By Mike Tolkowsky, Simpactful Senior Partner and RGM Expert

Net price realization remains a primary goal of Revenue Growth Management (RGM) efforts across most Consumer Packaged Goods (CPG) companies. Yet, this critical work must be approached differently in the post-pandemic era, when the marketplace effectiveness of tried-and-true pricing and promotion tactics continues to deteriorate.

Why? The multiple price increases taken by brands over the past 2 years to keep up with inflation have run their course for most CPG categories. New List Price Increases (LPIs) now face public scrutiny despite real continued cost pressures on P&Ls. With cost inflation and higher interest rates persisting, CPG companies are simultaneously trying to grow top-line revenues and protect margins while serving income-constrained and increasingly price-conscious shoppers. Additionally, the rapidly changing Omnichannel shopping environment has further pressured profitability with margin dilutive channel shifting of business to Club, Value, and eCommerce.

More capable and demanding retail partners have made the trading atmosphere more complex and fluid. Retailers have increased their sophistication through automation, new EDI requirements, the packaging of shopper data, the expansion of improved Retailer Media and merchandising tools, as well as new fees that translate into more complex negotiations. Lastly, Private Label quality and branding are better than ever, tightening the value gap with preferred CPG brands. In fact, according to Statista, Private Label now accounts for nearly 1 in 5 CPG products sold. The result? A Net Price Realization superstorm.

With price increases and pack downsizing options on back-burners for now, best-in-class players have quickly reinvigorated trade ROI focus and portfolio mix management to recover total net price realization with limited pricing activity for the near term.

Introducing Holistic Revenue Growth Management: When sailing rough seas, having a wider footprint to stay afloat can be helpful. Best-in-class companies successfully tackling today’s net price realization challenges have embraced this and are taking a wider, more multifunctional, and more interdisciplinary approach to come out on top. This more holistic approach tackles the problem from multiple angles:

  • They begin with comprehensive channel and retailer P&L statements to understand the total cost to serve.
  • These companies evaluate RGM levers holistically, assessing and integrating pricing, trade, mix management, and demand creation options to optimize topline and financial impact.
  • They anticipate consumer, customer, and competitive impacts of RGM actions to ensure solutions consider mutual category value and profit pool growth.
  • These leaders clean up legacy and non-working trade investments, as well as terms, and repurpose resources and dollars against proven demand creation tactics.
  • These brands do make critical pricing moves but are much more surgical with their pricing strategies and price-pack architecture by channel.
  • They leverage NPD innovation to improve SKU mix, channel optimization, and portfolio “premiumization,” as well as to improve the consumer value perception on core items by making items through superior performance, ease, or speed of results.
  • Most importantly, they take a cross-functional approach to demand creation with aligned strategic priorities and an understanding of investment returns to make tough trade-off choices for profitable growth.

What’s Next on the Holistic RGM Horizon? With a significant increase in required retailer investments (e.g., retailer media, data, BOPIS fees, RFID tag fees), the RGM evolution is being enhanced with customer profitability capabilities and consistent P&L analyses to inform strategic channel priorities & retailer investment decisions. This helps quantify the impact of potential Holistic RGM choices at the customer level. Simpactful also expects increased use of advanced analytics and new AI tools to further fine-tune price-pack architecture, marketing, and promotion decisions. These tools will integrate granular analyses of historical data with predictive analytics to model out channel demand better. These tools can also integrate price elasticity and price thresholds, broader category development trends, consumer concept appeal, channel shifting, competitive activity, marketing and merchandising, ratings and reviews, and more.

Craving smoother sailing when it comes to RGM? Simpactful’s team of multifunctional practitioners are here to help! Whether you are just charting the course for your RGM journey or setting sail, we take a disciplined, holistic approach to assess and mine opportunities with you across the omnichannel spectrum. Our experienced RGM practitioners will assess your unique business challenges and integrate fact-based analyses into compelling insights for tangible consumer-driven and customer-focused solutions. We also help you set best practice RGM processes, organizations, systems, tools & metrics. These RGM capability enablers are critical to sustaining trade investment productivity, portfolio optimization, and net price realization as a way of doing business. Importantly, we do the strategic & tactical work along with you, rather than just tell you what to do. Contact our team today at contact@simpactful.com or 925-234-6394.