Revenue growth management in inflationary times

Revenue growth management in inflationary times

January 20, 2023
TELUS Customer Director APAC, Luke Pocock

Conflicting consumer sentiment and behaviour makes navigating how to best to manage and grow revenue in 2023 tricky
According to an October Ipsos study, there are a number of things worrying consumers. in addition to COVID flareups and the war in Ukraine, inflation is the number one worry for 38 per cent of Australians with ‘personal financial concerns’ the number one worry for 8 per cent of the surveyed population. So, inflations became the leading concern for nearly half of the Australian population at the year's end of 2022.

The same study showed that 81 per cent of Australians think rising prices and inflation pose a moderate to high risk to themselves personally, and 80 per cent to their families.

And yet figures from the Australian Bureau of Statistics indicate that household spending on both discretionary and non-discretionary items continued to rise throughout 2022. So, there’s something of a ‘say/do’ gap happening, where consumers think one thing but do another.

What then does all this mean for revenue generation and revenue growth management in 2023?

A recap on RGM and its applications

Revenue management is about creating, capturing and retaining sustainable value for consumers, shoppers, retailers and manufacturers. Typically its scope includes all trade facing investment across the marketing mix, including:

  • brands, products, packs, channels, consumption and shopping occasions
  • investment required to execute, such as trading terms, promotional displays, sales force and 
  • pricing architecture.

It takes into account channel, geography, route to market, and trading up (premiumisation) or down (private label).

Revenue management enables incremental volume, revenue and margin growth, range optimisation, and improved promotional planning, among other things, through the systemic application of analytics. It has become a key tool for businesses to maximise revenue growth through analytics that predict consumer behaviour at the micro market level.

 Revenue growth management can be achieved by:
• Increasing average weight of purchase (AWOP): through pack upweighting and upsizing such as to multipacks and multi-serves; through promotion mechanics such as multibuys and bundles; and through spend via mechanics such as taking up price and encouraging premiumization
• Maintaining or improving margins: (admittedly difficult as COGS continue to rise) mechanics include taking up price and adjusting the portfolio SKU pricing, revenue and profitability mix
• Managing the online versus physical portfolio footprint to reduce the impact of online cost to serve. This means juggling maintenance of a fair balance in promotional programs, profitability across the customer mix, and market-wide level pricing
• New product development and the introduction of seasonal, limited edition and promotional rotating SKUs and flavours which both serve to expand portfolio shelf space and to smooth margins across the SKU mix and
• Increase in value and margin via availability and promotion of more profitable SKUs.

Its horses for courses in 2023
It’s not a one-size fits all as the dynamics and nature of categories and their opportunities and challenges vary. How you treat a staples category versus one with expandable consumption will change. For instance, high-demand highly price elastic categories with ongoing supply constraints may need to shift to a permanent price strategy – and potentially take price up, or at least promote with shallower discounts. However, lifting prices in inflationary environments could prove tricky given that even without inflation consumers anecdotally will notice when shelf prices increase by more than 10 per cent on their usual brands.

On the other hand, categories which have relied historically on more steady demand, such as cosmetics, and which historically have low levels of elasticity on price promotion, could possibly invest in deeper price promotions and more targeted and personalised loyalty activity.

Categories which have higher levels of impulse should be leveraged with promotion and display for profitability.

However, there seem to be some persistent truisms.

Multibuy mechanics require configuration in a way that they drive volume without eroding margins. Resuming single pack and small multipack promotions may be more appropriate now than the case volume buys, given that consumers are no longer pantry stocking to the extent that they have for the previous two years.

Brands need to have a clear strategy for price realisation and a clearly defined brand and pack strategy to refresh or re-launch into more premium tiers, and they must find ways to encourage shoppers to spend more based on value-added benefits. Whilst premiumisation may be easier to achieve for shoppers seeking ‘little luxuries’, it will be more difficult for lower income brackets - the most negatively impacted by inflation and who may be trading down to private label instead.

Occasion based marketing and cross category bundles never go out of style for increasing AWOP. Map out and lean heavily into macro and micro consumption occasions.

Even if inflation begins to ease in 2023 as is forecast, navigating it will be tricky tightrope to walk, requiring eternal vigilance. This means continually tracking consumer purchase behaviours, reviewing price and promotion strategies, and portfolio mix management.

All the best with your revenue growth management high wire acts in 2023.

TELUS is a Corporate Partner of the Drinks Association.

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