Due to the permanent changes in consumer behavior caused by the pandemic in 2020, revenue management will look different in 2021 than in 2019.
By Simon Elsby.
Revenue management has become a key tool for businesses to maximize sales growth through analytics that predict consumer behavior at the micro-market level, particularly those that affect product availability and price. But how can revenue management best be used in light of the disruptions to shopper behavior and supermarket retail disruptions in 2020 that are expected to last through 2021?
What is revenue management?
Revenue management is about creating, capturing and maintaining sustainable value for consumers, buyers, retailers and manufacturers. Typically, the scope encompasses all trade-related investments across the marketing mix, including brands, products, packaging, channels, consumption and shopping occasions. Investments required to carry out such as trading conditions, advertising displays, sales personnel; and pricing architecture.
Revenue management enables, among other things, through the systemic application of analyzes, incremental volume, sales and margin growth, area optimization and improved advertising planning.
Horses for courses in 2020
Categories such as toilet paper, baked goods, and even household cleaning products, which saw high demand and significant supply constraints in 2020, require pricing strategy to be adjusted. In line with “Don't discount turkeys for Christmas”, categories with high demand, especially those with high price elasticity, may have to move to a permanent pricing strategy – and possibly increase the price or at least promote it with lower discounts. smooth the supply chain. Similarly, multibuy promotion mechanics require re-examination as they add volume but also undermine margins. Single pack promotions may be more appropriate than multipack and case volume purchases. This is almost a counter-intuitive approach to what has become the advertising standard over many, many years, and in a retail environment where, for example, a multi-pack of 24 or 30 doses during peak periods such as Christmas and Easter during the promotion, same or similar to 15 to 20 years ago, while shelf prices rose by more than 25 to 30 percent over the same period. Great value to buyers in advertising, but significantly less to profitability for manufacturers and retailers.
On the flip side, categories that have historically relied on more steady demand, such as high-end cosmetics that were negatively impacted in 2020 and that historically have had little elasticity in price subsidies, could potentially move into lower price subsidies and more invest targeted and personalized loyalty activity.
Revenue Management 2021 – A Return to 2019?
2021 means supermarkets will continue to play a huge role in shoppers' lives as the geniuses who work from home and shop online are out of the bottle, persistent travel restrictions and hotspot bans, and a subdued leisure and entertainment sector. This does not mean a return to what worked in 2019, even if trade promotion spending continues to grow faster than FMCG supplier revenue.
The pricing and promotion strategy must take into account the increasing frequency of premiumizations as consumers reward themselves or treat themselves when they are unable to spend on travel and leisure. Conversely, the private label and private label trade may be significant for those hit by the recession and as government subsidies are reduced. And the strategy, including the range, must be tailored to the type of retailer in order to take into account the increase in purchasing not only locally, but also “hyperlocally” as with IGA. Local stores tend to be more cost-effective in terms of trading terms and promotional discounts, and provide a greater focus on pulse and instant consumption formats, which tend to result in better profitability on the SKU mix.
Aligning the customer experience across channels – brand, promotions, pricing – is a key challenge. According to TNS 'CX + Retail 2020 study, "only 24% of grocery shoppers believe their grocery retailers make it easy to combine online and offline purchases, despite being one of the top three drivers of grocery shopper satisfaction."
Manufacturers and retailers need to re-evaluate how brick and mortar e-commerce is reconciled in terms of margins / prices by distribution channel and the impact of manufacturers delivering mass products directly to consumers. This includes more accurate measurement and tracking of the assignment of trading conditions by channel and key account, price, return on investment, fluctuations in supply and demand, and sales force productivity. The benefits of making more profit from fewer products on the shelf and fewer but bigger shopping trips mean retailers need to adjust their delivery lines, range guidelines and customer suggestions.
In 2021, packing, pricing and advertising strategies with a precise impact forecast will have priority. These are effectively the pioneers leading companies to maximize their revenue in times of persistent uncertainty.
About Simon Elsby and Exceedra
Simon is APAC Sales Director at Exceedra, a specialist retailer for trade promotion. He has over 25 years of experience in customer and category strategy, revenue management, organizational performance and capacity building, and works with global manufacturers in the Asia-Pacific region. Contact Simon email@example.com.