Which key trends are impacting revenue growth management to optimize profitability for Consumer Packaged Goods companies in 2021 and beyond?

The 5 key trends in CPG for revenue management are the following:

  1. Changed behavior of consumers due to Covid-19 and improved importance of brand relevance (PwC):
    • Consumers are omni-channel shopping for value safety, and convenience and have been spending on basics and staples food;
    • Consumers are online shopping & utilizing restaurant delivery, creating new digital habits;
    • 50%+ of European consumers will buy from brands that match their values (Forrester Predictions 2022).
  2. Subscription services have increased;
  3. Many CPG companies have a desire to reengineer trade practices. As consumer preferences, markets, and business models shifted with Covid-19, many companies are developing new commercial spend strategies and taking action;
  4. CPG companies are very much focused on their Modern Trade Channel where the proper management of Pricing, Trade Terms and Trade Promotions is crucial, as well as a tight integration with the supply chain processes to provide the highest service level to the customers;
  5. Decreasing margins through increasing raw material prices.

Proper allocation, planning, and monitoring of trade spend is critical. CPG companies spend between 11% and 27+% of revenues on trade promotions, which is the second largest expense on the P&L after cost of goods sold, according to the Promotion Optimization Institute (POI). Moreover, trade funds were not generating gross revenue or volume growth, and 72% of trade promotions failed to break even (McKinsey) and most CPG companies have no insight which promotions are profitable or not (Nielsen).

So, how to cope with this?

Leading CPGs are increasingly adopting a discipline called “Revenue Growth Management (RGM)”. Revenue Growth Management integrates decision making around pricing, trade promotion, trade management and assortment at the consumer and enterprise level, across all channels to drive sustainable profitable revenue growth. Revenue Growth Management, according to McKinsey & Company, is “the discipline of driving sustainable, profitable growth from your consumer base through a range of strategies around assortment, promotions, trade management and pricing.” POI uses the scheme below to explain RGM and the relationship between the various operational planning processes and their financial impact.

At the same time there is also a new development described by Ventana Research about the evolution of Revenue Performance Management. “Revenue performance management manages revenue across all channels, departments and types, employing all activities and processes of governance and leadership. Reaching full revenue potential requires applications and technology that support analytics and planning to guides teams and individuals to maximize outcome.” Chief Revenue Officers (CRO) are appointed to work closely with Marketing & Sales Management (Chief Commercial Officer), Customer Success Management and the Chief Financial Officer. The CRO is focused on all the buying and selling channels, including upsell and cross-sell opportunities and potentially for securing renewals as well. The latter refers to subscription-based models, which can be seen more often at CPG companies as well, like e.g., for razor blades.

However, these principles can also be applied to revenue management for CPG companies. And it is not only about revenue, as all costs need to be taken into account to identify the real profitability e.g., by channel, region, customer, department, brand, assortment, product, promotion, etc. Where all costs mean all direct and indirect selling, general and administrative costs, including rent, salaries, sales compensation, advertising, marketing expenses and distribution costs, next to the cost of goods sold. This also means the need for clear insight in the financial impact of all trade promotion terms agreed with customers and the ability to plan and analyze various scenarios to optimize the financial outcomes of promotions beforehand.

New technology, like predictive analytics with machine learning, emerged to provide this insight, but this is not enough. This needs to have a solid foundation consisting of all relevant data from e.g.  salesforce automation, financial data from operational and financial planning processes, actual (historical) data and also the business rules of the trade promotion terms and sales compensation terms to calculate the real and full profitability by any dimension as mentioned earlier. So, to combine large amounts of data, processes, business terms with new technology like predictive analytics in new revenue management software will emerge as a potential game changer for CPG companies seeking to manage their channels and types of revenue for brick and mortar and their growing digital business as a unified process, as well as offering new areas to add value to their existing and potential new customers.

The solution

Wolters Kluwer CCH Tagetik and Akeron provide a unique integrated solution for CPG companies to optimize revenue management for profitability with a proven track record at companies like Bolton Group and Dr Oetker, who are using both solutions.

CCH Tagetik provides the platform to collect the required detailed data and to use this in operational and financial processes for planning, forecasting, reporting and profitability management with predictive intelligence and machine learning.

Akeron provides the applications to plan, manage, analyze and optimize trade terms, trade promotions, incentive compensation plans for e.g., sales, agents, etc., quota and territory management.

This unique integrated solution provides the CRO, CFO and CCO the single point of truth for revenue and profitability management from a strategic, operational and financial perspective breaking down silos across the organization.

About Marco van der Kooij

Marco van der Kooij is Managing Director of ForSight Consulting. He has more than 30 years of experience in digital transformation to improve business and financial performance with innovative information technology. His experience is coming from more than 250 projects, including many large branded CPG companies, pharma and retailers.