Part 1 of this blog post series expanded on some of TEC’s earlier articles about companies’ need for better pricing management and optimization practices. This series, which focuses on the complexity of pricing and promotions in retailing, was inspired by JDA Software’s recent “edu-nouncement” on leading retailers consumer-centric pricing and promotions strategies and by Revionics’ recent (and still ongoing) educational series of Web-seminars.
Part 2 of this series analyzed some common retailers’ practices and explained the frequently used vernacular terms. Then the post went into the building blocks of pricing optimization, starting with setting optimal initial (everyday) prices.
Part 3 analyzed the other two building blocks of pricing optimization: promotions and markdowns. Then the post went into the next generation of pricing optimization according to JDA – Lifecycle Pricing.
Part 4 continues the blog series by analyzing the pricing optimization vendor landscape and various vendors’ approaches to the next generation of pricing optimization solutions.
JDA’s Price and Promotion Management Solutions
There is hardly anything to disagree within JDA’s aforementioned well-crafted and educational press release (PR), except perhaps for the fact that JDA doesn’t necessarily cross my mind as a retail pricing optimization leader. JDA’s Price and Promotion Management retail solution is based on the Talus technology that was acquired by former Manugistics in 2000.
Actually a number of products came with the Talus acquisition, one of which was a business-to-business (B2B) deal pricing management system as well as pricing solutions for hotels and airlines. In any case, JDA has invested significantly in those products over the past several years to adapt them to the retail sector. Thus, it is fair to say that JDA’s retail price optimization capabilities are today comparable to, say, DemandTec’s.
While the retail pricing specialist DemandTec still might have a significant advantage over JDA in terms of a very strong reference list (a veritable “who’s who” of retail), one key differentiator for JDA could be its “one view of demand” value proposition. This noble approach was described in my recent series on a few good supply chain management (SCM) players. DemandTec and other niche pricing players cannot really offer this big picture of demand propagated across the entire supply and demand chain, and it is a message that has been resonating with both prospective customers and analysts.
Other Pricing Vendors’ Voices
Given JDA’s noise of late, I’ve offered other pricing vendors a fair chance to (dis)agree with JDA’s assertions, and perhaps add more to the discussion about the next-generation pricing optimization solutions. The first one to react was Revionics (the name is the combination of the words “revenue” and “bionics”), briefly featured in my 2008 blog series on pricing in a down economy.
Revionics is a privately held provider of strategic pricing systems, currently targeting tier-one and tier-two retailers. The company started in 2002, initially targeting smaller retailers, and for a number of years was funded by angel investment. Since 2007, the vendor is venture capital (VC) backed by Sierra Ventures. Today, the company is headquartered in Roseville, California (US) and has a science lab in Scottsdale, Arizona.
Revionics is a fast growing company, currently with over 100 retailers as customers and a dedicated staff of 80 people. The vendor’s proclaimed vision is to “be the retailer’s choice for price optimization, promotion optimization, and category analytics, and to empower its customers with advanced, adaptable and affordable software-as-a-service (SaaS) solutions for pricing planning, execution, and measurement.”
Todd P. Michaud, Revionics’ president and chief executive officer (CEO) had not much different advice to offer with regards to the PR from JDA that inspired this blog series, but he wanted to stress the importance of upstream and downstream forecast integration. Revionics is focused on replenishment, assortment, and other demand intelligence applications beyond pricing, promotions, and markdowns.
But the key success factor in his opinion is to operate with a fully integrated forecast, and that forecast cannot assume the absence of third-party applications. For example, a retailer may already have a third-party assortment or replenishment system that Revionics must integrate with.
Entire lifecycle pricing is a key ingredient to forecast accuracy, but there are other factors that need to be accommodated, such as the following: existing products/new product introduction (NPI)/end of life (EOL)/discontinuation (in other words, product assortment), available space, weather, logistics and replenishment policies, market cycles, etc. Real benefits can be multiplied if all of these factors work together in an integrated and seamless fashion.
