Sponsored by Catena Solutions
Profit margins in the consumer-packaged goods (CPG) and food and beverage (F&B) industries are more strained than ever. Companies are turning to Revenue Growth Management (RGM) to fix it.
What is RGM, and how does it differ from traditional pricing strategies? RGM is the strategic approach to maximizing a company’s revenue by optimizing pricing, promotion, product assortment, and distribution. Specific to a company’s needs, RGM is a holistic strategy that drives sustainable growth by aligning decisions with consumer demand, market conditions, and the competitive landscape.
“RGM is about finding the optimal balance between volume, price, and profit using data and strategic insights to make better business decisions,” said Rich Medrano, Practice Director, Revenue Growth Excellence at Catena Solutions. “RGM is not a tool; it’s an approach to strategic planning and execution.”
Factors driving RGM growth
For companies that want to get ahead in today’s F&B industry, traditional revenue growth models no longer cut it. Organizations need to be able to quickly adapt to constant challenges that show no signs of easing. This includes:
- Inflationary pressures: Margins are under pressure like never before, especially with heightened inflation across the supply chain including raw materials, energy, and labor costs.
- Consumer behavior: Consumers are increasingly price sensitive and expect more personalized experiences and products.
- Upgraded technology: New technology and AI capabilities are enabling companies to make quicker, more accurate, data-driven decisions, rather than operating on assumptions.
- Competition and market saturation: Markets are crowded, and companies need to differentiate themselves by targeting the right channels, promotions, and segments.
- Supply chain disruption: Supply chain challenges have increased the cost of transportation, packaging, and logistics, forcing companies to adjust their revenue models.
- Changing retail dynamics: Organizations are navigating the rise of e-commerce, direct-to-consumer channels, and private label growth.
Additionally, promotional effectiveness is dwindling. Research shows that although CPG companies worldwide invest about 20% of their annual revenue in trade promotions, 59% lose money on trade spending.
Developing an RGM mindset across the organization
Achieving an RGM mindset across an organization requires fostering cross-functional alignment and integrating data-driven decision making into everyday operations. Though a complex process, the work is worth the effort: Studies show that companies with an organization-wide RGM culture report revenue growth of up to 5-10% annually through better collaboration across marketing, sales, finance, and supply chain functions.
To get there, focus on:
- Cross-functional strategic integration. Traditional revenue growth models are siloed within an organization, hindering the departmental and organizational collaboration needed to develop a holistic RGM strategy.
- Data-driven decision making. Advanced analytics and AI can determine promotional effectiveness and lead to more accurate decision making, rather than operating on assumptions. Plus, research shows data-driven companies are 23x more likely to top their competitors in customer acquisition and 19x more likely to stay profitable.
- Real-time pricing. Companies that prioritize volume-driven growth and sales-driving activities are neglecting more effective pricing models. Real-time pricing that’s omnichannel optimized and personalized is the new frontier in value creation.
- Agility and flexibility. Since 2020, supply chain disruptions have caused $1.6 trillion in missed annual revenue growth. RGM helps keep organizations agile and flexible, which protects margins amid inflation and supply chain disruption.
- Customer centricity. Lastly, effective RGM is highly customer centric. Rather than relying on competitors, historical data, and trends, today’s top RGM practitioners focus heavily on insights and placing customers at the center of business decisions.
“Leaning heavily into insights enables companies to adjust prices and offers dynamically, ensuring they maximize revenue without alienating their customers,” said Christine Bart, Senior Consultant Engagement Manager, Revenue Growth Excellence Practice at Catena Solutions. “Also, by using data-driven strategies, RGM becomes more than pricing—it becomes a comprehensive growth strategy that aligns with shifting consumer preferences and market trends.”
The top insights to monitor? We recommend price sensitivity and elasticity, purchase behavior and patterns, promotion responsiveness, channel preferences, brand loyalty and switching behavior, consumer demographics and psychographics, and sustainability trends and preferences.
Expanding from foundational to transformational
Though RGM is tremendously beneficial, the path to an effective strategy can be daunting. Companies should start with building foundational capabilities and transition into more developed, transformational practices.
From foundational to transformational, a typical evolution follows this path:
- Trade strategy and execution: Implementing a trade funding and spending strategy customized to each project.
- Promotion optimization: Analyzing and optimizing promotional activities to maximize ROI.
- Active mix management: Proactively adjusting product assortment to optimize sales, profitability, and market share.
- Channel pricing strategy: Setting product prices across distribution channels to maximize revenue and market reach.
- Price pack architecture: Strategically designing product sizes and price points to optimize sales and profitability.
“As companies in the F&B industry evolve from building foundational RGM capabilities to embracing transformational strategies, the shift is about more than just optimizing pricing and promotions,” said Medrano. “It’s about harnessing advanced analytics, consumer insights, and cross-functional collaboration to drive sustainable growth. Those who master this transition unlock the potential to not only respond to market dynamics, but to shape them, creating a long-lasting competitive edge.”
For help building and implementing your organization’s RGM strategy, consider bringing in outside resources skilled in RGM. Catena Solutions can empower you to maximize your revenue streams to secure continuous profitability and market leadership. For more information on how we can support your initiative, get in touch.
—
About Catena Solutions: Catena Solutions is dedicated to the Food & Beverage industry, with 30+ years of expertise supporting local, national, and global CPG brands. With our network of industry experienced consultants, we focus on driving growth, optimizing operations, and navigating industry challenges. To learn more, visit https://www.catenasolutions.com/
