This is the first in a series of Revenue Growth Management (RGM) best practices from guest contributor and Revenue Growth Management 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 tactics that prove to be increasingly ineffective. Despite this, year-over-year, trade spending continues to increase, usually without improved results or change in strategy or tactics.
The desperation behind these practices lies in the realities that companies struggle to efficiently and accurately measure, let alone predict, trade promotion return. Retailers are adding to this struggle as they look to stabilize their own rocky revenue by continually demanding greater investment from CPGs.
However, with the availability of significantly more data surrounding promotional investment comes a greater expectation, and opportunity, for companies to manage both the spending and revenue generation to optimize the return on this 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 have historically managed trade promotions from a spending and reconciliation mindset – this is what I planned, this is what actually happened, this is what I spent. The focus has long been transaction-ally, not strategically, driven and executed.
With Revenue Growth Management (RGM), companies typically seek to achieve analysis not of just a single transaction, but the collective strategy for its impact on revenue- which can be a steep challenge for many reasons. This is a more proactive, regimented approach to trade investment that emphasizes:
- Data-driven opportunity assessment
- Analytical evaluation
- Centralized oversight to optimize outcomes
RGM teams need to be asking more than “how much did we spend?”, but instead considering
- “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”
Most importantly, teams need to learn from the past to avoid replicating the same unprofitable events and overall plans.
Needless to say, with these additional questions, come new challenges to fully and correctly implement a revenue growth management framework that will have the greatest impact.
Common Revenue Growth Management challenges
- Lack of stable Trade Promotion solutions
Most companies are still heavily, even completely, dependent on manual spreadsheets or transactional Trade Promotion Management systems (TPM) focused on trade execution. To make the turn to revenue growth management, organizations need to invest in the data harmonization, advanced analytics and predictive outcome generating capabilities to harness the intelligence and act against it accordingly with predictable results, as is innate in a comprehensive, “best-in-class” Trade Promotion Optimization solution.
- Limited visibility to impact of trade investment
Whether it is due to a reliance on suspect data accuracy, limited analytical capabilities, or time constraints, all contribute to an incomplete picture of your business. This limits the ability to accurately quantify the Return on your Trade Investment and is a common stumbling block for companies looking to optimize their trade spending.
- Poorly defined price and promotional guidelines
You can’t set guidelines on something you can’t measure. A key component of revenue growth management is having the appropriate information to develop guidelines and guardrails 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
With the very real focus on CPGs doing more with less, the blurred lines of responsibility may mean that some necessary roles are going unfulfilled or being shared. Unfortunately, this results in information disconnects, confusion about objectives, redundant work and missed opportunity. With clearly defined roles and responsibilities centralized around a company’s objectives, not only is alignment of responsibilities clear, but so is information sharing that creates a shared understanding of the business 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. A revenue growth management approach clarifies both the objectives and the KPIs that are expected from the people responsible for the company’s trade investment. Developing a process that regularly reviews trade activities ensures everyone is on the same page and objectives are met.
It is critical to recognize that companies that simply place the Revenue Growth Management label on current trade management practices are setting themselves for failure and will fall well 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.
This is the first in a series of pieces to help today’s consumer goods companies begin to understand the transition to a revenue growth management mindset for sustainable results.
Click the link to watch our most recent webinar: Raising the Pillars of Revenue Growth Management.
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.