Why FMCG suppliers must evolve their approach to revenue management. By Andrew Jennings
Having worked in the FMCG and CPG sectors for many years, it is fair to say that suppliers’ traditional channel-centric go to market strategies are rapidly becoming irrelevant in an evolving retail market. In the pursuit of capturing more sales from customers, wherever or however they choose to shop, retailers have become focused on accessing the shopper wherever they are. As a result of this, the boundaries between traditional channels have become increasingly blurred and merged.
Tesco is a good example. It operates across supermarkets, hypermarkets, convenience stores, forecourts, on-line, as a discounter, and as a wholesaler and cash & carry. Suppliers cannot simply manage a customer like this defined by channel and hence their trading strategy needs a fresh approach. These changes have implications for revenue management capability and organisational structure.
For many suppliers, revenue management has, to date, been a short-term and tactical response to price, promotion and mix, aimed at driving quick wins. However, with traditional channels merging, winning revenue management approaches need to: become more strategically focused; take advantage of technology and data to support strategic decisions; and be appropriately organised and resourced for the long term.
Forces of change
Several challenging market forces have recently converged, amplifying the need to focus on revenue management and strengthening the P&L. As already mentioned, the first of these forces is the consumer’s expectation that their individual shopping and product consumption requirements are fully met wherever they happen to be. This has forced retailers to adopt a multi-channel or even a merged channel approach. Suppliers can no longer categorise their key customers tactically by individual channels. They need to adopt a more strategic, holistic view and plan accordingly.
The second force is price competition. With the retailers themselves being squeezed on margins and operating with high fixed costs, ‘every little helps’ in their world too. Imposing this need for price competitiveness onto suppliers makes driving revenue even more challenging.
Finally, continued low growth in the retail sector means revenue growth is difficult to achieve organically. In this environment suppliers must ensure that all incremental revenue opportunities are realised and optimised across all products in all shopping environments. Failure to plan for this will almost certainly result in missed targets. Combined, these forces make it imperative that suppliers adopt a holistic approach to revenue management and incorporate it into their strategic planning.
There are several steps they can take to make this happen. The first is accessing and using information and technology. The increased use of systems and data as part of the revenue management process affords suppliers greater customer intelligence than ever before. Analysing and interpreting this ‘Big Data’ to spot trends and learn from past experiences should become central to their revenue management strategy. While many organisations are gathering information, the key is improving their ability to use it to inform actual decisions rather than leaving it as ‘theory on PowerPoint’.
Artificial intelligence (AI) is also likely to play a greater role in revenue management decision making as time passes. AI has the potential to track and analyse data in real time, to spot, recommend and even potentially enact revenue opportunities as they arise.
Effective resourcing and talent is another critical area for review. Smart resourcing is required rather than just more ‘bodies’ focused on driving customer revenue to be more successful. Recognising the importance and value of strategic revenue management skills is critical, as is ensuring those skillsets are acquired and adopted through effective learning and delivered through the most appropriate organisation design efficiently and effectively.
Developing a strategic revenue management plan is the final part of the picture. With the spectre of pricing events always a fear factor it is common for suppliers to shy away from the bigger revenue management questions and decisions. However, the pressures I have described earlier show that revenue management must be embedded into the psyche of the supplier organisation – across marketing, sales, supply chain and finance. This is pivotal to delivering financial success as well as the development of sustainable growth strategies.
Today’s business environment looks vastly different to how it did in the past – it is far more complex and increasingly challenging. It will probably look different tomorrow too. This change means suppliers must think more deeply, and seriously, about their approach to revenue management and embedding its core principles to drive sustainable success and not just for short term tactical benefits. This is certainly advisable in terms of protecting existing revenues. In terms of finding new, sustainable opportunities ahead of the competition, it is critical.
Andrew Jennings is an associate consultant at Total Negotiation, a global consultancy which helps organisations and individuals in FMCG supply chains make a step change in their negotiation capability. Total Negotiation believes that excellent negotiation behaviours drive incremental profit for businesses. No other skill has quite the same impact. Through training, coaching and consultancy Total Negotiation helps these organisations to excel at negotiations and realise tangible commercial results.