CPG Survival Plan: protecting margins in a volatile economy

Five ways CPG brands can survive and thrive in uncertain times.

For consumer-packaged goods (CPG) companies, a tough environment may be about to get tougher. Against a backdrop of persistent inflation supply chain disruptions, new tariffs and the threat of trade wars threaten to lift the cost of materials even higher., At the same time, already-price-conscious consumers are growing wary of a possible recession, and more conservative in their spending habits.

Back in the COVID-19 era, CPG companies were largely able to weather these kinds of cost pressures through headline price increases. Today, they face additional challenges: from evolving consumer behaviors and preferences to the rise of omnichannel retail.

This more complex new environment demands an updated, multi-faceted revenue growth management (RGM) strategy for CPG businesses—a strategy that expands beyond reactive price adjustments to more agile, proactive solutions that deliver bottom-line savings as well as top-line growth.

Here we offer five practical tips for how CPG brands can broaden their RGM strategy—not only to defend their tightened profit margins, but to achieve sustainable growth throughout what could be a turbulent few years.

1.    Embrace adaptive pricing

As centuries of economists could tell you—prompting vigorous nodding anyone who’s been shopping for eggs lately—prices change all the time, dragged constantly up and down by the restless forces of supply and demand.

Now, though, thanks to the predictive capabilities of self-learning AI models, brands can optimize and adjust their pricing strategies more frequently, easily and with more precision than ever before. They can take advantage not only of tiny, fleeting fluctuations in supply and demand that would escape human notice, but of fluctuations that haven’t happened yet, as predicted by machine-analysis of historical data.

Brands can also use these tools to factor in elements like “cross-product elasticity” (i.e. how sensitive a product is to changes in price), geography, and the different requirements of different customer segments, to inform and optimize pricing strategy within specific markets. These next-gen tools even help companies explore hypothetical "what if" scenarios, allowing businesses to gauge in advance the revenue impact of a particular price change—yielding results that can be leveraged to cultivate and deepen trust-relationships with retail partners. 

For a lesson in the value of adaptive pricing, CPG brands should study the example of Coca-Cola, which already adjusts prices based on regional demand and seasonal trends to maximize sales. Procter & Gamble, similarly, uses data analytics to monitor market conditions and consumer behavior, allowing them to recommend optimal pricing strategies for their diverse product lines.

2.    Improve price-pack architecture to increase CPG margins

Consumers don’t just want to see a choice of products when they head to the stores or online to go shopping—they also want to see choice in product size. This reality has prompted many companies to reexamine their “price pack architecture” (PPA) and try to better align product offerings with consumer needs and purchasing behaviors.

By way of illustration, a 2024 NPR podcast episode explored how even a basic pantry staple like peanut butter is no longer a one-size-fits-all product. Jars can now be purchased in a range of different sizes, from “mini” to “family,” not to mention in a variety of novel formats such as on-the-go dip cups or tubes.

Most CPG executives understand the basic retail psychology here: meet a consumer’s specific need, such as providing a convenient snack, and they may be willing pay a higher price for the same amount of product.

Or even for less product. Shrinking package size can, in some settings, actually raise the consumer’s perception of the brand, making them more receptive to higher price points. When buying personal care items, for instance, such as bars of soap or laundry pods, a package containing fewer items has been shown to lower consumers perception of “costliness” while boosting their impression of a product’s quality.

PPA is a science, not an art. Manufacturing different packaging sizes is expensive, and brands must first mine their data to surface the consumer insights that will guide their pricing and packaging strategies, delivering the right amount of product, in the right format, to satisfy key segments and unlock new revenue.

3.    Unleash generative AI on R&D to raise CPG margins

Consumer brands already know what their current top-selling products are. The question for any proactive executive is what the next one will be.

Gen AI can help answer that question. A recent McKinsey study found that incorporating gen AI tools within R&D processes “could deliver productivity with a value ranging from 10 to 15 percent of overall R&D costs.” These same tools can also evaluate the financial impact of product cannibalization, and help guide and shape decision-making around product development, as well as helping develop products themselves

Reckitt, for instance, the UK-based health-and-hygiene behemoth, plans to roll out gen AI tools across its R&D function in 2025 to enhance both productivity and product innovation. The company piloted the technology with its Finish brand of dishwasher powder, leveraging years of research and test data to develop science-backed products, reportedly reducing development time by up to 60% while improving product quality.

4.    Upgrade trade promotion systems

According to the 2024 Promotion Optimization Institute (POI) State of the Industry survey, 88% of CPG manufacturers are struggling to manage their enterprise trade spend. One big reason could be the sector’s reliance on legacy Trade Promotion Management (TPM) systems that are either outdated or actually approaching obsolescence. Indeed, some solution providers, such as Accenture and SAP, are already sunsetting their TPM systems, forcing CPGs to adopt new tools and processes.

Forward-thinking CPG companies are capitalizing on this moment to upgrade their TPM capabilities into next-generation, AI-driven Trade Promotion Optimization (TPO) systems. These solutions, which are integrated within holistic RGM frameworks, use AI to automate complex analyses, review historical promotional data, uncover patterns, and recommend more effective strategies.

For example, a cutting-edge AI-powered trade-promotion tool can predict the optimal timing for a promotion, and the best product combinations to offer, and even the precise discount structures most likely to maximize sales, all based on years of performance data. For large brands, this power and efficiency could translate to billions of dollars in savings and new revenue.

5.     Build a strong RGM data strategy and governance framework.

No matter how an organization decides to refine its RGM strategy, any initiative will require robust data capabilities. Good data is the foundation for adaptive pricing and PPA as much as it is for gen AI-enabled product innovation and trade promotion optimization. If they want to avoid common pitfalls such as data silos, inconsistent formats, and poor-quality inputs, CPG companies must prioritize enhancing their data strategy and governance.

Key areas to address include:

• Embracing advanced cleansing and validation techniques to improve data accuracy
• Leveraging robust integration solutions to ensure consistency across multiple sources and enable seamless analysis
• Enriching the data set through internal and external sources to address data gaps
• Harmonizing definitions and metrics across the organization to foster consistency
• Employing strong governance frameworks to safeguard data integrity and security

In conclusion, a modernized RGM strategy would be a powerful catalyst for value creation at the best of times, fostering significant growth and profitability for business stakeholders, while also reducing costs. In a margin-pressured economic environment such as the one we may be entering, optimizing and modernizing every facet of RGM is a smart strategy not only for the survival of CPG businesses, but for their enduring success.

To learn more about Cognizant’s approach to RGM strategies, download our whitepaper.