Brands have endured a period of unparalleled instability. Many companies had to implement immediate measures to safeguard profits. First, the emphasis was on managing volumes and enhancing supply chain productivity. Then, the focus shifted to transferring cost increases in response to severe inflation.
Key challenges
Brand manufacturers are facing a highly pressured market where sustainable growth is becoming increasingly challenging. With changing retailer priorities, intensifying regional and international competition, shifts in consumer expectations and price sensitivity, and volatile economic markets, companies must overcome pressures from all sides.
1. Pricing today requires precision
In recent years, costs soared due to inflation, prompting a fresh urgency to address pricing strategies. Like many brand manufacturers, you may have relied on periodic price hikes to offset cost increases.
However, the landscape has shifted, and the days of frequent and substantial price increases are over. While cost pressures persist, consumers are increasingly sensitive to high prices. This leads to a decline in consumption, particularly among lower-income segments.
Today, pricing remains a critical aspect of revenue growth management. However, the approach must evolve. It's no longer about blanket price increases across all products; instead, brands must adopt a more nuanced approach. Strategic price adjustments, targeted at specific products and segments, are key to maintaining consumer trust and driving sustainable growth.
There’s a delicate balance between securing profits and remaining competitive in the market. You must make pricing decisions with precision, considering consumer price thresholds and market dynamics.
2. Retailers are joining forces
As consumer brands, you've likely experienced the mounting pressure from retailers. The demands for price cuts, increased promotion budgets, and reduced shelf space for national brands are all too familiar. However, what's changing now is the acceleration of these trends.
Retailers are not just looking to optimize their own operations; they're actively seeking ways to bolster their competitiveness. They’re joining forces through international alliances and centralized purchasing departments to exert more influence during negotiations.
Now you’re negotiating with not just one retailer, but an entire international buying group spanning multiple banners. These alliances wield significant power, and they're leveraging it to drive price alignment. What does this mean for you? It's a shift in perspective, requiring you to consider not just your national market but the broader international landscape.
Retailers are now comparing and demanding price alignment as a starting point for negotiations. It's a new pressure on your shoulders, but also an opportunity to rethink your approach to retailer relationships.
3. Consumers are reevaluating their spending
In today's economic climate, consumer price sensitivity is at an all-time high. With inflation outpacing salary increases, consumers are feeling the pinch. As a result, we're witnessing notable shifts in purchasing behavior across various categories.
One prevalent trend is the phenomenon of trade-downs. Some consumers are still willing to engage with product categories, but they're opting for more affordable alternatives. Instead of splurging on premium national brands, they're gravitating towards mid-tier options or even private labels.
But it's not just trade-downs that are impacting consumer choices. We're also seeing instances of trade-outs, where consumers completely exit certain product categories due to perceived affordability issues.
Of course, these shifts vary across different consumer segments. Nevertheless, the overarching trend remains: consumers are reevaluating their spending habits and seeking value-conscious alternatives.
Moreover, the frequency of consumer purchases has undergone a notable change. Rather than making one large shopping trip, many consumers now prefer to make smaller, more frequent purchases. This allows them to exert greater control over their spending, with each trip to the store governed by a predetermined budget. As a result, while purchase frequency has increased, the average transaction amount has decreased significantly.
4. Chasing promotion ROI
Let's face it – the pressure is on. Retailers are increasingly hungry for a larger share of your promotional budget. Promotions are the ticket to increased foot traffic and customer loyalty. Yet, as budgets expand, the market becomes saturated, and each promotion's impact diminishes.
Navigating these challenges requires skill and strategic acumen. It's not just about throwing more promotions into the mix. It's about optimizing every aspect of your promotion management strategy to maximize impact and drive revenue growth.
For many brand manufacturers, the status quo may seem appealing – but it's a risky proposition. Without continuous improvement in promotion management, you risk falling behind, compromising your competitiveness, profitability, and long-term sustainability.
What is revenue growth management?
RGM is about driving profitability by strategically managing your prices, products, placements, and promotions.
Revenue Growth Management (RGM) goes by various names – from Profit and Revenue Gross Management (PRGM) to Net Revenue Management (NRM). However, regardless of its title, the principles remain steadfast and applicable across industries.
At its core, RGM is about optimizing every aspect of your business to ensure maximum revenue generation. RGM is not just about increasing sales volume; it's about driving profitability by strategically managing your prices, products, placements, and promotions. The right product with the right price in the right location with the right activation to tackle the right consumer.
RGM isn't exclusive to a particular industry. It's a versatile tool that can be applied across sectors – from consumer packaged goods to luxury brands, tourism to transportation. The fundamental goal is to align your offerings with consumer needs and market demands to capture value effectively.
Breaking down silos within organizations is a critical aspect of successful RGM. Too often, different departments operate in isolation, each with its own perspective and objectives. RGM breaks these barriers. It fosters collaboration and ensures you make decisions with the consumer's best interests in mind.
Moreover, RGM represents a shift in mindset – from a sole focus on volume to a more balanced approach that prioritizes value and margin. This shift requires strong leadership support, starting from the CEO down to every level of the organization.
Implementing RGM isn't just about setting up a new department. Revenue growth management requires a cultural and capability change that requires buy-in from all stakeholders. For RGM to thrive, it needs to be positioned strategically within the organization, with clear authority and a mandate to drive change.
Whether you're just starting your RGM journey or looking to enhance existing practices, Simon-Kucher can guide you every step of the way. From designing methodologies to executing strategies, we ensure that your RGM initiatives deliver tangible results, driving sustainable revenue growth across your business.
