This is the first in a series of Revenue Growth Management (RGM) best practices from guest contributor and RGM and CPG veteran Mike Downey.
There is an inherent paradox in the way the consumer goods manufacturers have approached their trade spending – spur growth by spending more – but rely on ineffective tactics. Despite this, year-over-year, trade spending increases, usually without improved results or modifications to the approach.
CPG companies struggle to efficiently and accurately measure, let alone predict, trade promotion return. Retailers, looking to stabilize their own rocky revenue, add to the struggle by demanding a greater investment from CPGs.
The amount of available data surrounding promotional investment brings a greater expectation, and opportunity, for companies to manage trade spend and revenue generation. Efficiently managing these areas will optimize the return on the significant investment – an industry average of upward of 23% of annual revenue … and growing.
As such, companies must prioritize a comprehensive revenue growth management approach not only to trade investment, but also to pricing, budgeting and funding guidelines as well.
Trade Management vs Revenue Growth Management
CPG companies historically manage trade promotions from a spending and reconciliation mindset: This is what I planned, this is what actually happened, this is what I spent.
With revenue growth management, companies seek the collective strategy’s impact on revenue, rather than analyzing a single transaction.
RGM is a proactive, regimented approach to trade investment that emphasizes:
- Data-driven opportunity assessment
- Analytical evaluation
- Centralized oversight to optimize outcomes
RGM teams need to ask questions outside of “how much did we spend?”, like:
- “What have we done”
- “How do we know if it worked”
- “What else could we do”
- “Is this the best way to do it”
- “How are we going to make sure we don’t repeat the mistakes of the past”
Using this approach, teams can avoid copying the same unprofitable events and overall plans. Needless to say, these additional questions create new challenges.
Common Revenue Growth Management Challenges
- No Trade Promotion Solution
Many companies are still heavily, even completely, dependent on manual spreadsheets. To make the turn to revenue growth management, organizations need to invest in capabilities like data harmonization, advanced analytics and predictive outcome generation. This functionality supports the ability to act against intelligence, and is innate in a comprehensive trade promotion optimization solution.
- Limited Visibility to Impact of Trade Investment
Whether it’s due to suspect data accuracy, limited analytical capabilities, or time constraints, an incomplete picture of your business limits the ability to accurately quantify the return on your trade investment and is a common barrier for CPGs trying to optimize trade spend.
- Poorly Defined Price and Promotional Guidelines
You can’t set guidelines against something you can’t measure. A key component of RGM is having the appropriate information to develop guidelines that position your sales planning and customer teams for success. Often these guidelines include a net unit cost, optimal levels of frequency and recommended promotional windows.
- Poorly Defined Roles and Responsibilities
CPGs are doing more with less, blurring the lines of responsibility. Some necessary roles are going unfulfilled or being shared. Unfortunately, this results in information disconnects, confusion about objectives, redundant work, and missed opportunity. Define roles and responsibilities around a company’s objectives so that data sharing and understanding is clear, resulting in a greater ROI.
- Lack of Trade Governance and Accountability
It’s difficult to hit a moving target. When organizations lack process to effectively monitor trade spending, the metrics used to measure accountability either go unchecked or continue to change. An RGM approach clarifies the objectives and KPIs. Develop a process that regularly reviews trade activities to ensure everyone is on the same page and objectives are met.
It is critical to recognize that companies that simply place the RGM label on current trade management practices are setting themselves up for failure and will fall behind the industry that is pivoting for survival. The revenue growth management framework can position a CPG organization for more competitive success, while unifying an organization’s investment and teams around people, processes and profitability.
Mike Downey is a Sales Executive who has spent his career in the consumer packaged goods industry. Leveraging his experience as a Sales leader at Quaker Oats and PepsiCo, combined with his consulting background at Henry Rak and McKinsey & Company, he has developed a keen sense for leading sales organizations and developing successful go to market strategies. In his most recent role with Snyder’s Lance, he held the position of Vice President of Sales Planning and Commercialization leading their Center of Excellence. Mike is a strong sales leader and has a proven track record of getting the most out of his teams and consistently delivering results.