Why Revenue Growth Management in CPG Matters Now More Than Ever

More than 80% of CPG CEOs aren’t satisfied with their Revenue Growth Management (RGM) results. However, research shows that companies can see 80% of SKUs gained and 50% Lower BAU costs with RGM initiatives. So, what’s the catch?

Many CPG companies miss significant revenue growth opportunities by relying too heavily on traditional revenue growth management (RGM) practices. While these methods were effective in the past, they often overlook potential areas for improvement.

As a result, RGM teams are now exploring modern approaches to revenue growth management in CPG, adopting a more comprehensive strategy to optimize key RGM levers.

These include pricing, promotion, product assortment, and distribution management, enabling companies to unlock new growth opportunities and better capitalize on market potential.

Now what that approach is? Let’s find out!

How can you optimize RGM levers?

Before discussing the approach, let’s start with a fact. RGM which keeps pace with industry needs can generate significant benefits – studies show a potential 3% to 5% increase in gross profit. So, now the question in place is how do you rise to the occasion?

The key is to integrate the main elements of RGM to create a robust framework that enhances overall effectiveness.

1. Portfolio Price Pack Architecture

One crucial component of this integrated approach is Portfolio Price Pack Architecture (PPA). Rethinking your PPA involves prioritizing, planning, and taking action to enhance focus and effectiveness. By asking critical questions, you can clarify your priorities and align your actions accordingly.

Consider these essential aspects:

Time– At what time does the consumer decide which product to buy?
Brand umbrella – What is the brand category based on the product portfolio?

SKU size -What size is suitable for which event and which brand?
Price – what price should be set after considering all the above?
Channels – where can the products be sold based on the above?

Now with a better understanding, you can leverage the AI and ML models used in RGM to predict the sales impact of price & pack changes, map competitors, and optimize pricing by channel all at once.

2. Trade Promotion Optimization

Trade promotion is a substantial expense for CPG companies, typically accounting for 11% to over 27% of revenues, making it the second-largest item on the P&L statement. To optimize this expenditure, companies should incorporate robust data validation, integration, and modeling techniques.

For example – Using statistical methods such as regression analysis and time series forecasting, can accurately predict the sales impact of various discount strategies. Techniques like Monte Carlo simulations can help assess the risk and variability of different promotional scenarios, allowing for more informed decision-making.

Having ML algorithms employed will help you to analyze historical promotion data, identifying patterns that inform optimal markdown strategies and ideal promotion plans. This comprehensive approach enables companies to ensure that promotional resources are allocated efficiently for maximum return on investment.

Read Also: What Are the Reasons to Protect Your Trademark?

3. Product Assortment Management

Most organizations have some sort of assortment management tools. But what these legacy planning platforms haven’t provided is a holistic enterprise view due to the high reliance on historical sales data and guesswork to predict future demand. This has obvious limitations like limited future visibility, static assortment planning, and reactive approaches that result in delayed actions, ultimately risking missed sales opportunities and diminishing customer trust.

To move beyond these blind spots, we embrace proactive planning for assortment optimization. Here using scenario planning and demand forecasting helps companies simulate different market scenarios based on potential events or competitor strategies.

Incorporating Market Mix Modeling (MMM) further enriches this strategy by analyzing the impact of marketing channels and promotions on sales performance.

This allows for a comprehensive understanding of how factors influence demand, enabling data-driven decisions. By leveraging these analytical techniques, companies can have better product clustering, maximizing sales opportunities and customer satisfaction allowing for pre-emptive adjustments for proactive assortment optimization.

Read Also: Planning for Growth: Future Value Analysis with Britannia Share Price

4. Distribution Optimization

Now it is equally important to have the right products reach the right consumers. Hence, once there is a clear understanding of product, price, and promotions the next step is to align inventory, assortment, and planograms to improve product category performance. By identifying and working on underperforming portfolios, there is an opportunity to reduce capital and costs.

To do so, leverage demand forecast with hierarchical aggregation plans after experimenting at least with Price and Portfolio optimization to achieve better forecast accuracy.

Now being integrated with sales data, seasonality, market trends, etc. use techniques like Anomaly detection for outlier identification to multi-armed bandit algorithms for resource allocation to optimize channel strategies and prevent cannibalization.

Future of growth X Revenue growth management in CPG

Now with a better understanding of what and how to optimize for better results. It must be taken into consideration that implementing these measures requires solid CPG analytics. Therefore, Companies looking to strengthen their revenue growth management will have some homework to do.

As an expert in revenue growth management in CPG, we understand that while there are numerous AI solutions available yielding results not all are suitable for every organization.

Hence, you may need to partner with specialized providers like Polestar Solutions who have expertise in understanding the nuances of the industry, have sound analytical domain expertise, and tools to provide quick and accurate results to gain the upper hand to enhance their position in any market – USA or abroad, ultimately leading to stronger revenue growth and business performance.

Final Thoughts

Revenue growth management in CPG is more important than ever. As the market changes and competition grows, companies need smart ways to grow their revenue. Traditional methods no longer work as well. They miss out on big opportunities that modern strategies can capture.

By focusing on key areas like pricing, promotion, product assortment, and distribution management, businesses can boost their growth in exciting new ways.

Today, CPG companies must think differently. They need to adapt to changing consumer habits and use new tools for better results. Revenue growth management in CPG helps companies make smart choices that can lead to more profits and stronger customer loyalty. It’s all about being flexible and responsive to what’s happening in the market.

With a modern RGM approach, companies can align their pricing strategies with market trends, create the best promotions, and offer products that people want. They can also make sure their products are easy to find, which makes a big difference in sales.

To stay ahead of the competition, CPG companies must embrace this shift in revenue growth management. The ability to adjust to changes quickly and efficiently will set them apart. As businesses keep evolving, RGM will play a key role in shaping their success.

If you found this information helpful, please share it with your friends and leave your thoughts in the comments. We’d love to hear how you think revenue growth management in CPG can change the future of business!