Thus, it is very important that the pricing vendor synchronizes demand-influencing factors, whether the user’s application set (i.e. pricing, replenishment, etc.) is its own or comes from someone else. To that end, the flagship Revionics Advanced Pricing System (RAPS) suite includes the following four major components:
Moreover, RAPS’ foundational platform layers enabling the forecast, integration, analysis, and reporting are as follows:
DemandTec: All About Managing Consumer Demand
With nearly 200 largest retailers and CPG manufacturers as customers and with 330 employees, publicly traded DemandTec is arguably the retail pricing leader. Founded in late 1999 and headquartered in San Mateo, California, in mid-2007 DemandTec began trading on the NASDAQ Global Market under the symbol DMAN. In fiscal year 2009 the company reported US$75 million in revenues.
Today DemandTec offers much more than retail price optimization. The vendor has lately expanded its solutions across several dimensions of consumer-centric merchandizing and marketing:
DemandTec’s vision for the retail and consumer products industries it serves is for both retailers and consumer packaged goods (CPG) manufacturers to be able to work together collaboratively and efficiently. Moreover, the vendor blends art with science to understand (quantify) consumer behavior within a scalable on-demand software platform by applying advanced econometrics and analytics to data content coming from multiple sources.
Last but not least, DemandTec hopes to deploy these services across a collaborative, online network that enables retailers and their suppliers to work together and execute win-win plans. Indeed, connected via the DemandTec TradePoint Network, DemandTec customers have reportedly collaborated online with nearly 2.2 million trade deals, while achieving their respective financial objectives and long-term loyalty to the brand or retail banner. The vendor’s offering for CPG manufacturers will be depicted in a separate article in the future.
DemandTec calls its broad offering across many different functional areas a Consumer Demand Management (CDM) suite. The suite integrates and optimizes pricing, promotions, assortment, space, and marketing decisions. The company believes that to have all of this functionality in an integrated offering from a single source is a huge benefit for its retail customers.
DemandTec even believes that it might not compete as favorably for retail customers with annual sales below US$500 million. Namely, smaller and mid-size retailers may not consider their potential return from incremental changes in revenue or profitability sufficiently compelling to purchase a higher cost, higher value CDM solution.
An insight-powered and predictive platform is at the heart of consumer-centric decisions. The underlying DemandTec Platform contains the customer demand master with comprehensive data and insights on customers, stores, and markets for enterprise-level customers.
As explained in Part 3, advanced science is applied to multiple data sources (e.g., transaction logs, loyalty data, syndicated sales history data, inventory data, shipment data, etc.) to create the customer data master. Thereafter, the advanced science turns imported data into useful insights via arcane methods such as attributing, consumer decision trees, econometric modeling, basket analysis, segmentation, cluster analysis, forecasting, decomposition and variance analysis, and so on and so forth.
DemandTec will in the future focus even more on shopper segmentation and the value of integrating marketing and merchandising strategies. With proper merchandising solutions, retailers can execute on the strategies the marketing department develops.
What Enabling Technology is Required Here?
The quality and comprehensiveness of the science and technology needed to manage large data sets, model consumer demand accurately, and optimize pricing and other merchandising and marketing decisions is crucial. To enable (and complement) its pricing science, DemandTec and Revionics must provide the following technical capabilities and tools:
The market for retail lifecycle pricing software varies greatly by industry and business application, is rapidly evolving and fragmented, and is subject to shifting customer needs and changing technology. DemandTec and Revionics compete primarily with vendors of packaged software, whose software is installed by customers on their own premises. They also compete with internally-developed solutions, as larger retailers have historically tended to invest in in-house applications and advanced analytics provided by business consulting firms, marketing information providers, and statistical tools vendors.
Moreover, smaller retailers may also choose less expensive, less feature-rich solutions offered by niche retail software vendors, statistical tools companies, or business consulting firms. But their current principal competitors include traditional enterprise software application vendors such as JDA, SAP, and Oracle.
Part 5 will conclude this series by further analyzing the pricing optimization vendor landscape and other vendors’ approaches to the next-generation of pricing optimization solutions. Your views, comments, opinions, etc. about any of the above-mentioned pricing solutions and about the software category per se are welcome in the meantime. We would also be interested in hearing about your experiences with this nascent software category (if you are an existing user) or your general interest in evaluating these solutions as prospective customers.
part four of the series
Interesting series of articles. When will Part 5 be available?
Does Part 5 exist?
“The Art, Science and Software Behind (Optimal)Retail Pricing Software”
Part 5 will conclude this series by further analyzing the pricing optimization vendor landscape.
How about this, Mark :-)