COVID-19 has spelled disaster for most industries, but for CPG, the road ahead has changed altogether. So far, CPG has made significant advances in understanding the role of pricing and trade promotions in driving growth. However, there is still a lot of room for improvement to combat the new challenges of today.
Companies are routinely spending almost half of their total expenditures on trade promotions, a number that has remained mostly similar over the years. Less than half of this trade promotion spend results in profitable growth, revealing a significant opportunity.
The change in channel structures, with consumers’ shift online, has added complexity to revenue growth management. The recent and continuing impact of COVID-19 globally has also created demand shifts and disruptions in the supply chain.
Revenue growth management (RGM) now has a unique opportunity to transform CPG companies by utilizing data and analytics continuously, to make better and faster decisions.
Continuous, consistent and disciplined use of RGM
With advances in data availability, computing power, and analytics/AI algorithms, it is now possible to run a continuous RGM platform, serving up ongoing insights, opportunities, and even prescriptive recommendations.
- Companies can continuously look for RGM opportunities, not only at the strategic level, but at the micro-level, e.g., surgical or selected price actions, uncovering pack-channel opportunities based on the marketplace, or continuous optimization of promotion plans to be on track.
- Continuous tracking also enables companies to react faster to marketplace changes, e.g., the impact of COVID-19 by sensing, shaping, and fulfilling demand more efficiently.
- The evolution of analytics, AI, and data engineering enables the creation of such a continuous platform.
Beyond brick ‘n mortar: Integrating online channels in RGM
Multiple CPG categories have seen a steady increase in eCommerce: both pureplay retailers like Amazon, and click ‘n collect for traditional retailers, like Target.
- Integrating eCommerce with brick n mortar in RGM decisions, e.g., pricing and range/mix can lead to better overall decisions and profitability.
- Interactions between channels and prices can be tracked and simulated in real-time to make more profitable pricing decisions.
- Differentiating pack sizes and value between channels, including marketplaces, can be a better strategy for CPG companies.
Trade promotion spend optimization continues to be an opportunity
Trade spends accounts for up to 25 percent of gross sales for a CPG company, second only to the cost of goods sold. Yet, trade promotion productivity underperforms, while users have to navigate multiple legacy systems with incomplete or imprecise data. In this environment, trade planning optimization remains a theoretical exercise.
With the utilization of continuous data systems and planning platforms, CPG companies can drive both topline and bottom-line efficiencies in promotion planning.
Fractal’s TradePulse is a continuous Trade Promotion Planner, providing the user with a practical and flexible platform, and improve trade promotion productivity by 5-15%.
COVID-19: A Unique Challenge
As CPG companies navigate the impact of the COVID-19 pandemic and the potential economic slowdown, re-examining RGM decisions will be essential.
- Some categories and brands continue to see high demand, while others are less top-of-mind and declining in this new environment.
- We have seen an unprecedented to ‘Click and Collect’ and online delivery formats, even for categories that
are traditional brick and mortar focused.
- Stockpiling for essential categories has created supply constraints, and pulling back on promotion spend may be needed.
Creating value through continuous RGM
The multiple shifts in consumer preferences, perceived value, and shopping venues have created significant challenges for the CPG industry, and a recessionary environment has added to that. The solution is to understand the levers of consumer demand continuously and create linkages to growth opportunities. Our scaled revenue growth management programs focus on driving value with:
- A design-first approach to ensure we are solving the most valuable problems,
- A harmonized data layer, enabling continuous analytics and data refreshes,
- The latest analytical and AI techniques to uncover insights quickly and continuously,
- Creating simple consumption platforms to discover insights and create scenario simulations; democratizing RGM insights through cognitive consumption applications,
- Agile ways of working, with value uncovered in every sprint.