their digital capabilities across the fundamental elements of RGM. Unfortunately, the RGM digitization approach is uneven across companies and levers, as many CPGs have disconnected systems and insights, and lack the capacity to respond quickly to market shifts and deliver the right assortment promotions, pricing, and trade terms to accurately understand and predict market shifts, driving customer growth.
Unlock the value of RGM initiatives with RedCloud’s open commerce platform
At core of any successful RGM strategy is the need for deep insights across the entire distribution chain, and the ability to predict and understand shifting market conditions. This is what RedCloud delivers via our innovative open commerce platform, we allow brands, distributors, and merchants to sell smarter, buy better, pay simpler.
With this platform, brands gain real-time visibility into their distribution chain and understand exactly what is going on at every point in the chain, from the distributors to the POS. This way, brands maintain control over their order and inventory management as each existing connection across their industry is transformed into an existing data point. With RedCloud, marketers also gain insights into buyer behavior, and can devise successful buyer-specific campaigns and promotions, one of the fundamental elements of revenue growth management.
For more information on how RedCloud can help your FMCG brand, please contact us by filling this form.
