5 Steps to Next-Level Revenue Growth Management

Consumer goods companies are embracing revenue growth management (RGM) as an opportunity to manipulate their most powerful levers—pricing, promotions, assortment, and trade investment—to shape revenue and margins in a way that historical approaches to analytics seemed unable to achieve. According to McKinsey & Co., companies that do RGM well typically see gains in annualized gross margins of 4% to 7%. Results like those have sent RGM to the top of many consumer goods executives’ priority lists, and it appears on the way to becoming an essential core competency. Indeed, at Kraft Heinz, “we're trying to position revenue growth management leaders as future leaders of the organization as a whole. So we think about the RGM function as a trampoline to future executive roles,” Maksym Roshchyn, Kraft Heinz’ global RGM lead, told CGT in a recent webinar. Despite the widespread enthusiasm, however, Gartner still calls RGM “emerging,” perhaps because of its 5% to 20% penetration of its target audience. But the research firm predicts adoption will become mainstream in two to five years. How can CGs ensure they’re among the leaders reaping the substantial upside of effective RGM use? Consider these five steps, and learn from companies like Kimberly-Clark and Kraft Heinz. CG companies have always sought ways to better understand and respond to the market, but today’s volatile conditions make it a must: Fast-changing consumer behaviors, the potential for recession, channel shifts, and higher expectations from investors and other stakeholders, to name just a few. Recent CG earnings calls are replete with mentions of RGM; Keurig Dr. Pepper credited it with mitigating the full brunt of impact from inflation during a February earnings call, for example, while BIC said its RGM “delivered solid results” in 2022 as the company worked to simplify its product portfolio. But many CG companies have yet to fully implement and benefit from RGM; most are still working at a basic, fundamental level. The realities of those challenges are reflected in RGM’s current place at the start of the “Trough of Disillusionment” phase in Gartner’s 2022 Hype Cycle for Consumer Goods. RGM hopefuls encounter hurdles as they work to advance their capabilities beyond a basic level, and therefore miss out on the biggest benefits. CG companies can follow these five steps to push past the barriers and take RGM maturity to the next level. 1. Specify the RGM focus As with any analytics technology, such as artificial intelligence, RGM must be tuned to the desired results, which may vary by market. Paths for boosting capabilities beyond fundamental levels include Strategic RGM — defined by McKinsey analysts as longer-term value creation and category growth — and Precision RGM — using new analysis and data sources to develop highly tailored price, promo, and assortment strategies. RGM capability building at scale is another common strategy. Kimberly-Clark uses all three approaches, based on the “why,” and “how” of the objective and the region and market archetype, Alison Lewis, chief growth officer, tells CGT. For British multinational tobacco company Imperial Brands, RGM is part of a strategy shift that also includes establishing global centers of expertise and an innovation hub to drive collaboration. The organization is also working to fully integrate new consumer insights into the innovation process with its partners, company leaders shared during a February earnings call. In one priority market, Australia, chief executive officer Stefan Bomhard credits the company’s new revenue growth management team with helping them more effectively price their portfolio, driving share and profit 2. Elevate RGM skills at every level While it can be a great way to get started, concentrating RGM talent in a specific area limits its potential impact. Organizations looking to spread RGM’s benefits are establishing a baseline of knowledge across departments, while also elevating cutting edge abilities. They’re investing in upskilling across all levels of competency through various forms of training and skill development. The form of RGM also determines what skills organizations must build. To successfully execute strategic RGM, for example, “you have to be very good in connecting people, in organization, and presenting your ideas, and aligning people in an organization,” as well as be able to see how RGM fits into the bigger picture, says Kraft Heinz’ Gilenko. Kraft Heinz is three years into a three-tiered RGM competency-building initiative, seeking to build a broad foundation in basic RGM concepts across the enterprise, establish new, innovative ways of working among current RGM practitioners, and help RGM leads in business units to “raise the ceiling of the organization” in terms of its capabilities in customized development initiatives. 3. Increase cross-functional collaboration According to McKinsey, to sustain impact over time, companies must embed RGM cross-functionally and invest in capability building, as they are 2.4 times more likely to capture and sustain value from it. To best reap value from RGM, “leaders should encourage stronger collaboration across functions, embrace dynamic scenario planning, and establish incentives linked to relevant KPIs,” analysts at Bain & Co. recommend. “In short, success depends in large measure on a holistic approach and an unprecedented level of team effort.” 4. Identify and infuse best practices Analysts urge CG companies to embed best practices into their RGM work, a process McKinsey says includes “establishing the right global or regional and local organization structures, hardwiring revenue growth techniques into core business processes, implementing incentives, such as integrating RGM into performance scorecards, and — critically — building and maintaining these capabilities at scale." To ensure it’s tapping best practices, “We use the crawl/walk/run/fly approach, and we take a multi-year view toward our capability journey,” says Kimberly-Clark’s Lewis. “This is tailored within each region and local market, but we do a couple of things consistently in this space, such as continually assessing our opportunity areas and gaps against our vision, then adjusting and flowing to priorities.” The manufacturer also leverages external benchmarks and learnings across best-in-class approaches, and builds these into its capability roadmap. “We want Kimberly-Clark to be known for leading RGM capabilities within the consumer-packaged goods industry. This will take time, but we are confident we are on our way.” Kraft-Heinz’ progress in elevating RGM competency came as a result of identifying best practices to adapt into their organizations and assessing current status and goals for each of the markets it serves. This work resulted in creation of a playbook, featuring step-by-step guides including explanations of key analyses, how to do them, what data to use, whom to align with in the organization, and so on, says Gilenko. Finally, they digitized the playbook, so users can populate reports with their specific data and jump right into RGM analysis. 5. Elevate your use of RGM with retailers RGM does not just benefit from internal collaboration. A growing number of CG companies are extending data sharing and collaboration to their retail partners to enhance RGM results. Kimberly-Clark, for example, leverages RGM in its strategic joint business planning sessions with retailers, co-developing business plans to grow the category and put the consumer and shopper at the center of focus, says Lewis. “While heavy focus has been put on rate-based price increases in the past year, when RGM is done well, it unlocks all of the value creating levers across the business and drives profitable growth.” While retail/channel execution lags other RGM functions in the attention paid by CG companies over the past year (see chart), analysts cite it as an under-used opportunity. Deloitte recommends CG organizations leverage such collaborations to achieve a more complete incorporation of retailer and shopper metrics into RGM, and to facilitate personalized shopper planning/promotions and promotion optimization. “In our experience, shifting the CPG mentality toward a shared value mindset can help translate into financial results by helping to facilitate the execution of RGM recommendations, transitioning from RGM playbooks to on-the-shelf value creation,” the report recommends. Elevating RGM RGM is moving steadily toward the core of how CG organizations operate, particularly as more companies credit it with mitigating the impact of inflation and helping to fuel profitability and growth. According to those getting there successfully, it’s critical to build RGM thinking into culture and processes across the enterprise. “We think about RGM with a pipeline mentality, similar to how we build innovation pipelines, leveraging strong analytics that give us insight and foresight,” says Kimberly-Clark’s Lewis. “As we move forward, RGM will play a significant role in continuing to strengthen the quality of our gross margin delivery."

Related Topics