Revionics’ mission is to increase retailer profitability by enabling better management of price, promotion, markdown, inventory, assortment & space. Revionics is unique in that we offer an integrated solution that shares a common demand forecast across all of these functions. In this article, I answer the question, “Why is an integrated solution better than individual point solutions?”

First, let’s cover some basics. A demand forecast is more accurate if it accounts for all price, promotion, and markdown activities. For example, demand will increase during promotions. In addition, the demand forecast must account for seasonality including holiday lift, day of month, and special events. Finally, the demand forecast must reflect cannibalization and affinity. For example, we’ve seen promotions on Campbell’s Tomato soup cannibalize Chicken Noodle and drag along sales of Kraft American Cheese used to make toasted cheese sandwiches.

Second, let’s not confuse a demand forecast with a sales forecast. A demand forecast estimates how much you might sell, while a sales forecast estimates how much you will sell. Why is there a difference? In short:  assortment , space and inventory. Let’s take an example:  Suppose that the demand forecast for Tide Detergent is 30 units in a given store for a given week. However, the assortment planogram allows just one facing with a shelf capacity of 7 units. The workforce plan calls for the shelf to be replenished every three days. At most you can sell only 21 units during a given week. The sales forecast must be lower than the demand forecast.

Let’s consider just pricing for a moment. Suppose we are modeling and optimizing prices in a category. The prices will be implemented in the store in six weeks. Optimization recommends decreasing the price on Hefty Recycling Bags. However, the assortment plan shows that these bags will be discontinued in 8 weeks. An integrated solution won’t waste the price change on an item that is being discontinued—a point solution would.

When it comes to assortment and space planning, integration with price, promotion, and markdown is easy to justify. Any item that is discontinued from the assortment should automatically go on markdown. Assortment and space optimization depends on price and promotion. For example, an item may be eliminated from the assortment if its price is high, but at a lower price, it might make the assortment cut. An item may have enough facing for everyday pricing, but what if the item is promoted frequently. Then the shelf space should be supplemented by either an end cap or a display. Or, suppose an item does not make the assortment cut, until one considers the lucrative vendor incentives received for promoting that item.

There is also the argument that if the demand is so high that I keep running out, I may either want to increase price, or increase the number of facing. Which is the best choice? Only an integrated solution can provide the answer.

There are several examples where Inventory optimization depends on price and promotion. Everyone knows that promotions can have a huge impact demand and consequently on order quantity. To a lesser extent, the same is true of base price changes. But does everyone understand how a promotion might cannibalize sales. For example,  an general merchandise retailer might have a location with only 25 packets of Fruit of the Loom t-shirts on the shelves.  Normally this would not be enough, but due to a promotion on Hanes t-shirts, the cannibalization of Fruit of the Loom means I have more than enough.

Another consideration is avoiding vendor disconnects. For example, suppose a vendor offers an incentive and the retailer runs a promotion. The vendor may have planned for 100 cases but the retailer’s demand forecast is 200.  If the vendor doesn’t have the supply to meet demand, the retailer suffers lost sales. This can be avoided by sharing the demand forecast with the supplier thru the Revionics Collaborate, our Supplier Portal.  Here, the retailer can share the promotion plan and the forecast with their trading partners, and the supplier can submit deals that are better tailored to meet demand expectations.

An integrated solution solves many problems for both the retailer and the vendor. While this all may seem too advanced, consider the pace of change in the world today. Revionics is actively driving change and delivering tomorrow’s solutions today.

As Revionics announces the release of Collaborate, our new supplier portal for retailers, it causes me to reflect on  the web-based trading exchanges, marketplaces, and other “one-to-many” and “many-to-many” models I have bumped into over the past 15 years.  Regardless of model, the most successful initiatives have one thing in common – the party sponsoring the initiative must be the buyer.  Supplier-driven models are well intentioned, but don’t get traction.

The promise is consistent – improve the supply chain by creating an automated, seamless way for buyers to communicate with their suppliers.  Industry-sponsored initiatives stall is when standards are created or enforced, business models are debated, and when the key buyers don’t lead the charge.

