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:

1. RAPS Everyday – a price optimization and planning environment, which for Revionics clients acts as their exclusive pricing system given its price management capabilities. Differentiating characteristics include the on-demand scenario planning functionality, allowing retailers to select and customize price strategies and optimize within moments to determine impact. With over $20 billion in retailers’ revenue under management, Revionics has proven the scalability question.
2. RAPS Promotions – an optimization and planning environment, this application can optimize an existing ad plan, or suggest the most optimal promotion mix given a set of goals from the retailer. Lots of thought went into the ability to support complex promotions while making the application user friendly. Worth noting is that Revionics is soon launching RAPS Collaborate, a vendor portal, which will serve as a convenient entry point for vendor items and deals.
3. RAPS Markdown – built to appeal to a wide variety of retail segments, this application optimizes prices and time intervals for clearing inventory. Retailers set goals of optimizing by inventory level or margin targets.
4. RAPS Replenishment – Launching in time for the NRF Big Show in early 2010, Revionics leverages its integrated forecast to optimize the store-level order. Revionics contends it has the most accurate forecast for doing this, given that it has clear visibility to the demand impact for price, promotion, and other factors that impact store-level inventory requirements.

Moreover, RAPS’ foundational platform layers enabling the forecast, integration, analysis, and reporting are as follows:

1. RAPS Integrator – an integration, interfacing, and data mapping software. The input can come from historical data, cost changes data, sales and movement data, competitive data, and price strategy, while the output can go to corporate back-office systems, point of sale (POS) systems, wholesaler systems, etc.
2. RAPS Analysis – the lynchpin component with proprietary (patent pending) retail pricing science and consumer demand intelligence. The system produces analyses on product demand, volume, key value item (KVI), competitive pricing, category margin, product family pricing, price per unit, promotion, temporary price reduction (TPR) analysis, brand equity & sensitivity analysis, and so on.
3. RAPS Portal – a number of portal-based personalized applications for viewing and analysis, such as the following: RAPS Price (to view base retail price optimization), RAPS Promotion (to view promotions/TPR optimization), RAPS Insight (to view reports and dashboards with relevant pricing metrics), and RAPS Shopper (a mobile device-based price checker).

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:

• Within merchandising, DemandTec supports everyday price optimization, everyday price management and maintenance, promotion optimization, markdown optimization, and assortment optimization.
• For retail marketing teams, the vendor supports the advertising and marketing execution process–including flyer (pamphlet) design and layout, proofing, in-store signage creation, electronic flyer creation (Web-based flyers), and one-to-one electronic advertising.
• Deal management for retailers as they receive, negotiate, and execute promotional offers (vendor funds) from and/or with their vendor partners.

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:

• Data Processing. The vendors receive and processe terabytes of customer data. This information is provided by retailers, CPG companies and syndicated data providers on a daily or weekly basis and usually includes all of a retailer’s POS transactions. The vendors process data through their proprietary software platforms, which integrate, validate, and cleanse multiple data types and enhance data quality by identifying and correcting common data problems.
• Grid Computing. The implementation of these vendors’ advanced mathematical software requires substantial computing resources. To address this challenge, the vendor distributes its software across a scalable grid of servers. This approach allows the company to automatically partition large computational problems into smaller computations and to execute those computations in parallel across the grid. DemandTec and Revionics design their grid architecture to ensure that optimizations are completed reliably and that computing resources are allocated dynamically to their various customers. Grid configuration enables a scalable performance and high availability with no single point of failure (SPOF) and network redundancy.
• Enterprise Application Technology. Since DemandTec and Revionics customers access their software through a Web browser, no software is installed on customers’ premises. As is the case with Revionics’ RAPS Portal, DemandTec’s portal technology allows the vendor to incorporate content from other sources and allows its content to be shown in other applications and portals. Customers can configure the user interface (UI), customer-specific fields, customer-specific workflow behavior, and portal layout and content. This scalable architecture allows the vendor to add new customers without requiring it to make substantial accompanying investments in IT infrastructure.
• Enterprise Integration. For example, DemandTec provides multiple integration points within its customers’ IT systems. Large incoming and outgoing data feeds use data-level integration to transfer bulk files on an automated basis. DemandTec uses industry-standard Web services protocols to communicate with customer systems and to process customer system requests. The MyDemandTec portal technology enables UI-layer integration between DemandTec’s system and its customers’ systems, allowing the vendor to display content served by customer systems and to serve content to customer systems using common industry protocols.

Competitive Landscape

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.