Business Essentials - Revenue Growth Management
What is Revenue Growth Management or RGM
“Good businesses generate missions to drive their profits. Great businesses generate profits to drive their missions.” - Tony Hsieh
RGM, or revenue growth management, is one of the most crucial value creation levers for any B2B or B2C organization looking to sustainably drive growth and development. It provides a collection of tactics, tools, and procedures for developing growth levers that can boost revenue, market share, and profit margins.
Why is Revenue Growth Management important?
A normal business may sell a wide variety of goods to a diverse customer or consumer base across many different geographies. To develop or raise demand for these products, businesses might engage in a variety of growth levers, including marketing, new product releases, and commercial incentives like price breaks. However, if the objective is sustained growth, it is rarely feasible or desirable to invest in all these levers across all offerings at once. It is costly and unrealistic to invest in everything, everywhere, and for everyone due to the competitive nature of the market and non-linear consumer behavior. This is where RGM or Revenue Growth Management steps in.
Applications of Revenue Growth Management
An RGM capability gathers information and expertise from many data sources, accounting for the demand's internal servicing costs as well as the market environment. This is aimed to have a thorough grasp of consumer demand. With this information, RGM analysis can explain the effects of changing investments in various growth levers on various products, customer segments, and markets, as well as the areas where adjustments may be beneficial. RGM assists businesses in several ways, such as identifying underutilized assets or a set of products and services that could be combined for sale. What responses might we expect from various consumer groups in response to price changes? What time of day is best for product promotion? Furthermore, how long? How may the odds of an agreement between two businesses being successful be increased? Using a variety of internal and external variables, this understanding may be utilized to generate forecasts for how a market would respond to changes in growth-driving investments. Businesses that have excellent RGM capabilities are well-aware of the return on their commercial and marketing initiatives. In the end, they can consistently increase their market share and produce more financial fuel, or virtuous circle growth.
In today’s inflationary environment, it has become even more crucial for consumer leaders and companies to master Revenue Growth Management to secure their growth margins.
Principles of Revenue Growth Management
The first tenet is founded on the idea that home penetration is essential for fostering sustained brand growth. Professor Byron Sharp of the Ehrenberg Bass Institute proposed this notion, which has since been embraced by many companies.
The best-in-class growth management strategy goes a step further and employs the various pricing toolkit components to increase household penetration, whether it be through the use of a new pack size to reach a previously untapped consumer occasion or cohort or through the use of trade and promotional funds to encourage in-store activation to win over customers at the shelf. Management of revenue growth can increase household penetration.
The second principle is, quite simply, that failing to consider price from a cross-functional perspective will lead to its failure. Without this cross-functional strategy involving finance, supply chain, sales, and marketing, pricing plans fail after a year. To have a strong unit Economics game, one needs to master pricing. Therefore, it's imperative that this top-down position is established early.
The third rule is that pricing cannot be a system set internally based solely upon principle two. Analyzing data based on competitors, market trends, future trend shifts, collecting consumer feedback on the idea of the general range, consumer behavioral analysis, etc. helps a company establish a price that resonates with the audience in balance with the value offered by the product.
The fourth tenet is that revenue and growth managers frequently lack the fundamental information and understanding necessary to make wise price decisions. It could be the straightforward expansion potential of their category or the incrementality of certain items. When determining their prices, they must have access to all important insights (as mentioned in the third principle) without a delay.
The final tenet is that every negotiation with a consumer creates or destroys ‘a value’. The capacity to construct collaborative business strategies with your most significant clients that provide win-win outcomes for the retailer and the consumer goods company is a fundamental component of effective revenue growth management. It’s all about harmony. Harmony is an important pillar of sustainable growth.
Levers in Revenue Growth Management
Now that we have learned the core principles of RGM, what about the elements involved from an execution POV? Below are 4 core levers that are required to develop a robust Revenue Growth Management capability along with 2 bonus levers.
"In God we trust. All others must bring data." - W. Edwards Deming
1- Promotions: Data is driving the most value in the world today. Without data, humanity won’t be making the giant innovation leaps that it is making today. When we talk about business, we have a huge amount of data streams now coming from multiple consumer touch points like smartphones, social media, online marketplaces, customer service, and websites as a result of the development of the digital ecosystem. The focus of this lever is on maintaining and analyzing the data to target customers with customized offers and promotions at the appropriate time and location that connects with your different audience cohorts. To comprehensively understand the consumer, it is necessary to merge the numerous new digital streams and data sources. A company may be able to target even more specific micro-segments with tailored advertising as a result, which could eventually result in higher conversion rates.
"We pledge to provide a quality product at a reasonable price. Come in and we will give you a reason to come back." - Dave Sumpter"
2- Pricing: If your prices are off, your business will fail. Just like that. Pricing alone can completely control how a brand is perceived. Calculating a product's pricing includes more than simple math; it also involves making assumptions about the target markets and a possible rival's financial sensitivity.
To determine what a given product line can afford, savvy marketers prefer to use data analytics to assess prior success in particular market conditions. Additionally, one may track the effects of a specific pricing strategy on a brand's performance compared to competitors and revenue growth using data from the distribution and retail channels. One can also use powerful tools like the trade promotion management (TPM) algorithm. 3- Placement or Brand Positioning: Investing in brand position is essential for every company's expansion. Your brand placement is what makes it easier for your target market to choose your goods over a rival's and avoid being confused about "what to buy." A company must continually assess its position relative to rivals if it wants a competitive advantage.
“Profit isn't a purpose, it's a result. To have purpose means the things we do are of real value to others." - Simon Sinek
4- Product: Just as selling a product at the right price is important, establishing a Product Market Fit is equally vital. RGM involves the effective customization or innovation of goods and service offerings to fit the needs of various client segments while maximizing price points in each segment. To continually increase sales, a firm can optimize its products and introduce new items and SKUs by analyzing consumer behavior at the micro level and prior sales data. Businesses must act swiftly to spot unmet demand and quickly produce a supply to seize and grow their market. Bonus Levers
5- Marketing Mix Optimisation: You've probably heard the proverb, "Don't put all your eggs in one basket," which refers to not putting everything on the line for a single venture. Similar to how a company strives to find a product market fit, it is crucial to find a Marketing Fit as well for your relevant TAM. For instance, optimizing the marketing mix is always given top priority by forward-thinking firms when it comes to advertising and marketing. A common technique for this is statistical analysis like "multivariate regression." To choose the one that provides the best ROI and customer experience, a business must assess its marketing initiatives, product launches, sales strategies, and technological interface. Continue your experiments, diversify your risks, analyze trends and patterns, and pinpoint any prospective areas for improvement.
“Your profits reflect the success of your customers.” - Ron Kaufman
6- Feedback Loop (one of my favorites): Regardless of how successful your marketing campaigns and revenue strategies are, you need to constantly connect with your audience to scoop out as much information as possible regarding possible improvements. Companies are always expected to adapt quickly to changing consumer trends. Most of these trends can become visible very early if a feedback loop is available that is intended to collate data/feedback from customers that can be further fed to the R&D system. Find critiques of your products. Talk to your rival’s customers. Understand why someone would not buy your product and go with your competitor instead.
Conclusion
Strategies for revenue management must eventually result in customer engagement. With actionable insights to enable fact-driven decision-making and successful collaboration with retail customers to create, capture, and retain value, those organizations that can successfully embrace the capabilities, processes, and technologies that deliver against this ambition will be strongly positioned to win.
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