At Revionics, our blood bleeds retail, so our perspective is that exclusively of the retailer.  Collaborate, therefore, reflects a rather retailer-centric view of the world.  Within our community of over 100 retail clients, we consistently heard:  Help me create efficiencies by improving the way I do business with MY suppliers.  Help me automate the collection of data from my smallest, least efficient suppliers.  Help me collect my deal information and integrate it into my promotions planning platform.  Help me to know if a deal is good or not before I ink it.  Help me to share information with my supplier community in a way that is controlled, but helpful to my business…

Collaborate’s strength is in its blend of simplicity and sophistication.  For the retailers ready for on-demand promotional modeling of deal monies offered by suppliers, Collaborate can act as a hub of negotiations and deal management.  On the other hand, if a retailer simply needs a central repository for hosting data for their smaller, less sophisticated suppliers, Collaborate can do this too.  Collaborate provides a comprehensive suite of capabilities that are adaptive to the needs of each individual retailer.

Revionics has proven scalability for web based applications – we host and manage pricing for over 20,000 stores each week.  Collaborate leverages the same SaaS platform and creates a private, portal experience for each retailer.   With our deep expertise in systems integration, we have the ability to receive a variety of inbound data types (XML, EDI), and pass information to existing retail environments for the least possible disruption.

Yes, I’ve bumped into many initiatives with the intent of solving supply chain initiatives in the past.  In the end, the buyer wins with Revionics Collaborate.  Collaborate gives the retailer the power to insist on better standards from all suppliers, regardless of size.  I encourage retailers out there who are struggling with disparate ways of managing inbound data from their suppliers to investigate Collaborate.  For more information, visit www.revionics.com/raps-collaborate, or email us at info@revionics.com.

For the past 2 years, retailers’ private brands have been the topic of much discussion. In the failing economic conditions we are experiencing, many consumers look to private brands as a way to stretch their budget. Retailers have reacted by continuing to introduce additional offerings and manage favorable pricing positions that have also been one of very few bright spots in a mostly bleak sales and profit battle field.

In Europe, private brands have long held a significant position in both sales as well as overall percent of assortment. In the US marketplace, private label has been viewed as a lesser quality or subpar brand leading to a very limited penetration for many if not most retailers. But in a recent private label report, IRI has made the following observation:

1. In the shopper survey, consumers told us that purchasing a private label is a brand-driven decision that involves many factors including their own emotional connection to the retailer itself.
2. In looking at shopper attitudes of private label quality, over 78% of both lower-income and higher- income consumers believe that private label products are typically of excellent quality.
3. Four-of-five shoppers are now “sold” on private label quality indicating that product marketing during the current recession is successfully expanding the positive reputation and reach of these products.

‘IRI Private Label report

As private brands continue to grow in acceptance by the consumer as a viable substitute or replacement to the national brand, retailers will need to continue to drive private label to the fore front of their assortment and marketing plans to keep pace. Successful retailers have begun brand building on their private label offerings insuring the customer’s confidence for the banner carries over to the brand.

Now more that ever retailers are in need of insuring that they have a clearly defined strategy regarding  the relationship pricing between the National Brand and private label item. Price optimization becomes a critical component in the execution of this pricing strategy. By capitalizing on the consumer demand signals of an item, the optimum price and profit potential can be realized from this ever growing segment of the assortment.

Private Label items have gained a significant foot hold in today’s retail arena, and will continue to grow in impact and importance well beyond the recovery of this economy.   For more information, watch our webinar, “Good, Better, Best” by clicking here.  Comments are welcome!

Revionics has pioneered the delivery of price, promotion, and markdown optimization thru the Software-as-a-Service (SaaS) model. This delivery model is much more cost effective than either on-premise or on-demand delivery. Instead of purchasing a software license up front and then paying annual maintenance, SaaS is a subscription-based offering where retailers pay-as-you-go. Revionics assumes all the risk of owning and managing the hardware. All customers are on the same version of the software, so up it is much easier to manage for Revionics—and more cost effective for the retailer. Most importantly, the SaaS model aligns the interests of Revionics with the retailer because is the solution does not deliver value, the retailer is free to cancel their subscription.

SaaS is a game-changing technology trend that is gaining momentum . Today, every major software vendor has a SaaS initiative including Microsft, Oracle, and SAP. This is a triumph of Marc Benioff—the founder and CEO of Salesforce.com. The SaaS model was pioneered by Marc at Salesforce. Recently Marc told his story in his book—Behind the Cloud. This book tells the story of how Marc built Salesforce. He shares his experience and wisdom with the reader. Anyone who works with SaaS technology will benefit from the insights that Marc provides.

