Goals of Revenue Growth Management
Trade promotions involve contractual agreements between manufacturers and retailers to sell products at temporarily reduced prices. These promotions aren't just temporary price reductions but include various financial tactics and promotion mechanics such as lump sums for features or displays in the store, retail media, advertisements, or shopper marketing. Manufacturers invest in these promotions to increase the volume of products sold, often at a depressed margin, with 60% of trade promotions being unprofitable. Trade promotions are the second-highest cost item on the P&L of a typical consumer products (CP) company, constituting 16% to 24% of gross sales revenue.
Revenue Growth Management uses analytics and insights to make smart choices about which products to offer, where, at what price point, with which promotions, and in which channels. It helps optimize pricing and promotions to drive revenue growth and profitability.
To Understand Modern Trade You Need to Understand Trade Promotions
A trade promotion is an agreement between the manufacturer and a retailer to generate additional demand and increased sales volume in a particular time frame for an agreed assortment of products:
- Use special marketing or selling activities called "tactics"
- Display
- Advertisements
- Price reductions
- Free goods (for example, "buy one get one free")
Manufacturers invest in promotions to drive volume but also need to achieve a return on investment. Typically 60% of trade promotions aren't profitable. Customers need tools that aid in running more effective promotions.
Trade promotion–related spend is often 16% to 24% of gross sales revenue, and is the #2 line item on a CP firm’s profit and loss (P&L).
Key components of trade promotions:
- Temporary price reduction (for example, 10% off, 50% off)
- Defined period (for example, one week, two weeks)
- Specific stores or accounts
- Financial tactics, such as lump sums for displays or advertisements
- Promotion mechanics, like "buy one, get one free"
Revenue Growth Management
Revenue growth management is a broader concept that encompasses trade promotions. It's how CP companies control the levers of revenue and profitability, including:
- Product
- Pack size, bundling, and customer perception of value versus quality.
- Price
- Pricing strategy, competitor pricing, and private label pricing.
- Promotion
- Trade promotions as the primary lever for increasing sales volume.
- Place
- Understanding how products sell in different routes to market, such as convenience stores, e-commerce, or marketplaces.
Role of SAP in Revenue Growth Management
SAP provides the core master data required for revenue growth management, including product master, customer master, list prices, and cost of goods sold. This data is used to support analytics and insights that inform revenue growth management decisions.