The 6 Levers of Revenue Growth Management
1. Consumer Pricing
Consumer pricing involves the correct positioning of brands via pricing. Companies should determine product pricing based on the consumer’s willingness to pay. This varies by channel (for instance, retail versus out-of-home), consumption occasion and target segment. Typically, different brands cater to different price levels that are significant for specific shopper groups and their purchasing decisions. While price variations can occur in local markets due to market trends and competition, certain pricing guidelines should be centrally established to maintain consistent brand positioning.
2. Portfolio price architecture
Top-tier companies have defined roles for each pack with a value-based price ladder that spans different price tiers. In-depth consumer data is crucial for deciding the right portfolio at the right price levels. It’s essential to fully understand consumer requirements across various situations, including distinct consumer objectives for each distribution channel, to match your product assortment with the right price levels in the category. Methods such as shelf-based conjoint analysis can forecast how alterations in packs and prices (or products) will lead to volume shifts in the category.
3. Active mix management
Active mix management entails defining precise actions to steer an ideal mix at various levels. Establish the function of each channel and choose a suitable product range. Once you understand the profit and growth potential of each category, you can determine the right resource distribution and trade-offs. It’s also important to assess the value and strategic significance of your customer to further differentiate the assortment by customer segment. Lastly, you can fine-tune the correct mix of SKUs within a retailer based on sales rate and net margins. Mechanisms such as promotions, assortment size, marketing, and trade investments help you to proactively manage the mix.
4. Promotion strategy
The cost of promotions often constitutes a significant portion of companies’ profit and loss statements. However, businesses frequently employ promotions to stimulate short-term revenue growth, which doesn’t necessarily have a lasting impact on the bottom line. Therefore, it’s crucial to establish a proactive, data-driven approach. This begins with setting clear goals for each brand and product category. Only then can you assess the effectiveness of a promotion in achieving those goals based on key performance indicators such as market penetration, uplift, and return on investment. Regular post-promotion analysis based on sell-out and using standardized tools will contribute to the refinement of strategies and the structuring of promotions, including the discount method, discount depth, frequency, and supporting investments. With a compelling sales narrative, promotion and management can be a powerful tool for driving mutually beneficial initiatives with retailers.
5. Trade investments
Trade investments should correspond to the value a customer brings in terms of revenue, product range, visibility, activation, efficiency, and collaboration. Often, many trade investments are not conditionally tied to any reciprocal performance. Effective trade term management begins with complete transparency on current trade terms and net prices to evaluate actual customer profitability. A uniform internal trade term system should be established, incorporating pay-for-performance components including objective customer assessment. With the growing pressure of buying alliances, there is an urgent need to get net prices withing acceptable ranges and mitigate significant exposure risks. This necessitates clear boundaries, a decrease in trade term slippage, and a definitive action plan for each retailer to adhere to the trade term structure and price ranges.
6. The RGM organization
Improving your RGM levers isn’t a one-time task. It’s a skill that needs the right resources and should be facilitated by efficient procedures and tools. The structure of RGM organizations largely depends on your business’s size and complexity. However, the most crucial factor for a successful organization is having dedicated full-time RGM roles that possess genuine authority. Rather than merely assisting, they should lead commercial operations. The RGM role serves as a connecting link between sales, marketing finance, supply chain and management. Furthermore, they must provide local teams with standardized techniques and tools, and cultivate a culture that encourages growth.
7. The RGM transformation journey
RGM transformation involves optimizing your company’s pricing, promotions, trade terms, and market strategies to enhance profitability and efficiency. By assessing and improving global guidelines, processes, tools, and KPIs, you ensure your RGM programs are future-proof. Whether you’re looking to elevate your existing RGM practices or seeking benchmarks and best practices from industry leaders, transforming your RGM is essential. It helps streamline operations, reduce project completion time, and achieve a balanced and efficient organization structure, ultimately driving your business forward in a competitive market.
How Simon-Kucher can transform your revenue growth management
When it comes to revenue growth management, we're not just another consultancy – we're THE experts. We leverage advanced analytics and data-driven insights to drive revenue growth through revenue growth management.
By analyzing price elasticity, optimizing pricing and promotion strategies, and refining portfolio pack architecture, we help you gain a competitive advantage in the market. Our strategic decisions are informed by comprehensive data and analytical models, ensuring alignment with consumer preferences, and maximizing net revenue.
Our track record spans across all verticals, channels, and geographies, and we bring unparalleled experience to the table.
- End-to-end expertise: From strategy to operations, we cover every aspect of RGM. While others may offer frameworks and playbooks, we dive deep into the nitty-gritty details, ensuring the successful implementation of our recommendations.
- Data-driven recommendations: We know how to harness the power of data to drive informed decision-making. With our customized Power BI tools and dashboards, we empower you to optimize your RGM strategies with precision.
- Long-term sustainability: Our approach goes beyond just delivering a one-off project. We equip your team with the tools and capabilities needed to sustain RGM excellence for years to come. Our dashboards and KPIs ensure that you can make informed decisions long after our engagement ends.
- Tailored solutions: Whether you're just starting your RGM journey or looking to take it to the next level, we tailor our approach to your specific needs and capabilities. Our step-by-step transformation program ensures that you can progress at a pace that suits your organization.
- Dedicated RGM team: With a dedicated team focused on RGM 2.0, we bring fresh perspectives and innovative solutions to the table. We're committed to driving measurable results and lasting impact for your business.
- Transformation partners: At Simon-Kucher, we don't just deliver solutions – we deliver transformation. Let us be your partner in unlocking the full potential of your revenue growth management strategies.