Dynamic market conditions are pushing consumer goods manufacturers to design more agile structures and capabilities in order to stay ahead of the game and fuel organic growth. One of the most effective methods manufacturers are adopting to foster agility is revenue management.
While the concept of revenue management has been around a long time, it is emerging in the consumer goods industry with newfound vigor. For those unfamiliar with the practice, revenue management is a strategic discipline designed to drive top and bottom line growth by creating granular visibility into growth drivers in order to speed decision-making, improve cost management, and strengthen cross-functional collaboration. As a practice historically adopted in response to dramatic disruption, CPGs are turning to it to enable them to respond more quickly and effectively to evolving market conditions .
Within the consumer goods context, revenue management is primarily concerned with optimizing complex demand management and selling decisions. In a recent white paper by Exceedra and Ensere Consulting, titled, “How Can Consumer Goods Organizations Develop Best In Class Revenue Management Capability,” the companies explain that these complex decisions include deciding what prices a brand should charge for its products, how these prices should vary by customer or shopper segment, how they should be adjusted over time based on seasonal factors or competitor risks, and which segments and channels they should allocate products to when supply is low. In having the systems and analytics in place to help answer these questions, revenue management can help CPGs sell the right product to the right customer at the right price and at the right time.
Designing a sustainable revenue management capability is no easy task though and requires a stage-by-stage approach. According to Ensere Consulting, there are four fundamental stages CPGs should apply in order to establish the right revenue management capabilities and culture for their business:
Stage 1 IDENTIFY CATALYST FOR CHANGE
The first stage involves identifying a clear need for improved revenue management and securing stakeholder buy-in. Ensere advises that those advocating for revenue management should begin by explaining the catalyst for this change, including external and internal triggers, and outlining a vision in relation to short and long term goals. These goals are normally measured in terms of percentage improvements to be achieved in trade spend ROI and bottom line margin.
Upon engaging senior leadership, the next task involves aligning department leaders around the key revenue management levers that the approach will focus on and the specific activities to be comprised under each lever (e.g. pricing, promotions, trade terms, packs etc.). Finally, comes identifying strong leaders to drive the revenue management forward and setting the scope and desired maturity level of your program based on specific business characters, such as current levels of trade spend and terms.
Stage 2 DESIGN STRUCTURE & ROADMAP
The Design stage is about crafting the structure and governance required to embed the practice into the organization and sustain it long-term. To create this governance, Ensere suggests either establishing a unique Revenue Management team or spreading the revenue management capabilities across different cross-functional teams and assigning an oversight officer to each. In the case of forming a central oversight team, you must determine how the team will interact with other cross-functional teams and how the team’s role will align with the annual planning cycle.
Regardless of how you choose to organize governance, key measures of success should be transparent and aligned with incentives or performance reports to drive staff engagement. Upon creating the governance structure, you must translate the vision outlined in Stage 1 into an activity-level outline that details what this means for involved teams on a day-to-day basis. These activities must be aligned with channels, product ranges, supply chain, and other business factors. Finally comes the development of a roadmap that details planned implementation/rollout phases, dependent on your organization’s existing maturity level and resource availability.
Stage 3 DEVELOP THE CAPABILITIES
Stage 3 involves translating the revenue management vision into in-house capability. Building the in-house capability involves moving away from one-off, ad-hoc ROI analysises to the application of a best-practice playbook, which documents the revenue management approach, including how reports are to be generated and how data is to be analyzed. This playbook should serve as the guiding foundation for the configuration of a revenue management software system. Revenue management systems should enable the seamless integration of data from multiple sources and incorporate that data into automated planning and execution workflows.
Ensere explains that revenue management software systems should seamlessly integrate data into sales and operations planning lifecycles while delivering the following core capabilities:
- User interfaces that deliver quick data insights to aid decision-making
- Integration of the guidelines/best-practice playbook developed by the Revenue Management team/s
- Support of plan/cost estimate approvals as part of a governance framework
- Scenario workflows that model the impact of changes
- Automated and self-serve reporting
- Post-event review and ability to capture key learnings
- Visibility into individual SKUs at the account level
The core system capabilities outlined above provide a foundation from which a variety of different analytical approaches can be based, but it is only with an agile software system that the insights-driven decision-making and predictive modeling that is fundamental to revenue management can be enabled.
Stage 4 SUSTAIN THE SYSTEMS
Stage 4 revolves around the long-term maintenance of your revenue management capabilities and supporting software systems. Sustainability is typically dependent on a variety of factors, including scope. The most sustainable programs integrate the guiding practices of the approach across the entire organization’s annual planning cycles, including sales, operations, demand, and trade. They also divide the roles of team members so that both the strategic and operational arms of the program are given the right level of focus. The second factor of sustainability is whether or not the organization integrates a cloud-based revenue management system that can translate the development roadmap into real-world action.
Building a best-in-class revenue management capability might feel daunting, but taking a step-by-step approach that aligns all reporting, systems, processes and teams around commercial cost analysis can drive near-term customer growth and long-term competitive advantage.