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Grocery Guru Ep#27: Nett Revenue Management and How it Relates to Supermarkets
Join Andrew Grant and Darren A. Smith in the twenty-seventh episode which is about What is Nett Revenue Management? And how it relates to supermarkets. Plus, where did NRM come from, and how can it be used. They also share their NRM Pyramid model.
You Can Read the Full What is Nett Revenue Management Episode Transcript Below:
Darren A. Smith:
Welcome to episode 27 of the Grocery Guru. We’re here with Andrew Grant. Andrew, how are you doing?
Andrew Grant:
Morning Darren. Are you well?
Darren A. Smith:
Hey, I’m very well. There’s a lot going on in the world, but let’s focus on grocery. And let’s focus on a trending topic, NRM.
Andrew Grant:
Oh, got me there. Is that a rapper? An ’80s rapper?
Darren A. Smith:
What, like Run-DMC?
Andrew Grant:
Well no, I was thinking more, as we’re talking grocery, maybe a confectionary wrapper.
Darren A. Smith:
Oh, I see. I was thinking you mean [inaudible 00:00:35]. So NRM. Not really managing? No, what’s it stand for?
Andrew Grant:
Could be. Could be. I think it’s net revenue management. I’m taking a wild guess there.
Darren A. Smith:
It is. So we’re going to talk about what is nett revenue management now. Net, N-E-T or N-E-T-T?
Andrew Grant:
Oh. Oh that’s a very [inaudible 00:00:56]. I don’t think it matters, does it?
Darren A. Smith:
I don’t know [crosstalk 00:00:58].
Andrew Grant:
I’d go with N-E-T-T, because that’s a bit more accountancy and finance-y.
Darren A. Smith:
It is supposed to be the right way is N-E-T-T, but I’m sure no one really cares. The Google searches have been going up and up over the last three years, because we can track what people are searching for, what volume. So it’s going up and up and up. It’s getting more and more popular. Net revenue management, or NRM, or optimizing revenue, what the hell is it?
Andrew Grant:
Well, I think it is actually very topical. And if you are watching the Google stats it’s probably not surprising it’s starting to peak again, because I think it’s going to become incredibly important the next six months. Do you know the background? Where it came from?
Darren A. Smith:
I know it’s about the airlines, but I’m going to leave that to you. Go on.
Andrew Grant:
Yeah. So as most of these things, I think it’s American derived. Basically grew up out of the low cost airlines in the States, whose sole purpose is obviously to fill planes as profitably as possible. If you’re running an easyJet or a Ryanair model and selling seats at 7.99, you’ve got to maximize the revenue from every single bum on every single seat. And that’s where, I mean Ryanair is the classic. Some of the more outrageous revenue raising tricks occur. Was it Michael O’Leary was going to charge for using the toilet at one point on Ryanair flights? But you charge for your baggage, you charge for refreshments, you charge for meals. You’re charged if you want to sit in the first 10 seats. That is effectively net revenue management in action, but possibly at its worst.
Andrew Grant:
I think, well, it’s going to become incredibly in vogue the next few months. If you think about it, the economy is going to open up fully on May the 17th, is it?
Darren A. Smith:
Yep.
Andrew Grant:
You’re going to have the hotels back open, you’re going to have restaurants open for indoor dining, and you’re going to have the airlines flying again. And they’re all, after a year in limbo, they’re all going to be desperate to be maximizing the revenue from every single customer. Now something, there’s supermarkets coming onto the grocery trade obviously have done very, very well during the pandemic, and they seem to have done it without any perception of the customers being overcharged or stung. Your worry is with, or you’re already seeing it with holiday lets in Cornwall and Devon twice the price of last year. An easy way of effective net revenue management is just fleece your customer, but then they don’t stay with you forever.
Darren A. Smith:
Well, it’s not a long-term strategy. Let me share with you when you the Wikipedia definition. It’s disciplined analytics to predict customer behavior and to optimize availability and price to maximize growth. Now that sounds a little bit like the scene I recall it Only Fools and Horses where Cassandra was telling Rodney about how to maximize strategy and growth. And Rodney just kind of [crosstalk 00:04:16]. So my definition is really: it’s about old category management. Now, people will say category management is dead. Category management can’t be dead if it’s just about maximizing the shoppers’ spend in your store. And how do you do that? Well, we have a mnemonic RAPPP, which is range, availability, price, promotions, and I’ve forgotten the last one. Price, promotions, and?
Andrew Grant:
What was the last one? Sorry.
