In the FMCG world, more and more professionals are talking about the benefits of net revenue management. But what is it really about? What are its applications and objectives, and most importantly, how can we take full advantage of this technique?
The concept of revenue management emerged in the airlines industry in the 1970s, and started expanding into the hospitality sector in the 80s. It’s typically used in businesses that need to maximise the performance of very expensive fixed assets, in which it’s difficult to achieve volume growth without significant investment and where the optimisation of pricing and mix is a key success factor.
After experiencing strong volume growth thanks to a combination of penetration and demand from the 70s to the 90s, the FMCG world has found itself in the last 10 to 15 years in a situation where the growth of many categories has stalled. Achieving growth with the same levers is becoming increasingly difficult, resulting in the need to optimise elements like net prices and mix. Managing top line to optimise its return is known as net revenue management.
In a 2017 study, the Boston Consulting Group explains: “In the past three years, more than two-thirds of revenue growth – and an even bigger share of profit growth – among the top 50 global fast-moving consumer goods (FMCG) companies has come from pricing and mix rather than from volume increases”.
The challenge of net revenue management is to be able to sell the right product, in the right format and channel, to the right consumer at the right price. Easier said than done, right? Clear information and strategy are a large part of the answer and that’s where smart data becomes essential.
When it comes to assessing and making decisions regarding the key levers of net revenue management, it’s crucial to add value to the raw sales data – whether it’s sell-out or sell-in data, loyalty card data, etc. It can be converted into processes of efficient assortment, channel comparisons, promotional ROI or product-mix efficiency, or used to monitor pricing and its effects on demand. The data has to become fluid and adaptable to the changing needs of the business in order to enable quick decisions, both strategic and tactical, and ultimately to positively influence the company’s results.
Clearly, without a smart data enabler, the net revenue management process is nothing more than a good idea. Is your company ready for this new challenge?
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To learn what Boston Consulting Group’s experts have to say about net revenue management, see: https://www.bcg.com/publications/2017/consumer-products-pricing-how-net-revenue-management-boosts-top-bottom-line.aspx