FMCG companies are operating in an increasingly challenging retail environment, and top line growth is a far smaller opportunity than it used to be. This is particularly tough for dominant players, who operate within developed and developing markets, and face fierce competition from newer brands gaining market share. Here’s why consumer goods companies need revenue management now more than ever:
As established players realise it’s hard to seek growth from the top line, they look for efficiencies at the bottom in order to compete. In the past three years, more than 60% of revenue growth in the top 50 consumer goods companies worldwide has come from revenue growth management practices rather than from volume increases. That’s a huge opportunity – and one that businesses can’t afford to ignore. This is why revenue management is becoming more and more relevant to consumer goods companies to protect and grow profits.
As the income generators of the business, commercial teams should see revenue management as an opportunity for improving growth through operating leverage. If a team allocates £125 million on trade promotion spend, even optimising that number by 1% should feel like a win.
Despite this, many still see revenue management as a blocker, both by sales in terms of interfering with their accounts and from ex blue-chip seniors who saw it as red tape enforcers at old businesses. Revenue management is often known as ‘the last uncharted area of the P&L’ due to historic resistance and reluctance within sales. In order for businesses to deliver significant return on investment from revenue management practices, it’s crucial to communicate it’s importance effectively and embed the mindset within commercial teams.
The retail environment
Manufacturers in the FMCG industry face a number of pressures. The impact of discounters, mergers and acquisition activity and the growth of Ecommerce has resulted in a fierce market dynamic. And unfortunately, the pandemic has only exacerbated the already hostile environment. Consumer habits have shifted and businesses have had to adjust their approaches to price elasticity, price sensitivity and shopper behavior. Of all the safety lines to pull on, revenue management has proven to be one of the most secure and the most impactful when it comes to delivering value in times of change.
Business complexity
As businesses get more and more complex, with multiple brands, products, customers and markets, it’s common for data to get out of hand and teams to end up sitting on a mound of inefficiencies. Many businesses have areas where pricing is inconsistent, ineffective trade spend accounts for large proportions of the P&L, and pack formats miss opportunities to meet consumer need states. This isn’t a model that’s fit for growth, and companies end up losing money, month after month.
Different organisations are at different stages on the revenue management journey, one which began for many businesses about 15 years ago. Many are driving revenue management strategies through a combination of regional and local initiatives. Managing this can be a huge task for large businesses to deal with, and with lots of confusion around where revenue management teams fit, business complexity can easily overwhelm teams.
The benefits of revenue management
When executed in the right way, revenue management practices can result in a huge boost in both revenues and profitability. Margin improvements can go straight to the bottom line or be reinvested to grow the business in other areas. Through our work with clients, we’ve seen significant ROI gains through increased net profitability, reduced price exposure and mitigation of pricing risk, as well as conversion of ineffective trade spend to working spend. As well as financial gains, revenue management practices enable facilitation of ‘win-win’ conversations with retailers, allowing focused discussions on long term category growth so both benefit from the partnership.
Summary
In today’s retail environment, revenue management is a vital resource for any consumer goods company, with rigorous data management and problem solving a fundamental requirement.
Revenue management is for the forward thinking manufacturer. It’s working smarter, it’s using inner levers for growth, and building a structure for success that drives efficiency going forward. Revenue management takes many forms and permeates lots of business infrastructure – it’s a function, a process, a discipline and a mindset, and it takes work and expertise to sustain.
Building on revenue management capability means businesses stay ahead of the competition and avoid throwing money away in the form of ineffective trade spend. It also allows for dynamism – something proven to be a necessity throughout the pandemic.
