REVENUE GROWTH MANAGEMENT — Revenue growth management consulting for consumer goods manufacturers
Integrate revenue levers into a single decision-making process.
-- RGM (Revenue Growth Management)
Discounts are not a strategy. Profits have a structure.
Price, promotions, packaging, channels, terms of trade. Bringing together levers that have been negotiated separately into a profit-driven design.
CHALLENGES — Examples of challenges that RGM solves
The profit challenges faced by consumer goods manufacturers are described as follows on the ground:
If you run a sales promotion campaign, sales will increase. But you won't make any profit.
The total amount of rebates is known. No one can answer the question of its effectiveness.
A price increase is unavoidable. However, there is no basis for determining which SKUs can withstand the increase, or by what range.
Special sales have become the norm, and products can no longer be sold at their regular price.
We're managing to keep our shelves open. Even so, our profit margins continue to decline.
At every meeting, the sales, marketing, and finance teams present conflicting figures.
Each of these issues may seem like a separate problem in a different department. However, they all stem from the same underlying structure.
The management method that addresses this structure is called RGM (Revenue Growth Management).
Even within the same consumer goods category, beverages and daily necessities have different levers at play and different decision-making cycles. That's why XICA doesn't simply apply a preconceived notion; instead, we design RGM (Resource Management System) based on the realities of your company's business.
WHY — Why RGM now?
Three Negotiation Tables in the Consumer Goods (CPG) and Fast-Motion Consumer Goods (FMCG) Industries
The profits of Japanese manufacturers are determined on three different negotiation tables.
Two of them are almost invisible.
Make→Retail Headquarters
Flyer placement fees, end-cap display fees, and sponsorship fees for promotional events.
Make→Wholesale
Volume rebates, logistics cooperation subsidies, sales promotion cooperation subsidies.
Wholesale→retail
The final use of the product is beyond the manufacturer's control, making it difficult to determine the final ROI.
As a result, negotiations revolve solely around unit prices. While the total investment amount is known, no one can explain what actually contributed to the success.
Price increases are inevitable due to inflation. Channels are fragmented, and consumers have become price-savvy. Simple discounts no longer work. Yet, many pricing and promotional decisions are still left to intuition and experience.
Sales, marketing, and finance each make their own decisions based on their respective goals. The accumulation of these individual decisions quietly undermines the overall strategy.
Levers of Growth — The RGM Discipline
RGM is not an analytical method.
Management discipline
It refers to a system that continuously operates five levers across departments, based on data, within a single decision-making process.
— Are the prices for each SKU, the magnitude of the price increase, and the timing appropriate?
We understand the price elasticity of each SKU and design the magnitude and timing of price increases, as well as the price differences between channels.
— Where should we allocate our limited promotional budget?
Special sales, flyers, endcap displays. We'll break down the net increase in sales for each measure and review the allocation of our limited promotional budget.
— Are the price ladders by capacity, package, and channel consistent?
We adjust the price ladder to match payment willingness and channel characteristics, preventing internal cannibalization.
— Which SKUs should be included in this distribution channel, and what should be narrowed down?
We determine which distribution channels to use and which SKUs to place. This involves designing a high-profit margin product mix, thereby improving the quality of profit itself.
— Are the annual terms with wholesalers and retailers simply following established customs?
Shifting annual terms with wholesalers and retailers from customary practices to performance-linked designs.
The goal is not to reduce discounts.
The goal is to find a distribution of the same investment that generates profits for manufacturers, wholesalers, and retailers alike.
The "win-win-win" principle is not a matter of philosophy, but rather a matter of design.
What RGM seeks is a transformation of the very way of thinking.
APPROACH — Analysis that drives RGM
The RGM is driven by,
This is an effectiveness analysis model for SKU x distribution unit.
This is a unique modeling approach developed by XICA, based on the effectiveness analysis methods it has honed since the early days of data science, and extended to the sales and trading areas of consumer goods (CPG) and fast-moving consumer goods (FMCG).
This model divides things into two boundaries.
Sales that would have been sold even without doing anything
The measures resulted in a net increase in sales.
The portion of the measures that directly impacted sales volume
The indirect effect of boosting the distribution
Only when these two factors are separated can the true efficiency of the policy—the net ROI—become visible.
Model Granularity SKU × Distribution
The unit is SKU x distribution. Instead of waiting for perfect data, we create a model from the data we can obtain, and then combine each piece to create the overall picture.
This fine-grained analysis will allow us to derive comprehensive and specific action plans for all five key levers outlined by RGM.
Purpose contrast
Analyzing the effectiveness of advertising investments differs in purpose, variables, and metrics. Here, we deal with levers in the sales and trade domain, such as rebates, promotional strategies, and pricing, and track net ROI, net price, and contribution to operating profit. Therefore, decision-makers are not limited to the marketing department. It becomes a common language for management, sales, and business units to discuss on the same structure.
Digital
You can test the models you build before you implement them. Reduce the number of times you use measure A and strengthen measure C—you can first verify what that decision will bring to sales and profits before taking action.
CASES — Initiatives
XICA's Client Support Cases at RGM
Collaboration with beverage manufacturers
We focused on a specific convenience store chain where data is easily obtainable and started with a model at the SKU level. We separated the baseline from the promotional effect and compared the ROI of each measure. As a result of calculating the effects of changing promotional methods, we derived a plan that could reduce promotional expenses by 1.1% while increasing sales by 2.3%. Currently, we are continuing to support the construction of an AI platform that connects everything from promotional planning to demand forecasting.
Collaboration with home appliance manufacturers
When, to which company, and with which measures should we implement strategies to maximize overall profits? We built 32 models—8 companies, 3 product lines, and panel analysis—to identify the mechanism by which prices fall among companies. The selling price of one major distributor was the starting point for price fluctuations across the entire market. The conclusion is clear: For major companies, design conditions that aim to defend prices. Sales promotions aimed at gaining market share should be concentrated on the four mid-sized companies where the strategies will be most effective.
FIRST PRINCIPLES — The Essence of RGM
The essence of RGM ultimately boils down to three things.
To reveal the facts and articulate the issues.
Choose a direction.
Move the organization in that direction.
It's a simple concept. However, consistently doing it is the most difficult thing in business.
Therefore, XICA doesn't let RGM end as a one-off analysis. We transform the mechanisms we uncover into strategies, strategies into on-the-ground implementations, and each decision into an asset for the organization.
That is, AI Decision Engine (AIDE)This is the evolution of decision-making as depicted by [the presenter].
