Revenue Growth Management (RGM) is the hot new topic in the FMCG world. Tasked with driving improved sales and profitability in age where costs are rising, salaries are not and consumption trends are shifting on an hourly basis. But somewhere over the last 5 years what RGM really stands for has gotten lost in translation. It has become more of a symbol for promotional efficiency & pricing/ price management. However, its real objective is in the name- Revenue Growth and we should not forget that as we forge ahead into new world of consumption trends.
To drive Revenue Growth we need to sell more volume, sell the same volume at a higher price, trade consumers up or sell more efficiently. To sell more we need to understand our shopper/ consumer better- their needs, their journey to purchase and the key points of influence along that pathway.
As mentioned in a previous article “Shopper path to purchase- the route to volume growth?” the way we shop has evolved: meaning our route to purchase no longer follows a linear path but is more complex than ever before. Therefore to drive sales growth we need to understand more deeply that complex maze and our new digital shopper. All of this implies that the new darling of the FMCG world- RGM, should not be a standalone function or an isolated “strategic” priority but it should be deeply embedded into the culture of an organisation and in particularly the marketing and shopper strategies that drive the macro level choices on where to invest trade spend.
Estimates on trend spend in the FMCG sector often exceed $1T, nearly all of which is aimed at driving revenue growth. How that investment is spent, is often a function of choices that shopper marketeers and marketeers make, meaning having the right path to purchase is critical to a successful RGM strategy. Investing in the right growth lever will have a far higher ROI than investing in the wrong lever with a “perfect” promotional plan.
Take for example the OTC industry today- it is noticeably difficult to build a global brand activation strategy due to the differing market regulations within countries on brands like Tylenol, Allegra or Voltaren. In some markets these brands are inherently still driven by HCP recommendation, in some markets it is ATL media, in others it’s the pharmacist and in some it is in store presence, pricing and promotion. So a blanket one size fits all path to purchase model doesn’t work in this industry. Organisations that are adept at managing this (and executing against it) not just across country borders but across the different shopper journeys within the same country, state or store are the ones that will not only see the biggest Revenue Growth but also the ones that will Manage the ROI of their investments the best.
Taking this notion one step further and closer to our current interpretation of RGM as a function we should delve into promotional strategy. The big focus on RGM has been on ROI. I have seen companies with 5,000 promotions all lined up in a list from top to bottom performing ROI, cutting those that have not hit the mark and replacing them with better performing promotions and that is a great step to take. But crucially it misses one thing- WHY? Why are we doing this promotion, what is the purpose, what do we want to achieve by promoting this product. Once we know “Why” we can ask “how”, “where” and “what”, and without knowing that we can leave revenue on the table.
I recently experienced such a promotional opportunity as a shopper- buying into Amazon Prime day for hugely discounted infant formula. My one-year-old drinks 2 cans a month costing c.$50, but on prime day I could pick it up for nearly half price- I bought 12! I would have bought that product no matter what, the only milk she drinks, recommended by our paediatrician and have been buying it at full price for 6 months. Nearly $120 left on table, no new customer added, category value impacted, and likely cash margin of the retailer reduced over time as well. There is a good chance that promotion showed decent ROI but without purpose promotions are not effective at growing your brand. Understanding your shopper strategy and path to purchase is critical in effective delivering effective RGM strategy and true RGM teams should always work hand in hand with their shopper and marketing colleagues.
Lets keep looking at the numbers but where we can add real value as human beings and masters of RGM is in asking those all important questions that computers cant and that data will never be able to explain.
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