It’s Revenue Management time!

Back in 2017, three companies (among others) have reported positive business results compared to the previous year. Unilever +3.1% revenue growth through effective pricing/mix at 1.5% volume growth and operating margin improvement of 1.1ppt (FY17 vs FY16). Coca Cola +3.0% growth in net operating revenue driven through combination of pricing and mix FY17 vs FY16 at flat volumes (same volumes vs previous fiscal year). ABInBev +5.0% price realization (at constant volumes) driven by strategic pricing, brand portfolio mgt. and “margin accretive” innovation (FY17 vs FY16), simultaneous improvement in COGS resulting in an operating profit improvement of 6.7%.

As stated above there are constant elements involved which are decisive for result improvement: pricing, product mix, margin improvement, product innovation… But, before we turn over to main topic of today, which is Revenue Management, let us go through some of the main challenges we face in today’s business.

Commerce Evolution

Here I would for sure start with purchasing habits evolution, coming as the result of a number of different factors like cultural changes, changing of age structure within population and others. New channels are already here with digital leading the “pack”. Instore revenues are often flat and declining, and retail mergers lead fewer customers to negotiate with, leaving the remaining customers with more negotiation power.

Millennials Effect

Millennials are “digitalized”, more sophisticated and therefore demanding. We see that there is an opposition to “brands that are made for everybody”/mass brands, so the right conclusion is that products need to be more innovative and progressive.

Silver Head Effect

Many of the mature markets have ageing population. This is for sure another game changing factor/opportunity for product and service development to answer the needs of this specific group of consumers, which have possibly seen not only a part of the “baby boom generation” but have also seen the new trends (like digitalization) which impacted their product and service expectations and needs.

Personalization

New technology era and new technologies which arise from it, enables retailers around the world to intimately understand the consumers, therefore create personized experiences for shopping. On top of this retailers are utilizing detailed shopper insights and leveraging this data in negotiations with suppliers.

Focus on Return On Investment

Trade and promotional expenses have grown over the years and now represent a bulk of investment. Having said this, logically hand in hand with operational expense increases, companies’ interest is to have the best return on investment decisions and more transparency for trade spent that can maximize profit. Management have their KPIs set on these, and available budgets between sales, commercial and marketing teams are often integrated to give the precise answers to profitability questions.

New Challenges To Come

Here there are the differences between two groups of markets. Mature markets, where we see categories flat or declining, customer profitability thus pressurized, which leads to price pressure and portfolio differentiation. Besides mature, there are of course emerging markets as well with more moderate challenges vs one’s mentioned above, with customer consolidation being the trigger for most of the challenges hand in hand with markets’ overall economical situations. All of markets suffer today in price increase due to broken supply lines and increase of the price of energy which is affecting most parts of value chain creation.

We have listed a lot of challenges, but the question is what are the possible answers to these challenges, and what role Revenue Management is playing in effective challenge response? I would advise a practical three response approach:

Multi-channel strategies

What does a “multi-channel strategy” mean, or better still what is the product of if? Products of a multi-channel strategy are: products that understand consumer’s needs, assortments for right channels, with correct prices for both consumer and customer (remember – customer profitability is important)

Targeted trade and promotional programs

When you have completed your multi-channel strategy, you need to build further your trade and promotional programs with customers for consumers, but always having in mind the return on investment criteria. Promotional prices are just one of the levers here, but the real USPs can be tailor made promotional activations which would have even a better effect than a promo activation in the long run, but of course needs investments – human and other capital.

Indirect and direct influencers

I have already written, in one of my previous articles (brand-building-part-1-story-of-consumer-persona) regarding the role and importance of the so called “indirect influencers”. Today’s serious marketing strategies which do not include the work of influencers is almost not existing – influencers are in a way filters of today’s consumers who are overwhelmed by huge quantities of information, which disables them to make decisions, so they use filters/influencers to perform this for them. Having a right “filter” would enable targeted communication to reach targeted audiences.

Now, what we need, and what are the exact products of development of: multi-channel strategies, targeted trade and promo programs and influencer’s support?

We need: to have the right people in place to operate a system we have built, according to the process we developed with the data we have collected. People, system, process, and data.

In terms of products, we need to deliver/develop: Portfolio strategy, with assortment, price position and promo effectiveness targets and measurements? which would lead to building customer partnerships. Customer partnerships built on right assortment, prices, and promotional investments.

Fast forward to 2021, most of the FMCG multinational companies benefited from COVID 19 shopping behaviors, translated to several positive impacts (2020 vs 2019): 1) Volume Growth 2) Value Growth 3) Profitability Growth 4) Category Market Share Growth 5) Price Realization 6) Assortment Rate of Sale & Distribution. Two negative results for the most of FMCGs were in two categories: 1) Trade Promotion Effectiveness 2) NPD success. Now, in 2022 we see a surge of Supply Chain costs, which would lead to other operational cost increase, putting pressure on all businesses. Revenue management is something that could (properly used) help you to “weather the storm”.