Tim Morningstar: Revenue Growth Management

TIM MORNINGSTAR: Pricing and revenue growth management, more broadly, is one of the most powerful, yet simultaneously difficult, capabilities for consumer product companies to master. At Bain, working with our clients, we've identified five straightforward principles that, if adhered to, can lead to the installation of a lasting capability around revenue growth management.

The first principle is rooted in the concept that household penetration is the key to driving long-term brand growth. This is the theory that Professor Byron Sharp of the Ehrenberg-Bass Institute put forward, but has now been adopted by many of our clients.

Best-in-class revenue growth management takes it a step further and uses the various elements of pricing toolkit to drive household penetration. Whether it's using a new pack size to access a consumer occasion or cohort that had not been reached before or whether it's using trade and promotional dollars to drive activation in the store to win with the consumer at the shelf, effective revenue growth management can drive household penetration.

The second principle is that, put quite simply, not having a cross-functional or general manager perspective to pricing will result in its failure. Pricing programs that do not have this cross-functional approach—that includes finance, supply chain, sales and marketing—fail within a year. And so it's essential that the general manager role gets installed up front.

The third principle is that pricing cannot be a black box program buried deep within the organization. Clients often look for opportunities to install software to help enable pricing decisions, which is fine. However, to make pricing strategy, you need to create visibility into the insights that are available to the general manager to use to make effective decisions.

Linked to this point is the fourth principle, which is that brand managers often lack the fundamental data and insights to enable them to make effective pricing decisions. Whether it's the simple expandability of their category or the incrementality of certain products, it is essential that they have these insights at their fingertips when they're making their pricing decisions.

The last principle is that value is created or lost in the negotiation with the customer. The key element of effective revenue growth management is a capability around developing joint business plans with your most important customers that create win-win situations for both the retailer and the consumer product company.