Revenue growth management during inflation and how to protect your margins
There’s no doubt that price has always been a key component of RGM (Revenue Growth Management) strategy for Consumer Products Manufacturers like you, but in recent weeks, the debate and the attention given to the P&L is even more relevant. The more obvious factor is that inflation is back after some decades and may stay much longer than we initially thought. But offsetting costs to increase labor and materials is complicated. Competitive pressure and the lack of clarity around price components, makes retailers completely reluctant to accepting any increase in prices.
Our take on a holistic approach to RGM
Combining different elements of RGM instead of moving the price as a stand-alone lever provides interesting opportunities. Price and Promotion: Reshaping price and promotional mix is your first action item. According to a recent study of Nielsen, the current average price elasticities of consumers are comparable to the pre-COVID period, but at both product and category levels there is a fair amount of variation. On the promotional side, the reduction of activities in 2020 has slightly affected the long-term baseline in different categories. So, sensitivity on both price and promotion has to be re-evaluated and combined to position products in terms of price corridors and promotional pressure to better understand how to react to price reductions and promotional tactics of competitors. Reducing promotional activities on products with (new) low promotional sensitivity or understanding of how fast and heavily to react to price changes of competitors, are key elements to gain back some points of direct margin. Price and assortment: Revision and simplification of assortments focusing on the most relevant items has already been one of the levers to pull in reaction to supply chain disruption. You may also pair the analysis of the incrementality index of different products with price sensitivity to determine the real and potential margin of a different assortment mix. This is another path to be explored to enhance financial performance. Also, consider and negotiate with retailers on "Every Day Low Price" for some products to protect consumer buying power. This can create loyalty and build retention within low-income segments of consumers, providing positive results to the medium-term margin. Price pack architecture: Here, the connection is immediate with ecommerce and it’s a more important role for the majority of consumer products categories. Reshaping your product portfolio with an offering dedicated to the online channel is a must for today’s and tomorrow’s profitability. Thinking “outside of the box” to manage different price elasticity across channels and “thinking about the box” to create new packaging to attract the online shopper while easing delivery and reducing the cost of shipping are also important. A short time ago, I heard that complexity is good because it is an opportunity to create a competitive advantage. In the new frontier of the RGM, primarily in the analytics space, Consumer Products Manufacturers like you, can find the tools to understand the new reality and, more importantly, the drivers to generate opportunities of profitable growth in spite of the complex and contradictory scenarios we now face.