Net Revenue Management (NRM) or Revenue Growth Management (RGM) is vitally important – even more so in the current climate with cost-of-living and increased input costs squeezing margins. Consumer Packaged Goods (CPG) companies worldwide invest up to 20% of their revenue annually in trade promotional activities, making it the second highest line item in Profit & Loss (P&L) after the Cost of Goods Sold (CoGS).
The discipline of NRM depends on the interconnectedness of business strategy, planning, and in-market execution. Until now, this interconnectedness has been difficult to navigate, and NRM solutions have been inherently disjointed. They also do not adequately address the new wave of connected commerce platforms, such as direct-to-consumer, social commerce, last-mile partners, 3P marketplaces, 1P pure players, bricks & clicks, and others. These have grown to the point where the game has changed forever.
However, evidence suggests that many CPG companies are not yet ready to play this new game, let alone win it. Their current NRM models are implemented based on 70% intuition and 30% science, whereas to play and win in the new game it really needs to be the other way around.
Unsurprisingly, with ad-hoc implementations of NRM, 59% of trade promotions fail to generate profit, with performance varying widely—up to a 5x difference between the most efficient best-in-class CPG promotions and the least effective ones.
How the game is changing?
What is driving this change now? The answer lies in three generational forces at work that are all set to reach a tipping point in the next four years. These forces relate to dramatic changes to the “who” (the consumers), “where/when” (the shopping environment), and “how” (the methods of purchase) of the typical shopper journey.
For more information, see our related article: Going for Gold.
Shoppers’ needs have stayed the same, but thanks to data and digital platforms enabling unprecedented levels of connected shopping, their expectations have changed forever.
Over 40% of shopping journeys now begin in emerging channels. However, conversion often happens elsewhere. According to research from the Capgemini Research Institute, 32% of consumers have discovered a new product or brand on social media. This presents a significant challenge for CPG companies traditionally focused on winning shelf space in established retail formats.
This is because the shopping journey is no longer linear. It reflects the fact that every digital touchpoint is now a potential point of engagement, and every physical touchpoint has become a potential point of fulfillment.
This directly affects CPG companies because these same digital platforms and new routes to the consumer come with a different investment profile than their existing trade expenditure frameworks, in that costs typically borne by the retailer are now the responsibility of the brand-owner (e.g., customer acquisition, retention, and fulfillment costs).
