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 you to manage trade spend and revenue generation. Efficiently managing pricing and promotions will optimize your return on investment – an industry average of upward of 23% of annual revenue … and growing.
As BCG notes, the growth of trade discounts is outpacing sales growth. As a result, CPGs are finding it difficult to increase revenue.
Without appropriate intelligence and predictability into spending, that cost threatens companies’ bottom line and leadership sustainability.
Prioritize a comprehensive revenue growth management approach for trade investment, pricing, budgeting, and funding guidelines.
Trade Management vs Revenue Growth Management
CPGs 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 should ask questions outside of “how much did we spend?”, like:
- “What promotions have we run?”
- “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 the RGM approach, teams can avoid copying the same unprofitable events and overall plans.
Needless to say, these additional questions will create new challenges…
Common Revenue Growth Management Challenges
CPGs face evolving challenges in today’s retail landscape. It’s no secret that the CPG sector stands witness to eroding margins on both the retailer and manufacturer side of the business.
This, due in large part to an extremely mature sector struggling to create fresh ideas that meet the needs of the changing demographic from Baby Boomers to Millennials and Generation Z. Plus retail consolidation, online shopping, and price competition.
Add these challenges to the increased pressure from the low price retailers Lidl and Aldi, the entry of Amazon into brick-and-mortar grocery retail via its Whole Foods acquisition and we have immense pressure on CPG manufacturers to attain volume and profit objectives.
- No Trade Promotion Solution
If you’re still heavily, even completely, dependent on manual spreadsheets, make the turn to revenue growth management! CPG organizations should 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 your ability to accurately quantify ROI.
- 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. Necessary roles are going unfulfilled or are shared. Unfortunately, this results in disconnected information, confusion about objectives, redundant work, and missed opportunities. Define roles and responsibilities around your 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. If you lack a process to effectively monitor trade spending, the metrics used to measure accountability either go unchecked or continue to change. With an RGM approach, you should clarify growth 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.
The Role of Trade Spending
Remarkably, a multitude of CPG companies still operate a significant portion (if not all) of their trade event investments 😲 on spreadsheets. As a result, promotional plans are woefully imprecise, creating a ripple effect of inaccuracy on forecasting and demand planning systems.
Just as the ERP, forecasting, and demand planning systems evolved to become more absolute, so has trade management software.
There’s a huge opportunity for companies who invest in trade promotion optimization technology. Since the cloud can handle massive amounts of data, these solutions automatically harmonize and smooth data for anomalies. Post-event analysis can happen near real-time and the power to optimize future trade spending for both the retailer’s and manufacturer’s objectives is standard base practice.
A best-in-class TPO application shows 3%-5% annualized return on the annual trade spend.
Ask the ushered out CEOs what a financial impact like that would have meant for their companies… and in many cases their jobs.
To navigate today’s CPG sector means investing in the information that allows you to make better decisions and the tools to turn this insight into actionable, measurable results.
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.