Unlocking Sustainable Profitable Growth: A Three-Pillar Algorithm for Success

How an end-to-end view of investments can help consumer products companies balance trade-offs and create meaningful growth.

By Beatrice Valagussa and Robin Bartling

Tempo di lettura min.


Nine out of 10 consumer products company CEOs agree: Profitable growth is their top priority. Having devoted a lot of attention to price increases and cost take-out programs to deliver bottom-line margins, CEOs’ focus on restoring volume-driven growth is not surprising. But there’s another reason to go all-in: Our research shows that consumer packaged goods (CPG) companies that sustain long-term profitable growth create nearly double the total shareholder returns of those that achieve either top-line or profit growth (but not both). Despite this urgency, only an average of one in four CPG companies saw revenue and margin growth between 2012 and 2022. While there are myriad reasons for this gap, our Sustainable Profitable Growth Algorithm can help you close it. By offering a comprehensive view of your integrated commercial investments, it can help you identify the trade-offs needed to achieve both top- and bottom-line growth. The top growth challenges—and how we help Unfortunately, growing profitably year after year is far from easy. First, there are multiple external obstacles. For instance, entire consumer goods categories might lose their appeal over time as consumer needs evolve. Specific products and brands can also be “commoditized,” with private label and insurgent brands gaining share and depleting incumbent companies’ profitability. Finally, retailers engage in price wars to fight for store traffic, lowering prices and eroding margins for all players in the value chain. These market realities are inevitable; how CEOs manage them can be the difference between failure and success. Yet, there are also internal factors that cause unsustainable growth. We’ve observed CPG companies chasing quick volume and market share gains at the expense of profitability and long-term brand health. There’s also the phenomenon we call “pay for peace” in which companies accept a bad deal with a customer to protect in-year sales, fueling a downward spiral on their pricing strategies. Years of experience researching these patterns helps us to steer you toward the best ROI advantage. Our Sustainable Profitable Growth Algorithm (see Figure 1) encompasses three core pillars to ensure that your company: drives top-line growth by increasing household penetration—the only reliable long-term predictor of sales growth; maximizes the unit economic value of the revenue generated by products, expanding the profit pool available to all participants in the value chain; and avoids a race to the bottom by helping all value chain participants capture a fair share of that profit pool. Figure 1 Assessing the quality of consumer packaged goods companies’ growth across Bain’s Sustainable Profitable Growth Algorithm Fonte: Bain & Company The good news is that CPG companies today dedicate the lion’s share of their available resources to commercial levers that could fuel sustainable profitable growth. More than 50% of the price paid by consumers is allocated to what we call the integrated commercial investment, which includes advertising, trade discounts to retailers, fees to wholesalers and distributors, promotional funding, sales teams, “feet on the street,” and more. The bad news is that this funding is not always used wisely. In our experience, it’s not unusual to see more than 50% of these funds misallocated because of the following reasons. Limited integrated commercial investment visibility: The variety and complexity of levers has grown, and ownership is distributed across functions (e.g., marketing, sales, IT). This means that investments are analyzed individually vs. holistically. Tactical vs. strategic: Commercial investment comes down to a variety of individual decisions (e.g., customer negotiations in each country) vs. broad strategic intent. As a result, the effectiveness of funding and trade-offs across countries, categories, and customers is compromised. Companywide vs. individual objectives: Most commercial investments create an underlying tension between long-term value creation and short-term business results linked to individual targets and incentives. In case of conflict, management will often be tempted to focus on the short term. Applying data to investment decisions Applying our Sustainable Profitable Growth Algorithm will help you maximize returns from your commercial investment—whether you need to cut back on your investment or decide where incremental funds will drive more value—and ultimately achieve annual gross profit acceleration over time. We adhere to a proven four-step approach that begins with a clear understanding of the starting line, followed by an analysis of commercial initiatives, then prioritizing which actions to execute, and finally designing those solutions. Step No. 1: Transparency on point of departure A simple dashboard helps us identify where you are—and where you need to go. We measure the quality of your recent growth trajectory (the output) along the three output pillars—top-line growth, unit economic value, and profit pool share—and compare it with hundreds of proprietary benchmarks created through our unparalleled experience with best-in-class practices (see Figure 2). This quick, fact-based assessment will highlight your greatest opportunities for improvement and the “must-haves” you need to work on most urgently. Figure 2 Full visibility into integrated commercial investments across buckets and comparison to a broad benchmark guides strategic choices We then shed light on your integrated commercial investment (the input)—from trade discounts, promotions, marketing, and media to “feet on the street”—giving full visibility on “true” end-to-end investments by country and category. We layer our point of view on the different buckets of commercial investment and how much each bucket should hold, and suggest potential reallocations of commercial funds across buckets, as well as countries, categories, brands, channels, or customers. Step No. 2: Commercial assessment Next, we analyze the relationship between your performance along the growth algorithm (output) and your commercial investment (input). We use AI-powered tools to surface the most effective commercial levers by country and customer and then augment those results with proprietary benchmarks and golden rules. Finally, we simulate and test commercial initiatives in the market and gather learnings to help you roll them out faster and more effectively. Step No. 3: Priorities and action plan After this thorough assessment, we ask: Which moves will have biggest impact in the shortest amount of time? We work with you to build a list of the top 5 to 10 priority actions. This will include fundamental choices on CEOs’ agenda, such as reallocating funds across levers (e.g. away from physical “feet on the street” into digital or consumer marketing) We rank initiatives by impact and time to execute, knowing that some levers will inevitably take longer. (Trade terms, for example, can only be amended once a year.) Our goals in this phase are to align on the initiatives that can be pursued at full speed and to ensure that there’s a robust backlog and roadmap to foster continuous improvement after the top priorities are tackled. Step No. 4: Solution design With priorities set, we begin designing and executing the solutions that are right for you. The scope could range from helping you double down on one specific commercial lever to shepherding a full commercial transformation. At both ends of the spectrum, we support you in the implementation, making sure that plans negotiated with customers have a clear path to value. This guidance also includes addressing the must-haves in order to capture the full potential—namely, team resourcing, data and tools, and governance. Why Bain Economic conditions, market realities, and limited visibility into integrated investment all make achieving sustainable profitable growth a tall order. Our Sustainable Profitable Growth Algorithm sheds light on your investment gaps and provides opportunities that you can seize to get back on course. With an unmatched team of global experts across the entire commercial spectrum, we’re uniquely positioned to help. We know how to do this, having looked at integrated commercial investment in a way that CPG companies don’t normally do. Access to our transparency dashboard and thousands of proprietary data points and benchmarks allows us to quickly identify the nature of the problem. Leveraging advanced tools such as generative AI, proprietary databases, and Consumer Lab analysis helps us understand shoppers’ needs and retail’s tectonic shifts—and the implications of both for CPGs. Finally, by tapping into a vast ecosystem of solutions across all commercial levers—including Revenue Growth Management, Next-Gen Key Account Management, Perfect Sales Execution, and Route-to-Market strategy—we foster continuous improvement of your most important investments.

