The Role of Revenue Growth Management for CPG Industry

Alright, folks, let’s dive into this fascinating topic of Revenue Growth Management, or RGM as the insiders call it.

Now, this is a critical lever for growing operating profit.

As per mckinsey.com, effective Revenue Growth Management (RGM) can increase a company’s profits by 4 to 7% within just 12 to 24 months. The study shows the critical role RGM plays in boosting the financial performance of an organization.

What is Revenue Growth Management?

Revenue Growth Management (RGM) is a business strategy designed to optimize profit growth through understanding, anticipating, and influencing consumer behavior. This strategy involves a comprehensive approach to pricing, product assortment, promotional activity, and trade terms.

It’s like your secret weapon for responding to changes in consumer behavior while also delivering long-term growth. From my personal experience, implementing RGM has not only sharpened our competitive edge but also deepened our understanding of our customer base. It’s a constant learning and adaptation journey crucial for making informed decisions that drive profitability.

Revenue Growth Management (RGM) is critical in the Consumer Packaged Goods (CPG) industry. RGM offers CPG firms a robust framework to navigate complexities. It helps businesses fine-tune their strategies in real-time, ensuring they stay ahead of the curve. With its proper adaptation, companies can optimize their pricing promotions and distribution. It directly impacts their bottom line. Mastering RGM is not an option for CPG businesses but a necessity to stay relevant, competitive, and profitable.

Trends in Consumer Behavior and RGM Response

The graph above shows trends in consumer behavior and response to Revenue Growth Management (RGM) strategies over time. It shows increased demand for eco-friendly products and growth in RGM adaptations. Here, the graph focuses on eco-friendly strategies from 2010 to 2021.

As per finding by McKinsey, 71% of the consumers are more likely to purchase from brands that offer personalized experiences. Close to 76% do not like it if this doesn’t happen, and they are more likely to buy something different. This study shows the growing importance of personalized pricing and promotions as key components of RGM.

But here’s the kicker: this secret weapon has a shield, and that’s pricing.

In these times of cost inflation, pricing becomes essential for our CPG companies. It’s all about ongoing collaboration with retailers to counter these cost inflations effectively.

And guess what’s making a comeback? Promotional activities!

Increasing trade spending is taking priority as these activities return to pre-pandemic levels.

Our friends at The Kraft Heinz Company, are exploring ways to redeploy promotional dollars to drive growth.  And they’re not stopping there. They’re also leveraging digital tools to increase returns on trade investment.

So, there you have it, folks. RGM is not just a buzzword.  It’s a key component that helps balance core category focus against consumer preferences and market dynamics.

It’s your tool to drive profitability and fuel investment, leading to long-term success and top-line growth. Now, isn’t that something?

If there’s one thing you should remember from all this, Revenue Growth Management is not just about managing your revenue. It’s a strategic approach that involves understanding your customers, adapting to market changes, and making informed decisions about pricing and promotions. It’s about driving profitability and fueling investment for long-term success.

As per a study by Deloitte, CPG companies saw an increase in margins by 3% to 5% by over competitors by employing dynamic pricing as part of their RGM strategy.

As per another study by McKinsey & Company, the food-and-beverage manufacturer stopped its losses and went on to impresear their revenues by 10% over 3 years. Based on consumer behaviors, the company refined its pricing by region, channel, and SKU. It further increased the focus on high-growth organic and snack segments with data-driven alignment with consumer needs. In addition, they partnered with media houses to showcase their products vis-a-vis at-home entertainment.

2024 Trends in the Consumer Goods Industry

1. Increased focus on analyzing consumer sentiment and behavior. CPG brands will use data to understand better and meet customer requirements.
2. Consistency and personalization across digital and in-store shopping.
3. Focus on the retail media network space, emphasizing digital marketing.
4. Businesses will enhance technology to modernize operations and improve customer interactions.

Source

So, whether you’re a small business owner or a leader in a large corporation, keep RGM in your toolkit.  It could be the game-changer you need to redefine growth in your business.

Are you looking for more pointers? Let’s have a chat and dig in!

Liza Maschi, MBA Catie McCrossan

Revenue Growth Management FAQs

What are the five pillars of RGM?

The five pillars of Revenue Growth Management (RGM) are:

• Pricing: Strategically deciding on price to maximize profitability and also ensure that customer gets value for money.
• Promotion: Targeted promotional activities to increase demand and customer engagement.
• Assortment Optimization: Right mix of products to meet customer demands and maximize revenue.
• Trade Spend Efficiency: Managing investments in trade channels to optimize returns.
• Channel Strategy: Strategies for sales channels to maximize reach and profitability.

What is a revenue growth manager?

The revenue growth manager’s job is to drive revenue through strategic analysis and implementation based on the five pillars of RGM.

What are the three enablers of revenue growth management?

Three enablers of revenue growth management are –

• Robust data analytics
• Cross-functional collaboration within the organization
• Market insights

How do you calculate revenue growth management?

To calculate RGM effectively, one has to look at the metrics for –

• Revenue changes over time
• Impact of pricing strategies
• Market share expansion
• Effectiveness of promotional activities