Pricing Management in a Down Economy -- Part 2

Part 1 of this blog series expanded on some of TEC's earlier articles about companies' need for better pricing management and optimization practices. It also introduced the FUD (fear, uncertainty & doubt) notion about how appropriate these solutions might be in a down market. It appeared that at least the service sector (including spare parts pricing) remains largely impervious to the economic climate (if not even bolstered by a downturn).

So, What's in Store for Pricing Management Solutions?

Given that the way the manufacturing suppliers position their products and pricing changes with the economy, natural question is whether pricing solutions providers will suffer or blossom these days. Namely, during good times positioning is about increasing revenue, and that case has been proven by pricing optimization solutions. However, in bad times it is rather about lowering costs where pricing doesn't seemingly help, but rather procurement-oriented applications.

In addition, people become more conservative when times are hard and pricing management & optimization is a category of software that is still not "proven" in the eyes of the conservative market. Still, many pricing vendors mentioned in Part 1 claim that business remains great for them (some continue to grow at over 60 percent year-over-year).  One vendor recently (incognito) said that the economy hasn’t hurt its business yet, but it would be a stretch to say it’s helping.

A recent Business Week article entitled "Five Don'ts for Marketing in Tough Times" might also provide a ray of hope for pricing management solutions. The jury is still out on whether the recently announced Oracle Deal Management offering is perhaps a sign of the market's validation, a threat to the pricing specialist vendors, or both.

Some of the pricing specialist vendors see no real consequence to Oracle's forays, since price optimization is about science, software and expertise.  The relatively simple scoring and analytics that Oracle offers will not qualify according to them. The likes of Zilliant and Vendavo have nearly 200 employees who "live and breathe" pricing for profits (many have been in pricing for 15 years or more). If one compares that with the dozen or so pricing people Oracle currently has, the difference in expertise might actually make the software giant the small upstart in this market.

Most of the pricing solutions are designed to solve very specific problems that come up in specific industries (mostly retail).  Zilliant, for instance, is really a package for figuring out price elasticity within defined segments.  Obviously, in a recession, price elasticity changes, so the solution might go berserk (or "kablooey" in nerdy terms) until it acquires enough data, then it goes on as before.  DemandTec would go along similar lines, but since a lot of what it really does is to support retail merchandising, its system won't necessarily "blow up" initially; in fact, it will probably be helpful.

What about Fast Moving Consumer Goods (FMCG) Retailers?

Revionics, Inc. is an upbeat provider of Software-as-a-Service (SaaS) subscription offering over the Internet for lifecycle price optimization, including base price, promotion, temporary price reductions (TPR), and markdown optimization technology for FMCG Retailers and distributors.  The Revionics Advanced Pricing System (RAPS) generates increased sales and profits through sophisticated consumer demand intelligence and proprietary retail pricing science, which includes weekly price remodeling as well as scenario planning, forecasting, and category analytics.

In July 2008,  Revionics announced the addition of key modules to its SaaS solution, so RAPS now includes the following:

  • RAPS Optimization On-Demand offers retailers visualization of price elasticity, whereby retailers are able to see in advance how price changes will impact revenues, margins and item-level movement;

  • RAPS Scenario Forecasting offers retailers the ability to model and evaluate alternative category, group or zone-level pricing strategies to ensure optimized retail performance. This module allows the retailer to see the anticipated benefits and consequences to strategy changes before actually committing to them;

  • RAPS Markdown Optimization offers retailers a tool for pricing end-of-lifecycle (EOL) products such as clearing seasonal inventory, products with outdated packaging, products with overstock situations, and other related events.  Markdown prices are optimized to control inventory reduction over a specified period of time, while maximizing margin contribution for the relevant items;

  • RAPS Advanced Export offers retailers the ability to prioritize, limit and export the most effective price changes available to stores based on margin contribution, revenue or correlation to the retailer’s price strategy. This module also enables the retailer to designate minimum or maximize price change amounts and control price change frequency; and

  • RAPS Shopper equips retailers with the ability to collect and import competitor retail prices via a Microsoft Windows Mobile Data Collection device such a mobile computer.   With RAPS Shopper, users can automatically scan bar codes and enter competitor prices including base retails, TPRs, and promotional prices.   This competitive data is then imported and analyzed by RAPS to align retail prices with designated competitors.

Revionics also announced another major release of the existing RAPS Promotion Planning and Optimization module.  The vendor states that the accelerated pace of new functional modules is nowadays possible by leveraging its advanced retail pricing science for different applications/purposes.  Revionics believes its approach to development and the SaaS model is helping it to leapfrog many of its competitors and win some great new customers.

Todd P. Michaud, Revionics' President & Chief Executive Officer (CEO), with whom I've also dealt while he was an executive at Retalix, recently shared with me his views on the economy. To his mind, the economic environment is having an impact on a number of things:

  1. Many retailers see a greater need now, more than ever, to have a clearer picture of consumer demand patterns. As a result, Revionics has reportedly seen a significant increase in interest in its technology of late. Interestingly, a bad economy is actually beneficial for many of Revionics customers. Many grocery store operators are seeing sales increases as families eat at home more frequently as they reduce eating out. On the other hand, retailers in non-food verticals are seeing more negative consequences as spending decreases in those segments (i.e. apparel, footwear, etc.);

  2. Consumers are making spending adjustments within their market-baskets; for example, cheaper private label sales are on the rise at the expense of national brands as consumers try to extend their spending power; and

  3. Gas prices are central to many changes in consumer behaviors, but one should keep in mind that certain commodities are seeing ridiculous wholesale cost increases. For example, corn, beef, chicken, dairy products, etc. are seeing cost increases as the ethanol production consumes corn and other commodities. These commodities are used for feed, which in turn drives up the price of livestock.

Therefore, dear readers, what are your views, comments, opinions, etc. about Revionics' moves and about the pricing optimization software market in general? We would also be interested in your experiences with this nascent software category (if you are an existing user) or with your current (possibly ineffective) practices, and your general interest to evaluate these solutions as prospective customers.
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