What is NRM, and what does it do?
Against this backdrop, more CP companies are on a journey to build a net revenue management (NRM) capability.
NRM aims to optimize pricing and promotions, governs trade spend, and coordinates delivery of net revenue and gross profit targets across brands and customers. NRM improves profitable growth from the existing portfolio and adapts value propositions to exploit new growth opportunities. NRM can also be called revenue management or revenue growth management.
Optimizing promotions and related trade spend requires detailed understanding of what worked and what is most likely to work — by product, customer and even outlet NRM can be hard to implement effectively: it requires a more granular, data-driven approach, more collaboration across the sales and marketing organization, and a greater focus on executing strategy and long-term value creation.
These are big changes for CP organizations and implementing NRM is not straightforward. But done properly, NRM will reward the effort and investment.
Plugging NRM into integrated business planning
An NRM capability is only as good as the portfolio and category strategies, and associated growth targets it is expected to deliver. The days of setting unreasonable sales targets are over. Internal profit and loss (P&L) targets need to be grounded in the realities of category growth, share position, brand role and growth intent, price elasticity, and headroom for growing penetration and distribution.
NRM should play a critical role in reconciling top-down targets with bottom-up plans, cascading P&L targets and investment across brand customer portfolios. In leading CP companies, NRM defines the “shape of plan” for key account managers that reflects P&L input and output measures — for example, budgeted trade spend against net revenue targets.
NRM also provides targets that balance share, net revenue and gross profit ambitions; promotional guidelines to deliver targets and improve ROI; and the trade terms framework to govern trade spend in line with brand, category and supply chain objectives.
For NRM to fulfill this role effectively, it needs to be plugged into business-as-usual processes and governance. Integrated business planning (IBP) aims to synchronize demand and supply sides to create a more agile and responsive organization, re-orientated toward winning the shopper, and creating value across channels and key customers.
How can organizations build an NRM capability?
In a world where cost and talent are aggressively being reduced, investing in building a new capability may feel counterintuitive. Country organizations are being asked to do more with less and “decision-support” has been culled in many leading global CP companies. To efficiently build effective NRM capability requires a transformational approach and mindset.
Establish analytics centers of excellence (CoEs). Local sales insight, relationships and field presence remain core commercial assets. But data-driven activities, such as pricing, promotional analytics and point-of-sale (POS) segmentation, can now often be better undertaken by dedicated analytics teams with real economies of scope and scale — the analytics CoE.
On- or near-shore NRM resources translate price, promotional, POS and shopper analytics outputs into practical direction and guidance that sales can execute. When consumable insights are plugged into local decision makers at the right times, above-market analytics can be both effective and efficient.
Define the end state and codify collaborative working. Rerouting and streamlining processes through analytics CoEs require a reset of roles and responsibilities across the sales and marketing organization, and end-to-end processes spanning on-, near- and off-shore locations.
Given the complexity and scale of implementing NRM, a clear end state and compelling case for change are needed to galvanize stakeholders. That can be daunting enough for the sales and marketing organization, but NRM needs to be synchronized with supply chain to fulfill demand effectively and efficiently.
Given the level of change associated with implementing NRM, some leading companies are building NRM capability as part of a wider IBP program.
Where to start
This can seem an overwhelming challenge, which is why a compelling case for change is needed.
Size the global trade spend opportunity. Given the complexity and scale of implementing IBP and NRM, a clear end state and compelling case for change are needed to galvanize stakeholders. The good, or bad, thing for NRM advocates or practitioners is that trade spend is in the billions of dollars for global CP companies.
Minor improvement in ROI can drive material differences to net revenue and profit. In our experience, the case for change is compelling. But few can currently see the size of the prize — or the risk. A quick but credible global scan can reveal levels of opportunity and risk, identifying drill-sites by country, brand, channel, product and customer (depending on data granularity).
Conduct rapid NRM capability assessment and identify pain points. Many of the pain points in organizations have common root causes. For example, “data isn’t reliable, systems and tools need too much manual entry, process timings don’t work for me or my team, too much time spent on planning and re-planning.”
Rapid cross-functional interviews or surveys, desk assessments, and headcount or role analyses identify duplicated, redundant activities and creates buy-in to tackle inefficiencies and their root causes. These will span people, process and technology, and require a cross-functional response.
Widening the scope of profitable growth challenge can create complexity but also creates synergies and scale to drive transformational change. This will help codify a better business-as-usual that tackles pain points and that respects the dependencies across functions, requiring behavioral and cultural change.
In the short term, however, it is advisable to focus on a region or strategic market(s) to get the details right and reflect reality on the ground. A “narrow-front” approach concentrates global resources and effort on making capability breakthroughs in a few, priority markets or a region to prove the concept, build the benefits case and learn lessons for subsequent rollouts.