Nine out of 10 consumer products company CEOs agree: Profitable growth is their top priority.

Having devoted a lot of attention to price increases and cost take-out programs to deliver bottom-line margins, CEOs’ focus on restoring volume-driven growth is not surprising. But there’s another reason to go all-in: Our research shows that consumer packaged goods (CPG) companies that sustain long-term profitable growth create nearly double the total shareholder returns of those that achieve either top-line or profit growth (but not both).

Despite this urgency, only an average of one in four CPG companies saw revenue and margin growth between 2012 and 2022. While there are myriad reasons for this gap, our Sustainable Profitable Growth Algorithm can help you close it. By offering a comprehensive view of your integrated commercial investments, it can help you identify the trade-offs needed to achieve both top- and bottom-line growth.

The top growth challenges—and how we help

Unfortunately, growing profitably year after year is far from easy. First, there are multiple external obstacles. For instance, entire consumer goods categories might lose their appeal over time as consumer needs evolve. Specific products and brands can also be “commoditized,” with private label and insurgent brands gaining share and depleting incumbent companies’ profitability. Finally, retailers engage in price wars to fight for store traffic, lowering prices and eroding margins for all players in the value chain.

These market realities are inevitable; how CEOs manage them can be the difference between failure and success. Yet, there are also internal factors that cause unsustainable growth. We’ve observed CPG companies chasing quick volume and market share gains at the expense of profitability and long-term brand health. There’s also the phenomenon we call “pay for peace” in which companies accept a bad deal with a customer to protect in-year sales, fueling a downward spiral on their pricing strategies. Years of experience researching these patterns helps us to steer you toward the best ROI advantage.

Our Sustainable Profitable Growth Algorithm (see Figure 1) encompasses three core pillars to ensure that your company:

drives top-line growth by increasing household penetration—the only reliable long-term predictor of sales growth;
maximizes the unit economic value of the revenue generated by products, expanding the profit pool available to all participants in the value chain; and
avoids a race to the bottom by helping all value chain participants capture a fair share of that profit pool.

Chart comparing top-line growth, unit economic value, and profit pool share with related factors such as consumer pull, retail selling prices, and trade economics. — Assessing the quality of consumer packaged goods companies’ growth across Bain’s Sustainable Profitable Growth Algorithm

The good news is that CPG companies today dedicate the lion’s share of their available resources to commercial levers that could fuel sustainable profitable growth. More than 50% of the price paid by consumers is allocated to what we call the integrated commercial investment, which includes advertising, trade discounts to retailers, fees to wholesalers and distributors, promotional funding, sales teams, “feet on the street,” and more.

