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“RGM [revenue growth management] teams have become really essential drivers [of profitability] … they started off as analytic and consultative support, and I think we're seeing now leaders really moving them forward into a real seat at the table.”— Peter Leech, Managing Director of Retail and Omnichannel Commerce, The Partnering Group (TPG)
Brands are increasingly focused on maximizing profitability across channels. It’s a heavy lift that requires sales and channel managers to fully understand and own their part of the profit and loss (P&L) statement.
To that end, many companies have formed or expanded the role of revenue growth management (RGM) teams to drive omnichannel growth and profitability.
Peter Leech, managing director of retail and omnichannel commerce at The Partnering Group (TPG), a firm that provides research, insights, and best practices to the retail and consumer products industry, and Jamie Dooley, a partner in TPG’s digital commerce practice, joined a recent episode of the “Unpacking the Digital Shelf” podcast, “How Effective Revenue Growth Management is the Key to Unlocking Omnichannel Profitability,” to explore how this function helps brands boost their bottom line.
Dooley and Leech share insights on how brands can develop a more thoughtful, comprehensive P&L strategy across channels by optimizing RGM teams.
Revenue growth management (RGM), also known as rev-man or strategic revenue growth management, focuses on price, trade, and assortment optimization. RGM teams typically report to senior sales leadership.
The scope of RGM teams’ work can involve auditing commodity prices and staying on top of pricing pressures driven by competitors and broader market conditions like inflation. They also focus on optimizing promotion strategies and price pack architectures to drive incremental revenue.
“RGM [revenue growth management] teams have become really essential drivers [of profitability] ... they started off as analytic and consultative support, and I think we're seeing now leaders really moving them forward into a real seat at the table,” Leech says.
Brands have to manage a much more complex P&L statement across different retailers and ecommerce and brick-and-mortar channels.
Because of this, Leech says brands must assess profitability from the vantage point of total customer or omnichannel customer P&L, making trade-offs based on promotions, pricing, supply chain and retail media considerations to eke out enough of a margin for themselves and retailers.
“All these things optimally are managed within a holistic customer and commercial P&L that allows you the visibility as a manager out in the field to take action and tune your business,” Leech adds.
RGM teams now play a crucial role in helping brands sort out these P&L challenges and navigate things like price changes, shifting retailer demands and additional fees, and market competition.
“They're constantly modeling different scenarios to understand which of the choices they need to make and where they think their competitors are going to move. That's communicated from the RGM team typically to brand management in terms of core pricing,” Leech says, adding that the sales and commercial leadership teams then get together to mutually decide on price changes, which are then deployed and communicated to the field.
With price changes and other profitability considerations, RGM teams hardly ever work in silos, which makes cross-functional alignment even more important.
Dooley says TPG’s clients employ different models to foster greater alignment between RGM teams and other business units. At one company, the RGM team is embedded within the digital shopper marketing team, giving it more visibility into promotions, profitability per category, and what guardrails need to be in place to maximize profitability in this part of the business.
In other organizations, RGM teams may be part of a separate governing board that sets pricing and exclusivity parameters for items sold in-store and online before they’re authorized to be given to a specific retailer. This approach can help brands avoid ad-hoc pricing and assortment decisions that further squeeze their margins.
“An RGM team can't work in a vacuum,” Dooley says. “They need data, and they need to be on the same page with all of the different cross-functional teams that are executing promotions, coupons, digital advertising, and even in-store advertising. Those guardrails that an RGM team can be instrumental in setting up and holding customer teams to require a significant amount of data sharing.”
During their podcast appearance, Dooley and Leech shared several best practices brands can implement to optimize their omnichannel P&L and how they can effectively deploy RGM teams to drive these efforts.
First, it’s crucial for brands to empower their RGM teams to operate from a portfolio perspective rather than focus on a single channel — even if it’s Amazon. In today’s ecommerce environment, what happens on one channel can affect another. The real-time price matching that happens online is a clear example of this.
“They're not just focused on, ‘This customer is our biggest customer, what are we going to do with them first?’ It's ‘What's the impact on total retail?’” Dooley says.
Organizations that employ the governing board model Dooley referenced often have a better understanding of their assortment and how exclusivity with one retailer could affect their other retailer relationships.
Dooley says taking a more regimented approach to portfolio management, in consultation with RGM teams, can help brands make better data-driven decisions about when to offer exclusive items to certain retailers and more accurately forecast the potential sales and profitability impact of these decisions.
Dooley says many brands often don’t have any idea what the right price is for a particular item in their inventory. Minimum advertised pricing (MAP) programs may give them some sense of the manufacturer's suggested retail price (MSRP), but they may not truly understand elasticity or the impact of giving one cost to a pure-play retailer versus an omnichannel retailer.
Dooleys says MAP enforcement is critical to drive price optimization. RGM teams can play a pivotal role in evaluating data to help brands determine the right price for their products online.
“The best-in-class ones [brands] know what the optimal price should be, and they're doing a good job of managing their channel, whether they have MAP or not,” he says.
Some items are purpose-built for ecommerce, and others would make more sense on the physical shelf. Therefore, one of the most impactful things brands can do to drive omnichannel growth and profitability is to more carefully select what SKUs they make available online.
“Think forward about which of your SKUs are naturally built well for ecommerce, built well for ecommerce profitability, ship well in a large pack size — all the natural componentry — and which ones will need to be evolved,” Leech says. “That is still not baked into most companies' innovation approach, to really think omnichannel from the birth of the SKU.”
Whether by harnessing data, embracing a portfolio perspective, or fostering greater cross-functional alignment, brands can take several steps to drive omnichannel growth and increase their margins.
RGM teams can help them keep their eye on the profitability ball and enhance their ability to respond to changing market conditions and retailer demands.
“We have been such a resilient, data-driven, just smart, and scientific industry. I just know that we'll find a way to absorb this more massive change in terms of total profit impact that's flowing through retailers and suppliers. It is a marathon, but we've run these before, and we can do it again.” — Peter Leech, Managing Director of Retail and Omnichannel Commerce, The Partnering Group (TPG)
To hear more of Leech’s and Dooley’s insights on revenue growth management, listen to the full episode.