Darren A. Smith:
Range, availability, price, promotions. Forgotten the last P, I’ll come back to –
Andrew Grant:
[crosstalk 00:04:54]. Go on.Darren A. Smith:
It’s not a P. So I think net revenue management is a very close bedfellow of NRM, category management are one in the same.
Andrew Grant:
I absolutely agree. I think it’s just how you package it for certain audiences. So if you’re speaking to a retailer, they talk category management. They talk the language of the shopper. If you’re talking to the finance director of a major brand, they’ll probably be more enticed with the term net revenue management. But at the end of the day, if you focus it on the ultimate customer or shopper or consumer, whatever you call them, then all roads lead to that. And I think we’ve obviously developed the NRM pyramid, as we call it.
Darren A. Smith:
[crosstalk 00:05:47]. Now I’m going to do a shameful promotion of this NRM [crosstalk 00:05:51].Andrew Grant:
Is this what you made earlier?
Darren A. Smith:
This is one I made earlier with Post-it Notes and sticky back plastic. [crosstalk 00:05:57].
Andrew Grant:
Yeah.
Darren A. Smith:
So this is the NRM pyramid. And what we’ve got up here is increasing profit, what it’s all about. We’ve got shopper, WOP, FOP, and PEN, which is all about shoppers and maximizing where you get them from. Is it weight of purchase, WOP? Frequency of purchase, how much they buy. Or penetration, getting more shoppers. So the first two about getting your current shoppers to behave slightly differently, and the third one is about getting more shoppers. And then we’ve got the four Ps of marketing, which is a classic. And then we’ve got our five soft skills we call Spain. Selling, presentation, analytical, influencing, and negotiation. And then we’ve got our own NRM ten tools. [crosstalk 00:06:44].
Andrew Grant:
Yeah. As I was saying, I think the timing for any of our clients out there is perfect NRM is going to be maybe the buzzword of the next six months or so, as businesses, particularly supplier businesses. We talk a lot about the retailers in these things. Maybe not so much about the struggles of suppliers. They’ve basically spent a year nose to the grindstone, churning out as much product as possible, because the supermarkets have obviously done extremely well. Now is the time to potentially use our net revenue management tool to start making more profit from the oodles of stock that they’re pumping into the very, very successful supermarket.
Darren A. Smith:
Yes. Very true.
Andrew Grant:
And doing it in a long-term sustainable way that focuses on still delivering shopper value, not going down the budget airline route of saying, “How can we take as much money from shoppers without really caring about them?”
Darren A. Smith:
Yeah, very true. Very true. So we talk about net revenue management, we’ve got a net revenue management pyramid that we’ve developed, which has a whole bunch of tools and a structure of how to approach net revenue management. We think it’s going to be particularly on vogue, as you said, over the coming year. We’ve got supermarkets who have lost up to half a million in cost that they’ve spent on COVID. And we’ve got potentially a price war coming.
Andrew Grant:
Well, yeah. There’s all the ingredients for a price war, but maybe it’s a bit like the Jersey fish war of yesterday. Very much hyped, but wasn’t much substance to it. I mean, if I had a pound every time I saw supermarket price war headline in the paper I wouldn’t be sitting here doing this today.
Darren A. Smith:
Very true.
Andrew Grant:
Yeah I think we touched on it a few weeks ago, didn’t we, with Asda were investing, was it 100 million? 100 million price drop campaign? And we worked out it was like less than a [inaudible 00:09:06] the pound to the shopper. So I’m not sure. I think there’s the whole point of net revenue management. There’s always the blunt tool of drop prices. It’s a very blunt tool, it’s very easily copied, and it has a very short term effect, if any. [crosstalk 00:09:24].
Darren A. Smith:
Sorry.
Andrew Grant:
I was going to say, what net revenue management does is make you think much more broadly, much more strategically. Actually, what are all the levers you can pull? And you come out the other end of it with something much more sophisticated than, “Oh, let’s just take 10p off everything.”
Darren A. Smith:
Yes. Yes. Because price is a race to the bottom. NRM will be the clever approach.
Andrew Grant:
Yeah, absolutely.
Darren A. Smith:
All right. Andrew, I’m aware of our time. What’s the one takeaway you want our viewers to take from this episode?
Andrew Grant:
Bang us an email saying we’d love to know more about What is Nett Revenue Management
Darren A. Smith:
Okay. Shameful pitch, but I like it. All right. We’ll see you next week. You take care.
Andrew Grant:
Okay. Bye.
Darren A. Smith:
Bye. Bye.
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