Revenue Management Fundamentals: Why is revenue management important for FMCG businesses?
Amplifying revenue management capabilities can help FMCG companies reignite sales and profit growth.
So, what is revenue management?
Revenue management can be defined as selling “The right product to the right customer at the right time to the right price” (Robert Cross, 1997). The concept began in the airline and hospitality industries, which pioneered the use of analytics to help predict the behaviour of customers. Leveraging analytics, they were able to respond to fluctuation in demand by optimising product availability and price to generate the maximum amount of revenue possible.
How is it different for FMCGs?
Revenue management within consumer goods businesses is more complex than in hospitality. Due to the often-fixed cost of consumer-packaged goods, focusing solely on revenue is rarely effective. Instead, FMCG companies really need to focus on “Profit Management” – employing the use of top line growth to drive revenue.
Since 2017, over 60% of revenue growth in the world’s top 50 FMCGs has come from pricing and mix management rather than volume increases. This just goes to show how critical it is for consumer goods businesses to have a good grasp of their pricing, promotions and mix strategies.
Why is it becoming such a focus?
There are so many external pressures on FMCGs, that they have no choice but to increase focus on revenue management to protect & grow profits. Manufacturers suffer the second-hand effects of a complex retail landscape, as retailers react to various threats and margin challenges. These challenges are likely familiar to FMCGs globally, driving the need for better revenue management.
Mergers & acquisitions
Retail consolidation and strategic purchasing alliances, such as the unrealised Sainsbury’s & Asda and the Tesco/Booker merger, mean big business for supermarket giants, but often leave suppliers defenceless and vulnerable as retailers look for cost saving opportunities across their product portfolios. Only by getting true visibility of pricing and investment positions can FMCGs take the necessary steps to build a sound defence.
The impact of discounters
Since the 90’s, the German-owned discounters Aldi and Lidl have sucked in shoppers with their unbeatable prices and growing product ranges, making profit margins of 2-3% the norm, and causing the UK’s biggest supermarkets to take drastic measures when it comes to pricing, promotions and product rationalisation. This competition between retailers inevitably passes the burden to manufacturers as retailers look to protect their own margins.
The growth of e-commerce
FMCGs now know that investment in growing their online business is crucial for survival, with players like Amazon Fresh and Alibaba threatening to cannibalise all offline purchases. However, this is causing a lot of confusion for manufacturers, many without a refined multichannel strategy.
The above challenges outline the ever-changing landscape FMCGs are working within, and these are the challenges we’re helping our clients to mitigate year on year. As experts in the FMCG revenue management space, we take a data driven approach to help leading manufactures achieve profitable growth. Revenue management should be seen as a mindset within all organisations, and a capability built cross-functionally to deliver lasting change. By taking a mindset and people focus along with a data-driven agenda, companies can successfully reignite sales and profit growth for the long term.
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