Unlocking growth through digital-first revenue management

In today’s increasingly complex market landscape, many companies continue to reconsider and reinvent their business models through digital value transformation. Inflationary pressures, macroeconomic volatility, channel disruption, evolving consumer preferences and other challenges are testing consumer packaged goods (CPG) companies. In response, some are pursuing innovative revenue growth management (RGM) strategies and business models to adapt to changing dynamics and drive growth.

Mohib Yousufani, a principal at PwC who advises companies on improving growth and performance, recently sat down with Colin Lenaghan, Global Sales Senior Vice President, Revenue Growth Management, PepsiCo, to discuss how the well-known consumer brand is transforming revenue management. To learn more about this transformation, watch the video and read the Q&A below.

The following has been edited for clarity.

Q: Revenue management is a very important topic these days, especially given inflationary pressures. Nearly 15% to 30% of CPG profit pools are at risk and consumer products companies are also facing a lot of volatility in terms of channel disruption. You’re seeing consumer preferences change. There’s a whole slew of price volatility going on. What are your thoughts on that?

Pricing growth has fundamentally outstripped wage growth over the past few years. And consumers are reacting. So, in our business like many other industries, you’re seeing a lot of consumers shifting choices. They’re making tradeoffs in the store – for example, over 60% are trading up to larger value packs, a third are trading down to smaller packs. You’re seeing, of course, the growth in private label. You’re seeing the retailers respond to that. They’re not only competing on price, they’re innovating as well.

For RGM, we’ve moved from a period of managing and mitigating the highly volatile impacts of inflation through pricing. Now we’re back to how do we help underpin the growth of the organization by regaining and building brand penetration, regaining transactions and volumes that translate to value.

Q: What are some strategies that you’ve deployed recently that you believe are working? And with the advent of next-gen technologies that come into play, how is that changing the ecosystem?

It’s multifaceted. All of the levers that are deployed via RGM have to come into play. Portfolio is really important because what you’re seeing for CPGs like PepsiCo that tend to dominate the mainstream, the upper mainstream, is growth at the shoulders with the value and the premium tiers. So the portfolio has to be really well articulated. And that’s where you’re seeing a lot of cross-functional integration, where RGM is moving upstream into the marketing organization into the brand growth agenda, into the innovation agenda.

Of course the channel price-pack architecture is really important. Then you’ve got to get really back to your basics on your promotional management, your mix assortment optimization. All those things require this cross-functional integration and granular analytics. Maybe 10 years ago, small teams of very good analysts helped channel information into the organization. Now we’re working shoulder to shoulder on solutions, leveraging all the capabilities that we now have across consumer and commercial to drive growth. And digitization is fundamental to the whole piece. You really need dynamic analytics at scale given the complex portfolio, channel and customer realities we have to address.

Q: How are GenAI and AI part of your investments and capabilities that you continue to build, and has that proven dividend?

AI is a big part of our digitization effort for RGM, and there are huge opportunities through the effective deployment of prescriptive analytics. We make sure attention is put on embedding and getting the true value realization out of those capabilities. In the areas that you and I have worked together on — things like automated promotion post event analytics, for example — these digitized capabilities are paying dividends. Furthermore, GenAI is emerging as an important component of how we integrate RGM into the broader commercial agenda and how we make things simple for the front line. And it’s time to methodically understand how we’re going to compete in this new phase of reality where the retailers and all our competitors are doing the same thing. We have learned a lot of lessons, and change management is a key opportunity to drive this into the business processes and culture of the organization.

Q: What we’ve seen is when you do this transformation right, it’s typically a 1% to 3% uplift, if not 3% to 5% uplift from a revenue growth perspective, and profitability as well. How is that shaping up at PepsiCo, and how are those strategies being integrated? What are the key benefits and impacts of such transformations?

