Revenue Growth Management is Driving Innovation and ROI
Revenue growth management (RGM) is the focal point of centralizing analytical horsepower for CPG companies today. RGM teams serve as the bridge that connects traditionally siloed business units of sales and marketing with data driven insights. As a result, sales and marketing professionals rely on RGM to drive ROI discovery in upstream planning by unlocking account sales activation, while finding ways to counter-balance account investment trade-offs using consumer centric, demand shaping models and forecasting.
For best-in-class CPG companies, leveraging this consumer-centric view is even more critical than before as recent months have challenged go-to-market behavior. CPG companies are now discovering new ways to connect to consumers directly as traditional channels continue to suffer. For many, this involves investing in e-commerce, direct-to-consumer programs, and finding more meaningful ways to make large marketing budgets more effective in ROI as well as driving consumer acquisition, retention and sales growth. Of the three investment areas, marketing accounts for 20-25% of total annual budgets, according to the Wall Street Journal, and serves as the biggest area of innovation.
Traditional marketing teams have heavily relied on media mix marketing. However, the latency of insights coming from agencies; the insufficiency of linear models to explain sales attribution from hundreds of input variables; and the new benefits of engaging more directly with retailers to provide a more granular view of consumer response to marketing investments enables RGM professionals to drive innovation.
More retailers, like Kroger and Walmart, are offering new data sources that explain consumer behavior due to sales activations from marketing investments, down to the store level. Investments like digital incentives, mobile programs, paid social and coupons are providing an insight in marketing ROI like never before to better manage portfolio investments, channel allocation and tactical allocations. This internal capability enhances ‘on-demand’ insights, reducing time to value, involves less reliance on agencies, and maximizes the value of internal analytical investments in RGM.
As a result, CPG companies need to capitalize on three new areas of action to maximize ROI, incremental sales growth and sales activation:
- Tactics in Channel Optimization – Involves deep diving into tactics and event level performance to plan optimal geography and store level activation
- Events in Tactic Optimization - Decomposes brand level ROI across all advertising, trade and shopper activity to evaluate where re-allocation needs to occur
- Store / State Optimization - Measures aggregate account behavior to identify future investments based upon brand/store level performance
For example, the RGM team of a CPG company worked with the head of Shopper Marketing to evaluate store-level performance across all media, trade and shopper programs for future budget re-allocations and ROI improvements. The first step evaluated brand performance in the portfolio between two key brands, A and B. The team discovered that by shifting marketing investments from brand B to brand A, they could unlock a $4.6 million incremental sales opportunity by leveraging brand A’s current ROI power of 52% of incremental sales. This drove the next step of looking at brand A’s geographic performance across states.
The analysis identified that for key programs like digital incentives, all states were not performing equally. New Jersey, Maryland and Florida had significant ROI on digital programs compared to Arizona, Michigan and Arkansas where ROI was lowest (see Figure 1). This insight led to a decision to minimize investment that was spread equally across the nation to a more localized allocation in digital programs. The benefit of this localized strategy drove a 4% increase in incremental sales for brand A. However, just shifting dollars to a state strategy did not prove to be the biggest opportunity.
Across states, the team evaluated tactic/event performance at the store level. This level of granularity became the ‘secret sauce’ of the RGM team’s analysis. By ranking features importance for driving sales attribution, the team discovered how stores within stores performed significantly different. In the example shown in Figure 2, the team saw how two stores within a 10-mile radius responded differently to digital, national TV, digital coupons and even online video ads. This insight drove the head of shopper marketing to optimize programs more relevant to consumers in store groups with same responsive behavior. This ultimately led to a 3-4 times ROI improvement for both brands, a better allocated marketing budget, and an $18 million benefit from tactic, event and store optimization.
The world has been forever changed this year, and to stay ahead of the competition, it is evident that CPG companies need to embrace RGM. Some already have and are reaping the benefits. But for everyone else, whether they have made initial strides or are still thinking about it, there is no doubt of the need to accelerate their plans.
Alex Barnes is the VP of Revenue Growth Management Solutions for antuit.ai. He is a pricing and analytics expert with more than 15 years of experience in retail and consumer products, focusing on marketing, pricing and revenue management advanced analytics.