NextGen Net Revenue Management (NRM) is the key to winning in connected commerce

Net Revenue Management (NRM) or Revenue Growth Management (RGM) is vitally important – even more so in the current climate with cost-of-living and increased input costs squeezing margins. Consumer Packaged Goods (CPG) companies worldwide invest up to 20% of their revenue annually in trade promotional activities, making it the second highest line item in Profit & Loss (P&L) after the Cost of Goods Sold (CoGS).

The discipline of NRM depends on the interconnectedness of business strategy, planning, and in-market execution. Until now, this interconnectedness has been difficult to navigate, and NRM solutions have been inherently disjointed. They also do not adequately address the new wave of connected commerce platforms, such as direct-to-consumer, social commerce, last-mile partners, 3P marketplaces, 1P pure players, bricks & clicks, and others. These have grown to the point where the game has changed forever.

However, evidence suggests that many CPG companies are not yet ready to play this new game, let alone win it. Their current NRM models are implemented based on 70% intuition and 30% science, whereas to play and win in the new game it really needs to be the other way around.

Unsurprisingly, with ad-hoc implementations of NRM, 59% of trade promotions fail to generate profit, with performance varying widely—up to a 5x difference between the most efficient best-in-class CPG promotions and the least effective ones.

How the game is changing?

What is driving this change now? The answer lies in three generational forces at work that are all set to reach a tipping point in the next four years. These forces relate to dramatic changes to the “who” (the consumers), “where/when” (the shopping environment), and “how” (the methods of purchase) of the typical shopper journey.

For more information, see our related article: Going for Gold.

Shoppers’ needs have stayed the same, but thanks to data and digital platforms enabling unprecedented levels of connected shopping, their expectations have changed forever.

Over 40% of shopping journeys now begin in emerging channels. However, conversion often happens elsewhere. According to research from the Capgemini Research Institute, 32% of consumers have discovered a new product or brand on social media. This presents a significant challenge for CPG companies traditionally focused on winning shelf space in established retail formats.

This is because the shopping journey is no longer linear. It reflects the fact that every digital touchpoint is now a potential point of engagement, and every physical touchpoint has become a potential point of fulfillment. 

This directly affects CPG companies because these same digital platforms and new routes to the consumer come with a different investment profile than their existing trade expenditure frameworks, in that costs typically borne by the retailer are now the responsibility of the brand-owner (e.g., customer acquisition, retention, and fulfillment costs). 

What are the winning plays in this new game?

Most CPG companies have an NRM or RGM playbook based on the classic five pillars (brand pack-price architecture, channel/assortment mix, pricing, advertising and promo spend, and trade terms). However, this new game requires a critical update to provide an integrated view across strengthened pillars inclusive of these new digital platforms.

To regain control in this new landscape, CPG companies need to adopt a comprehensive, unified, NextGen NRM approach that spans the initial customer engagement all the way to repeat purchases.

Connecting pre-shop engagement to purchase behavior and establishing robust tracking based on Customer Lifetime Value (CLV) metrics — calculated as unique visitors × conversion rate × average order value × repeat rate—are critical challenges in building a coherent, future-ready NRM model.

See the below illustration of how NextGen NRM metrics align to drive revenue growth and value in the new connected commerce world.

Click here to read more about our collaboration with Databricks for a NextGen NRM analytics suite.

Getting into the game

Getting into the game requires the total organization—not just the sales function—to embrace a more systemic and inclusive approach to NRM that reflects the more connected commerce and full-funnel world we are operating. It will still feel somewhat uncomfortable (the challenges are, well, very challenging), but those who do will be set to be the main beneficiaries in the next 3-4 years.

The evolving role of data in modern business environments, particularly within the context of NRM, underscores the need for real-time, always-on data connectivity and agile data collaboration built on a solid data foundation. NRM’s success going forward lies in interconnectedness, where underlying levers are intricately and logically linked, driving the need for a holistic, integrated approach that spans commercial markets and operational contexts.

Collaboration is the key. The rich combination of first-, second-, and third-party data encompassing behavioral and transactional data will take the guesswork out of marketing and sales. Enabling brands to integrate signals across platforms to optimize CLV by identifying white space opportunities for new product development, targeting high-propensity consumers, and efficiently driving higher order values, and repeat purchases.

We can help

The future of NRM in CPG is becoming more complex but that doesn’t mean it needs to be complicated. We can help.

As a frontrunner in business and tech transformations, Capgemini has been working with leading CPG companies to help them extend and incorporate NRM into their ways of working for the new retail landscape. The results of our previous work have been impressive, leading to gains in annualized gross margins of up to 4% and productivity/operational effectiveness increases up to 15%.

With the prize for delivering on NextGen NRM promises to be even greater, it’s not surprising that the race to excellence has already begun.

Capgemini’s Connected Commerce is a strategic framework for helping our consumer-facing clients upgrade their go-to-market capabilities to compete and win in the ecosystem-led generations of retail. This includes a clear vision for NextGen NRM.

Our dedicated industry team can help you transform your current NRM capabilities and also leverage our extensive partner network to provide access to cutting-edge technologies and solutions, helping you unlock the full power of NextGen NRM at scale.