Predictive Solutions for Revenue Growth Management (RGM) Through Artificial Intelligence (AI)
May 2020
Artificial Intelligence (AI) has a growing influence in the way companies examine themselves. Companies attempt all different types of strategies with the hope of expanding in a consumer-driven world. To achieve organizational growth and increase revenue, in which tools should Revenue Growth Management (RGM) place their focus? If we take the rapid acceptance of AI, and then apply it to the following five pillars of RGM, this raises adoptions or predictive solutions. In turn, this improves accuracy in commercial decision making. A) RGM’s Five Pillars of Focus: 1. Pricing: Using a correct pricing strategy 2. Trade Promotion: Optimizing discounts, promotional mechanics and promotional investment 3. Demand prediction: as a fundamental input for areas such as: S&OP, production planning and purchasing, among others 4. Assortment: Enhancing the assortment as a source of income maximization 5. Commercial Terms. Evaluating the impact of trade agreements and actions developed in the sales channel B) Applied Predictive Solutions: 1. An applied predictive solution is based on the sum of AI with Machine Learning and different econometric techniques. Performing trillions of mathematical calculations allows the prediction of an event and its future impact with a high level of accuracy and in a constant self-learning process. 2. A predictive solution for RGM takes a historical data series (sellout in units), with minute, precise details (product, day and point of sale), in a complex portfolio distributed in multiple channels. Then the data series and details predict future volume affected by variations in prices or in the application of different commercial actions. C) How AI Uses an Historical Data Set with Granularity to Predict and Optimize: 1. Promote Proper Pricing: Annual planning is required in order to reach a volume prediction with a level as high 85% accuracy, which far exceeds past advanced mathematics. 2. Implement Promotional Optimization: Use the exact discount to maximize an expected volume or profit or both. The optimal promotional mechanics are defined by retailer, by month, and by region. Consumer preferences generate cross elasticity and its impact between channels. 3. Demand Prediction: To optimize the Assortment with a high level of accuracy, and a fundamental input to other areas of the organization, add these to the possibility of clustering points of sale. 4. Think in Commercial Terms: These thoughts paired with recurring negotiations with retailers, will make it possible to change the conversation from an imposition to a discussion of possible actions to optimize commercial variables that maximizes the benefits of both. 5. Recognize the Strength of a Predictive Solution: Unlike the past, where estimates were made separately without considering cross impacts, today AI based solutions work in an integrated way. This guarantees that even the impact of a single change can be measured throughout the entire value chain. 6. Know the competition: The possibility of measuring future variations in the volume of a product A due to the traceable commercial actions of a product B (competitor of the first one), allows predicting impacts and effects on the entire product portfolio. This helps to anticipate actions to defend or expand the market share of the company's brands. D) Intuition versus Science: 1. Making decisions based solely rooted in intuitive thought, or basing knowledge without evident or rational thought, will fail sooner or later will make us fools with initiative. 2. Intuition has the power to create fools with initiative, a paradox in which an unknowingly ignorant person is in charge of the enterprising decisions of a company. 3. By making decisions based on a predictive model, to which strategy and experience must be added, it will allow making decisions with a high level of accuracy. 4. **Make decisions based on the scientific approach, like the predictive model, in order to escape the perils of intuitive-guidance. To allow highly accurate decision-making, add both strategy and experience.** In order for a company to achieve success, it is imperative to provide a correct predictive solution and prepare to invest in them. AI is here to provide accurately projected information in the name of finding solutions for RGM. Only then may companies expand and become positive agents of necessary change.
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Predictive Solutions for Revenue Growth Management (RGM) Through Artificial Intelligence (AI)