Revenue Growth Management (I)
What is the Revenue Growth Management? How it is Managed? How the elements of Marketing Mix influences Revenue Growth Management?
Posted: Feb 2008
Revenue Growth Management ( RGM ) is the term created in the 70's in the air transport industry. During that period the airline industry was faced with emerging financial crisis caused by permanent increases of oil price. The airliners were forced to invent a new ways of making their business sustainable and profitable. This made them to make improvement in several directions.
Previously, every airliner was traveling anywhere, sometimes not even close to the full capacity in term of number of passengers, due to overlapping competitive lines. First step was to create alliances between airline transporters, which make them more efficient and less competitive.
Furthermore, they invented a new ways of providing service and creating a new value for their travelers. The most important was system of traveling classes. Economy Class, Economy Plus, Business, Premium, all of them had their own customers. This diversification of traveler's classes enabled airliners to create more profit. Simply, with economy class they made more people travel, therefore decreasing the flight cost. With Business Class they were able to sell tickets more expensive to those people who wanted higher level of service, therefore obtaining more revenue and profit.
Other ways of creating the extra revenue appeared, like air shopping, last minute tickets, frequent flier bonuses, red-eye ( night flights ), etc.
There are many other examples of Revenue Growth Management activities conducted by other industries, like CSD beverage industry entering the new categories ( juices, water, ... ), in order to overcome the slow-down of the growth caused by shifting of consumer's preference from carbonated soft drinks to more "healthy" beverages.
Basically, any company within every branch needs to take care about Revenue Growth Management, regardless is it in crisis, or simply wants to keep the growth in control.
But how can we affect our business to keep it sustainable and profitable? There are several major direction that are mutually related and dependant:
These directions can be influenced by several elements like Price, Numerical Distribution, Promotion, and Portfolio optimization. These elements are also known as elements of Marketing Mix.
Major directions of Revenue Growth Management ( Sales, Revenue and Profit ) can be influenced by adjusting the various levers and combinations of Marketing Mix. The following Matrix is the basic overview of possible solutions:
As you can see every element of Marketing Mix can influence all Revenue Growth Management directions; the Sales, the Volume and the Profit. Elements of Marketing Mix if properly applied will bring extra results to directions of Revenue Growth Management. Still, in some cases they can bring the negative growth index. Visit Case Studies section, for more examples and situations on this subject.