Clarity Insights - When Tough Times Come Calling, Turn to RGM?

We are living in the toughest commercial times. Raw material prices have been rocketing due to post-Covid supply chain constraints, and energy, packaging, and freight costs have gone through the roof. Throw in a cost-of-living crisis and lower consumer confidence, and you have what could be a perfect storm for FMCG companies, as they strive to ensure their sales and margins stay strong. The options available are not simple and there are only so many cost price increases that consumers will bear.

This is where revenue growth management (RGM) comes in and it is the prime reason why more businesses are turning to us for transformative leaders in the function. RGM provides the required tools to tackle most of the inflation-led pressures in the market. RGM techniques and tools can be used to support with complex pricing decisions in a calibrated way whilst reducing the impact to the top line and bottom line.

RGM can help with identifying the right price increase and selecting the right SKUs to act on. It examines products based on price sensitivity, suggesting increments to those product lines less vulnerable to price increases and leaving those more sensitive intact. With this approach, increased COGs are neither completely assumed by FMCG companies nor they are passed on to the end-consumer. Thus, organisations are able to neutralise at least some of the increase in COGs without losing revenue or market share. RGM has adopted advanced statistical modelling, artificial intelligence and machine learning tools to evaluate the elasticity of price-sensitive and price-insensitive products across the portfolio. These tools help businesses evaluate the impact of price increases on sales and volume.

RGM also allows organisations to use a portfolio-based approach for price increases, rather than making decisions on pricing individually for each SKU. This approach evaluates the entire basket of products (and sizes) and the cross elasticities between them to measure the impact of changing the price of a particular product on the rest of the products in the portfolio. It allows FMCG companies to make pricing decisions in a holistic way, thus optimising the overall category top and bottom lines. There are other, more traditional techniques to tackle inflation in FMCG – think of recent trends like shrinkflation. RGM provides FMCG organisations with what if scenario tools that help predict the outcome of these package downsizings.

Increased competition from challenger and private label brands and the rise of discount stores as well as increased promotional activities are all a threat to large FMCG companies. Rising inflation has substantially increased COGs and impacted every player in the industry. However, large FMCG companies that have developed and invested behind a strong RGM function are better equipped to make calibrated price increases to reduce the impact of inflation. Inflation will eventually ease and those who have a well-established RGM capability will be more agile and competitive in the current business context.