Lasting consumer behaviour changes caused by the pandemic in 2020 means revenue management in 2021 looks different to 2019.
Lasting consumer behaviour changes caused by the pandemic in 2020 means revenue management in 2021 looks different to 2019.
Revenue management has become a key tool for businesses to maximise revenue growth through analytics that predict consumer behaviour at the micro market level, particularly those impacting product availability and price. But given the disruptions to shopper behaviour and supermarket retailing in 2020, likely to continue through 2021, how can revenue management be best employed?
What is revenue management?
Revenue management is about creating, capturing and retaining sustainable value for consumers, shoppers, retailers and manufacturers. Typically, its scope includes all trade facing investment across the marketing mix including brands, products, packs, channels, consumption and shopping occasions; investment required to execute such as trading terms, promotional displays, sales force; and pricing architecture.
Revenue management enables incremental volume, revenue and margin growth, range optimisation, and improved promotional planning, among other things, through the systemic application of analytics.
Horses for courses in 2020
Categories that saw high demand and significant supply constraints in 2020, such as toilet paper, baking products, and even household cleaning products, require a pricing strategy adjustment. In the vein of “don’t discount turkeys at Christmas”, high demand categories, particularly those that are highly price elastic, may need to shift to a permanent price strategy – and potentially take price up, or at least promote with shallower discounts – to smooth out the supply chain. Similarly, multibuy promotion mechanics require reconsideration as they drive volume but also erode margins. Single pack promotions may be more appropriate than multipack and case volume buys.
This is almost a counterintuitive approach to what has become the promotional norm over many, many years, and in a retail environment where, for example, a 24 or 30-can multi-pack will reduce to almost half its shelf price at peak periods like Christmas and Easter when on promotion, the same or similar to what it was 15-20 years ago, whereas the shelf price has increased more than 25-30 per cent over the same time. Great value for shoppers on promotion, but significantly less so to the manufacturers’ and retailers’ profitability.