-By Joseph Tarnowski

The recession has been a boon for price optimization vendors, as more and more retailers look to them to help develop new pricing strategies for cash-strapped consumers. The half-dozen food retail deployments of the technology already this year are a testimonial to its effectiveness. Yet, the vendors haven't stopped there. Taking things a step further, they've developed new versions of the software with algorithms that are tweaked for today's economy.

Consumer demand management software vendor DemandTec, Inc., of San Carlos, Calif., last November launched its Price-to-Win Recession Package, a bundled offering for grocers looking to address specific pricing challenges created by the current economic environment.
The offering consists of a bundle of services developed to help grocers better understand changing consumer behavior, and to address these changes by optimizing pricing for 10 key categories directly impacted by today's economy.

"The full impact of the current recessionary climate remains unclear, but two things are clear: consumer behavior changes are already occurring, representing both challenges and opportunities for grocery retailers, and extra scrutiny is being placed on technology investments," says Marc Dietz, VP of marketing for DemandTec. "The Price-to-Win Recession Package is specifically designed to address both of these issues."

Revionics followed suit in December with its Markdown Optimization module designed for retailers. The system recommends pricing for products at the end of their life cycle, such as clearing seasonal inventory, eliminating products with outdated packaging, overstock situations and product closeouts. Markdown prices are optimized to control the pace of inventory reduction over a period of time, while maximizing profit margin contribution and revenues for these items.

"December is a tough time to be a retailer, and the Markdown Optimization module is designed to provide retailers with much-needed relief to help with their closeout inventory," says Todd Michaud, president and CEO of Revionics.

 Like its price optimization software, the solution is offered as a subscription-based software service that is accessed over the Internet, and can be integrated with the various other components of the Revionics Advanced Pricing System (RAPS) such as the Base/Everyday Price Optimization and Promotion Optimization modules.

In February, Revionics launched its Price Optimization Test Drive Program, which allows retailers interested in price, promotion and markdown optimization technology to pilot the Revionics RAPS system for minimal start-up costs and without a long-term commitment.

"Retailers today are being forced to revisit how they attract and retain customers," says Michaud. "There is an increasing trend in the retail industry to leverage advanced retail pricing science based on demand intelligence and consumer-centric merchandising. Retailers are recognizing that legacy pricing technology simply does not support the complexities of courting today's discerning shopper."

Under the program, retailers can launch a pilot program in 90 days — compared to a typical one to two years — and can select from a number of programs customized to their specific needs.

Extended Families

Recent months have also seen price and promotion vendors expanding their reach into retailers' IT infrastructure through acquisitions and partnerships — more in the past few months alone than during the entire preceding year. These partnerships for the most part leverage the price optimization companies' demand-generation algorithms to optimize other functions within retail operations.

DemandTec's acquisition of Connect3 Systems, Inc. in February enables the vendor to optimize a retailer's advertising planning and execution.

"This transaction enables us to move forward with our plans to provide what we believe is a truly differentiated, end-to-end promotion management solution in our industry," says Dan Fishback, president and CEO of DemandTec.
 
"DemandTec's direction suggests that they understand the need to combine advanced analytics with business workflow to address the complex promotion planning and execution process," says Stephanie White, VP of sales systems and operations at Giant Eagle, Inc., a regional independent grocer based in Pittsburgh.

The Connect3 product suite is being incorporated into DemandTec's End-to-End Promotion Management solution, a suite of software and analytical services for managing the promotion process, including internal and external collaboration, promotion calendar optimization, and multichannel, cross-media execution.

Revionics in December joined forces with Tomax to integrate its workforce automation capabilities into its pricing and promotion solutions on the theory that increased demand generates the need for an optimized workforce to help the grocer meet that demand.

Under the agreement, Workforce Optimization, a key aspect of the Tomax Retail.net solution suite, will be offered by Revionics on a Software-as-a-Service basis. At the same time, Tomax will offer the Revionics RAPS system to supplement and enhance its Revenue Management portfolio. The partnership includes joint marketing and sales, technical integration, implementation coordination, solution delivery, and technical support. 

"Revionics has always specialized in scientifically analyzing consumer shopping patterns and price sensitivity in the determination of everyday, promotional and markdown pricing," says Revionics' Michaud. "The very same demand intelligence data that we are analyzing for our clients is an essential part of planning and optimizing store-level workforce requirements for enhanced productivity and increased efficiency."
 
And since weather conditions can also increase demand for certain items, Revionics formed another partnership in January with Planalytics to incorporate its location and product-specific weather intelligence into the price optimization model. The partnership offers joint customers seamless integration of Planalytics' weather-driven demand indices into Revionics' RAPS pricing solution.

The integrated solution gives retailers more accurate planning tools and insights into where and how much weather will influence demand.


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2009 Price Op Implementations

HEB Mexico

Supermercados Internacionales HEB, S.A. de C.V., a wholly owned subsidiary of HEB Grocery Co., LP, began deploying a price optimization solution following the success its San Antonio-based parent company has seen from the software.

The chain is using San Carlos, Calif.-based DemandTec's Everyday Price Optimization software service. "We expect our investment in DemandTec to allow us to automate the manual aspects of our pricing process, create pricing strategies that will give HEB Mexico a competitive advantage in the marketplace, and offer our customers the best prices possible," said Rafael Lopez, CIO of HEB Mexico.

Lawrence Brothers IGA

Lawrence Brothers IGA, which operates 20 stores throughout west Texas and New Mexico, plans to deploy price and promotion optimization software to provide its merchandising team with the ability to quickly and accurately model and forecast its pricing and promotions.

The retailer is working with Florham Park, N.J.-based KSS Retail. "Our goal is to provide our customers with value and service," said Jere Lawrence, president of Sweetwater, Texas-based Lawrence Brothers. "We chose KSS Retail for several distinct reasons. The price optimization tool they are providing us is intuitive, self-learning and one that we'll be able to use in our daily workflow to better serve our customers. Additionally, and critically important, their current retailer customers are very happy with the KSS Retail optimization system and are achieving strong bottom-line results."

Spartan Stores

Spartan Stores has  licensed a price and promotion optimization software suite it will use to generate real-time merchandising simulations to enhance its price and product assortment.

The retailer will use the PriceStrat optimization suite from Florham Park, N.J.-based KSS Retail. "We have a consistent focus on satisfying our customers' needs and developing effective merchandising strategies," said Alan Hartline, EVP of merchandising for Grand Rapids, Mich.-based Spartan. "We chose KSS because of its consistent results working with retail customers."

Southern Family Markets

Southern Family Markets plans to deploy a price, promotion and markdown optimization solution to predict and influence consumer demand for products in both its traditional grocery and liquor store formats.

The grocer will use Web-based RAPS advanced pricing science and demand analytics system from Revionics, of Granite Bay, Calif., as a centralized merchandising and pricing tool across its enterprise to proactively plan, manage and execute a pricing strategy with the consumer's voice in mind.

"We operate in highly competitive markets as well as a difficult economic environment in the Southeast," said Jeffery Burkhead, SVP and GM at Birmingham, Ala.-based Southern Family. "Price optimization should allow us to remain competitive while protecting our margins."

Associated Food Stores

Associated Food Stores (AFS) will implement the price modeling and optimization suite from Florham Park, N.J.-based KSS Retail to model, refine and optimize pricing and promotions to drive value for the consumers of its nearly 500 member stores, which span eight western states.

"Our goal is to leverage the best solutions available to provide the right guidance to our retailers, ensuring that they are able to deliver the utmost value for their customers," said Brian Duff, SVP of Salt Lake City-based AFS.