The bad news is that this funding is not always used wisely. In our experience, it’s not unusual to see more than 50% of these funds misallocated because of the following reasons.

Limited integrated commercial investment visibility: The variety and complexity of levers has grown, and ownership is distributed across functions (e.g., marketing, sales, IT). This means that investments are analyzed individually vs. holistically.
Tactical vs. strategic: Commercial investment comes down to a variety of individual decisions (e.g., customer negotiations in each country) vs. broad strategic intent. As a result, the effectiveness of funding and trade-offs across countries, categories, and customers is compromised.
Companywide vs. individual objectives: Most commercial investments create an underlying tension between long-term value creation and short-term business results linked to individual targets and incentives. In case of conflict, management will often be tempted to focus on the short term.

Applying data to investment decisions

Applying our Sustainable Profitable Growth Algorithm will help you maximize returns from your commercial investment—whether you need to cut back on your investment or decide where incremental funds will drive more value—and ultimately achieve annual gross profit acceleration over time. We adhere to a proven four-step approach that begins with a clear understanding of the starting line, followed by an analysis of commercial initiatives, then prioritizing which actions to execute, and finally designing those solutions.

Step No. 1: Transparency on point of departure

A simple dashboard helps us identify where you are—and where you need to go. We measure the quality of your recent growth trajectory (the output) along the three output pillars—top-line growth, unit economic value, and profit pool share—and compare it with hundreds of proprietary benchmarks created through our unparalleled experience with best-in-class practices (see Figure 2). This quick, fact-based assessment will highlight your greatest opportunities for improvement and the “must-haves” you need to work on most urgently.

Bar chart showing the economics of consumer packaged goods companies. Categories include retail sales value, customer investments, consumer promotions, sales operational expenses, cost of goods sold, advertising/media, and other. EBIT ranges from 10% to 20%. — Full visibility into integrated commercial investments across buckets and comparison to a broad benchmark guides strategic choices

We then shed light on your integrated commercial investment (the input)—from trade discounts, promotions, marketing, and media to “feet on the street”—giving full visibility on “true” end-to-end investments by country and category. We layer our point of view on the different buckets of commercial investment and how much each bucket should hold, and suggest potential reallocations of commercial funds across buckets, as well as countries, categories, brands, channels, or customers.

Step No. 2: Commercial assessment

Next, we analyze the relationship between your performance along the growth algorithm (output) and your commercial investment (input). We use AI-powered tools to surface the most effective commercial levers by country and customer and then augment those results with proprietary benchmarks and golden rules. Finally, we simulate and test commercial initiatives in the market and gather learnings to help you roll them out faster and more effectively.

Step No. 3: Priorities and action plan

After this thorough assessment, we ask: Which moves will have biggest impact in the shortest amount of time?

We work with you to build a list of the top 5 to 10 priority actions. This will include fundamental choices on CEOs’ agenda, such as reallocating funds across levers (e.g. away from physical “feet on the street” into digital or consumer marketing) We rank initiatives by impact and time to execute, knowing that some levers will inevitably take longer. (Trade terms, for example, can only be amended once a year.) Our goals in this phase are to align on the initiatives that can be pursued at full speed and to ensure that there’s a robust backlog and roadmap to foster continuous improvement after the top priorities are tackled.

Step No. 4: Solution design

With priorities set, we begin designing and executing the solutions that are right for you. The scope could range from helping you double down on one specific commercial lever to shepherding a full commercial transformation. At both ends of the spectrum, we support you in the implementation, making sure that plans negotiated with customers have a clear path to value. This guidance also includes addressing the must-haves in order to capture the full potential—namely, team resourcing, data and tools, and governance.

Why Bain

Economic conditions, market realities, and limited visibility into integrated investment all make achieving sustainable profitable growth a tall order. Our Sustainable Profitable Growth Algorithm sheds light on your investment gaps and provides opportunities that you can seize to get back on course.

With an unmatched team of global experts across the entire commercial spectrum, we’re uniquely positioned to help. We know how to do this, having looked at integrated commercial investment in a way that CPG companies don’t normally do. Access to our transparency dashboard and thousands of proprietary data points and benchmarks allows us to quickly identify the nature of the problem.

Leveraging advanced tools such as generative AI, proprietary databases, and Consumer Lab analysis helps us understand shoppers’ needs and retail’s tectonic shifts—and the implications of both for CPGs. Finally, by tapping into a vast ecosystem of solutions across all commercial levers—including Revenue Growth Management, Next-Gen Key Account Management, Perfect Sales Execution, and Route-to-Market strategy—we foster continuous improvement of your most important investments.