I think the impacts you talk about are much more distinct in very specific areas of the transformation, like promotional and customer investment optimization. That’s where it’s very easy to see the impact, not only for PepsiCo, but also for our shared profit objectives with retailers. In other areas, we don’t get too hung up on what percentage you can realize other than believing that the more precise you are with pricing, for example, the smarter we are – we’re going to help mitigate elasticity impacts & portfolio cannibalization impacts which is vital.

I think the fundamental unlock is getting these capabilities and activities really integrated into core business process. And many organizations are on that journey of how you move revenue management from a tactical optimization game, which has a lot of benefit, to a much more strategic level, where it’s very much integrated into the consumer portfolio and brand growth agenda. That needs to go end to end across how you think of your portfolio, how your price elasticity insights help your pricing execution, your pack architecture line-up across channels and down to how you execute with precision with your promotional management strategies. That’s really what we’re trying to do. And obviously underpinning all that is common data and digitization.

Q: You mentioned about the common data part, that everyone struggles with data. Is that a predicament for you to be successful or can that continue in parallel?

I think the reality is for many companies, it has to run in parallel because if you wait for the perfect data foundation, you would wait a long time. What I would say about PepsiCo is there’s a lot of investment in our data foundation and that just gets better and better over time. A strong data foundation is absolutely critical if you want to do RGM at scale. You have to have that data foundation to allow the digitization agenda to accelerate and to deliver the benefits we seek.

Q: We see a distinct edge as you continue to maximize revenue and profitability potential. And then, when you add in and integrate the digital agenda and robust data and analytics capabilities, that further amplifies the potential. Having said that, what is the right operating model for revenue growth management as you continue to evolve?

Operating model has a lot of elements to it. If you’re talking about how do we need to set up to do this at scale, we’ve learned the hard way around trying to do this all bottoms up with human effort. I think there has to be a very clear strategy at the top of the organization around the role revenue growth management plays and what we have to do to unlock the growth that we see.

What you need is individuals in the field not to be solely doing work in analytics. You want the RGM leader in the field to be working with the commercial teams to design the strategies that are going to win. And the analytics teams we have in dedicated analytics centers around the world then provide standardized analytics, digitized, that arm those individuals with what the insights are saying. And again, at the heart of that is the data and the digitization agenda which is providing the unlock for RGM at scale.

Q: PepsiCo has had a remarkable journey over the past two years. I know that continues to evolve, but you clearly started somewhere. Where did you start? What’s next?

The thing that’s really important is revenue management is as much a technical practice as it is a discipline and a culture within the organization. We spent a lot of time back in 2020 building the right organization in the field, reporting into the general manager and commercial leads. Really setting the foundations and starting to pilot different types of capabilities that we knew were really important. That has been a very long haul of incremental building to prove the value. And that’s the journey that we’re going to continue. That’s going to develop further into more advanced capabilities focused on precision strategy and execution at scale.

Q: What are some of the recommendations that you have for other organizations who are continuing to evolve their revenue growth management strategy?

It’s not a set of activities. It’s a discipline within the organization. We’ve been blessed at PepsiCo with senior leaders who really see the value of this and have invested. RGM is one of our key commercial capability bets.

Revenue management is still a little bit of a black box for a lot of people. So you have to really prove out the value, and I think we have found that has worked incredibly well. That has allowed us then to go back to the organization to say we need to invest more. And then over time, you can get to a pretty scale operation that just becomes part and parcel of the way in which we grow our business.

RGM plays a crucial role in today’s business environment as market conditions continue to evolve alongside consumer preferences. CPG leaders can succeed by taking steps to both accelerate growth and drive innovation in their revenue management strategies.

A robust forward-looking strategy and top-down leadership are fundamental to the success of future RGM capabilities. In addition, leveraging advanced analytics, the power of data and next-gen technologies can help CPG companies like PepsiCo drive these reimagined capabilities at scale. In the race to rapidly increase net revenue realization and profitability, winning companies are taking decisive action — here and now.