As the FMCG market continues to face increasing pressure on revenues, off-takes, and profits, revenue growth management has become increasingly important. What, then, are some of the advantages revenue growth management can provide FMCG companies given the current circumstances?
Revenue Growth Management, or RGM for short, is a relatively new field within the FMCG industry. Born in the aviation industry in the 70s, it wasn’t until the early 2000’s that it reached mass adoption. Since its inception, RGM has transformed massively and has become a core function with high visibility in most FMCG companies.
Despite its transformation, the original aim of revenue growth management has been retained: increase efficiency within the available limited resources. The need to increase efficiency despite limited resources has never been more relevant than during the pandemic, which has left many companies scrambling to find ways to increase profits with fewer opportunities and lower demand due to the market hitting top-line performance for most firms.
Here are three ways RGM can help FMCG companies grow their revenues in challenging times.
Stage 1 – Define key volume items
Defining key volume items helps sales and marketing functions understand the differences in pricing strategies—and the differences should be significant. Indeed, KVI is volume business sales and therefore can lead to customer churn if they are not competitively priced. Depending on the brand perception in the marketplace, FMCG companies can manage their price index to their closest competitor in the market. For non-elastic products (where price increase will not result in customer churn), there is a great deal of flexibility to increase and decrease prices.
Stage 2 – Upgrade your price architecture
Oftentimes producers have to provide sizable discounts because their brand’s price architecture is not up to date. This can occur due to competitors’ actions, but sometimes it’s the brand’s own innovations that lead to prices remaining relatively close in a given portfolio. It’s, therefore, crucial to update price ladders to shape demand in a more balanced way to avoid crossing during promo and non-promo periods.
The above graph is an example where a producer may face cannibalization if the five products are not promoted simultaneously. However, combined promotions may limit the brand to being always “on” and therefore not attract more attention from both customers and consumers.
Stage 3 – Change your promo strategy
While there is no silver bullet when it comes to optimizing your promo strategy, FMCG companies would be wise to focus on the following three areas:
1. Promo share from the producer to customer and from customer to consumer
2. Depth of discount and promo price
3. Number of promo slots per period and the length of breaks between promotions
If the first point is well-defined and balanced, the following two points will be more manageable. For example, the depth of discount in some markets is already a non-factor given that you can reach the same promo price with different levels of discounts; hence the increasing importance of defining target promo prices and fighting to feature them in as many channels as possible. Finally, having a competent trade marketing manager and promo manager is essential to modulate your hi-low strategy with the necessary intervals.
These three aforementioned areas must be in balance and follow the brand’s strategy. The last piece is performing a collaborative post-mortem analysis, which I will go into detail in my next article.
In summary, here are the must-focus areas to grow your revenues during challenging periods:
1. Differentiated price increase strategy
2. Healthy price architecture
3. Applicative and detailed promo strategy