A CPG Revenue Growth Management blog series on optimization sophistication: advanced level
Moving to the advanced level of optimization sophistication is not an easy achievement and for some, it can be as difficult as landing a triple axel. When you’ve been challenged to grow your net revenue and you’ve evolved past the entry and intermediate levels of sophistication, you need more than “what-if” scenario planning. So, what’s next? There are 3 considerations that will help you get to the winners’ circle.
- Simulation to Optimization
The first consideration is the move from a predictive to a prescriptive paradigm. At the intermediate level, “what-if” scenarios are limiting business users. Optimization involves the calculation of quantitative and financial outcomes. At the advanced level, optimization supports business users directly with the defined scenarios. In the case of an RGM director who is splitting the budget across channels and buying groups, and in the case of an Account Manager, who is planning promotions for one client; optimization provides complete scenarios for evaluation. At an advanced level, you can move from simulation to optimization. You can stop asking a crystal ball for the perfect plan and then pretend that all the work is done. Instead, you will work within defined constraints (budgets and guidelines) and objectives (sales, market share and margins).
- Isolation to Holistic
The second biggest difference when transitioning from the intermediate to the advanced level is moving from “isolation to holistic” in terms of view. At the intermediate level, the approach is to work on one RGM component at a time (e.g., pricing, promotions or assortments). At the advanced level, optimization allows consideration of all of the components simultaneously and identifies the right combination of promotional pressure, price levels, and the depth and breadth of assortment.
- Competitive Landscape
The third element to consider is the competitive landscape. At the intermediate level, the approach is to look at your plans alone while at the advanced level, you have defined scenarios including the impact of your competitors at a category level. Different assumptions around promotional initiatives, price points and the assortment strategies of competitors are all part of strategic optimization management.
Capturing the win is possible
It’s no wonder that only a small number of companies have reached the advanced level. Companies at the advanced level have…
- reached the best level of forecast accuracy and financial understanding of commercial strategies, are able to include cannibalization, halo effect and incrementality on assortments, promotions and price in their volume planning and P&L forecast
- pushed the boundaries of conversation with retailers beyond BOGOs and are having discussions related to the overall category
- allocated trade funds more effectively, identifying the most profitable opportunities across all RGM components
Making the impossible possible
Is it too much? No, while it is a lot – it is not too much. You do, however, need to temper your expectations. Do not expect to land a triple axel the first time you put on ice skates. To be ready for this advanced level of sophistication there are some steps to take first:
- Learn how to skate – build the foundation with a “best in class” transactional tool to manage all the RGM components in a structured way and organize data to enable next steps.
- Become proficient at a single axel – perfect the entry level, assimilate the art of volume forecast and post-event analysis.
- Master the double axel – acquire familiarity with the intermediate level, embedding “what-if” scenarios, analysis and simulation of planning promotions.
Once all the above has become part of your organization’s norm, which is quite an accomplishment on its own, you are ready to move to the final destination or the advanced level of sophistication. The good news is that most of the tools you may already have can help you in the next stage of your evolution. Now, it’s time to scale. Here’s what you need:
- Data management and infrastructure to host data have to be enhanced to gather, structure and leverage market and competitor data.
- Data science capabilities that include constraint-based optimization.
- Analytics to learn from the market and competitor data gathered.
- An enhanced RGM tool that provides a simplified user experience that tells salespeople which promotional activities (from the simple to the complex) to run.
Change management and a training program that is carefully executed will allow you to scale the skills of your people at the same pace. A holistic understanding of RGM is essential.
- ENTRY level: Are BOGOs really working for you?
- INTERMEDIATE level: Is “what-if” scenario planning the road less traveled in your CPG organization?