Revenue Growth Management (RGM) – A Growing Function Within Consumer Goods & Retail

By Mike Wilkening, Communications Manager, ARC
Aug. 30, 2023

Let’s begin with an optimistic statement. If you like people, and you like number-crunching, you should love Revenue Growth Management. At its best, RGM holds appeal to right- and left-brain enthusiasts. Now, let’s give the pessimists their due. RGM involves plenty of math (strike one), needs a good deal of cross-functional collaboration to succeed (strike two), and requires some significant change management to work (strike three).

Still, RGM is a subject category management and shopper insights professionals need to know, and is growing as a function within consumer good organizations. The “four Ps” (Product, Price, Placement, Promotions) are intertwined with RGM, so even industry pros new to RGM will not be starting from scratch. What’s more, RGM is an area ripe for the best sort of technological innovation through automation, opening the door for everyone involved in the RGM process to focus on consultative, value-added work, not just rote tasks.

Let’s take a look at the state of RGM: where it’s been, and where it’s headed. In the consumer packaged goods world, Revenue Growth Management is an approach to maximizing net revenue: revenue from sales, minus the expenses of generating those sales, including trade spend, or the money paid to retailers and/or wholesalers to promote a product. The key levers to activate are price, product assortment, product placement, and trade spend, Including promotions and other retailer-driven costs.

Promotions are influencing most consumers' purchase decisions

Ideally, RGM should link together Sales, Finance, Merchandising, Trade Management, Marketing, Supply Chain Management, and other key business functions. Given its linkage to Sales, RGM will often report through this function, but RGM is largely an internal-facing operation. The roots of RGM stem from airline-ticket demand advances in the 1970s. The math and logic eventually made its way to other businesses, including the hotel industry. Today, RGM, in its various forms, is a common function for CPGs. However, retailers are well-versed in the principles and use them too, often working with suppliers to gather data.

One major factor in the rise of RGM among CPG firms was the need to get a better handle on the effectiveness of their trade spend with retailers, particularly with the rise of retail media networks (RMN) and the need to invest differently. According to Symphony RetailAI, citing 2022 data from the Promotion Optimization Institute, 77% of CPGs are not satisfied with how they manage trade promotions. What’s more, these costs have been on the rise. In a 2020 Deloitte study, more than half of CPGs surveyed noted their promotional spend had increased over the last five years.

Measurement, Collaboration Keys to RGM Success

A successful RGM program begins with clearly defined, smartly constructed KPIs. These KPIs can be complex, or they can be simple, but they must be measurable, they must be understood, and they must be tied to business goals and sales incentives. “The old saying is what gets measured gets done,” said Paul Morgan, Director of Trade & Sales Analytics at Champion Petfoods and an RGM veteran of nearly two decades. “A lot of people may do RGM, but they don’t necessarily measure all that is done and therefore you cannot truly measure success, nor opportunity to improve. It’s really important.”

In a CMA-SIMA webinar earlier this year, BIC Vice President Kelly Rolader shared her firm’s three key indicators of RGM success:

  • Net Sales
  • Stock-Keeping Unit (SKU) Productivity
  • Trade Investment Effectiveness

In addition, BIC has moved to emphasize dollar sales over unit sales. “It’s probably one of the most important shifts we made, because at the end of the day, you and I can’t put units in the bank,” Rolader said.

Once there’s alignment on what is measured, it’s paramount to get total buy-in from all functions contributing to RGM. It’s here where CatMan and Shopper Insights professionals can make an impact via their expertise and influence both in sharing their knowledge (and learned nuances) of the category and shopper behavior.

Both Morgan and Rolader are believers in starting small when it comes to launching RGM. Morgan recalled a case where he leaned on CatMan to help find three salespeople willing to try RGM. “I have found the best way to adoption is to pick a small group willing to adapt to this new way of working, make them successful and everyone else wants to be like them,” Morgan said. “Otherwise, people hate change. Culture change is hard, but culture change is possible if you can show a new way of doing things. So you identify some people who are willing to work with you.” After the first year Morgan remembered, the results spoke for themselves, “Those salespeople were moving forward faster and got the results, and the outcomes were better as well because we start to see the tangible differences in terms of promotion, management, all that stuff. By year two leadership wanted everyone doing it.”

The Rise of the Machines?

Still, not every supplier or retailer uses RGM, and those that have yet to implement it may believe it’s simply too massive a cultural shift to undertake for their organization, especially if the company has been successful without it. Here’s where technology could make a difference. Numerous companies offer AI and ML (machine learning) driven solutions to simplify, automate, and enhance aspects of the RGM process.

Count Morgan among those who believe AI and machine learning is the future of RGM for both suppliers and retailers – and that these advances will ultimately simplify the process for both sides. As he sees it, “RGM is going to be basically an automated process of auctioning, to a large degree. There’s still going to be some people interaction in the middle because, for example, price right now is a very sensitive topic for many people in many categories because ultimately the shoppers who are voting are those with their wallets. The machine may not have all the nuances to understand all those things, but a machine can set the principles and then a human can adjust from there on.”

Which brings us back to where we started. RGM, ultimately is about math, and it is about people. There are the people who decide to implement it in an organization, and there are the people who must execute it. Technology figures to only be a bigger and bigger part of the process, but the human element still determines whether RGM will stick.

As BIC’s Rolader noted, RGM’s success ultimately comes down to knowing what to measure – and then taking great pain to see things from their point of view. “Listen to your stakeholders,” she said. “Understanding their resistance to change or their pain points will help you to prioritize your highest leverage work, walk a mile in their shoes. The second [key] is to really paint a picture of what is in it for your stakeholders. For example, if you’re transitioning from units to dollars, help them understand why and what’s in it for them.”

Want to chat more on RGM and other related functions to category management and shopper insights? We’d love to keep the conversation going. Email Mike Wilkening: [email protected]