I want to encourage retailers to pick up this book. As an incentive, I’ll will give $20.00 to the first retailer who correctly responds by email (marketing@revionics.com) to the questions below.

The pirate flag that flew over Apple in the early days was a symbol encouraging employees to

1. Sink Microsoft
2. Think differently
3. Rebel against the establishment
4. Share songs on the internet

According to Gartner Group, what percentage of Siebel license sales resulted in shelfware?

1. 15%
2. 25%
3. 35%
4. 65%

What company is known for its Machiavellian culture as personified by “We eat our young”?

1. SAP
2. Left Coast Software
3. Saba
4. Oracle

In early 2000, Salesforce.com gave an extravagant party with a theme pulled from this classic author?

1. Sun Tzu
2. Virgil
3. Dante
4. Homer

Who attended the Dreamforce 2004 user conference?

1. George Bush
2. Colin Powell
3. Malcolm Gladwell
4. Howard Schultz

Who was SalesForce’s first customer?

1. Blue Martini
2. iSyndicatel
3. Walmart
4. SunGard

Early enhancements to Salesforce included

1. Adding an API
2. Renaming the Tabs
3. Converting the Technology to ABAP
4. Monitoring customer usage

Which of the following are Salesforce brands

1. Apex
2. Force.com
3. AppExchance
4. IdeaStorm
5. Trust.Salesforce.com

The 1-1-1 model represents

1. Travelers can carry 1 quart-sized, clear, plastic, zip-top bag; 1 bag per passenger placed in screening bin. 1 liquid ounce volume per bottle.
2. Integrated philanthropy 1 percent equity, 1 percent time, 1 percent product.
3. Sales force desired to be #1 in North America, #1 in Europe, and #1 in Asia.

Who stated, “You can’t just give computers to schools—you have to train the teachers.”

1. Julie Trell
2. Alan Hassenfeld
3. Suzanne DiBianca
4. Colin Powell

Employees who have a favorable impression of their company’s philanthropy  are

1. Twice as likely to remain with their employer.
2. Three times as likely to remain with their employer.
3. Four times as likely to remain with their employer.
4. Five times as likely to remain with their employer.

Where did Salesforce locate their first European Headquarters?

1. London
2. Paris
3. Frankfurt
4. Dublin

What was the total amount of funding that Salesforce raised

1. $15 M
2. $35 M
3. $65 M
4. $105 M

Microsoft has a valuation of 4.5 times revenue, what is Salesforce’s valuation

1. 4 times revenue
2. 5 times revenue
3. 6 times revenue
4. 8 times revenue

Don’t be embarrassed…You may think that everyone else in the retail industry is using advanced pricing tools and that you are still in the era of the dinosaurs; the fact it: you are in the land of the dinosaurs, but so is the majority of retailers!

Many retailers that I talk to appear to be somewhat embarrassed, and reluctant to admit that they still do their everyday and promotional pricing in Excel. The truth of the matter is, there really hasn’t been a better tool until recently. Advanced price optimization tools have recently been introduced into the retail arena, before that, margin management and competitive positioning was about all that could be leveraged to determine the best price point.

The first generation pricing technologies have gone through a typical technology introduction life cycle. Initially there was great excitement from the early adopters in the industry for this magical ‘cure all’. A few brave souls ventured into the promised land, only to find that it wasn’t all that it was hyped up to be; there were issues with the first generation solutions. Some of the early adopters got burned and had a bad experience, but there was still optimism that something was there to help price products and services better.

As the first generation solutions lost some of the sizzle, the technologists went away and tried to figure out how to make this promising invention usable by the people that would need to adopt it. These technologists appear to have accomplished their mission, because we are now seeing a significant renewed interest in what is now called “full lifecycle pricing”, and the industry appears to be moving this technology into the “must have” category instead of the “that’s interesting” category.  With many successful installations now in place for several years, across many different retail verticals, the “second generation” technology is now becoming mainstream.

So, you may currently still have a lot of company in the land of the dinosaurs, but it doesn’t appear retailers will stay there long.  Revionics is seeing significant interest in adoption – not just from one department at a retailer, but as a collaborative decision between business users and the IT team.   If you haven’t looked at a price optimization solution demonstration in the last 12 months – it’s a great time to look and see if it’s time to leave the land of Excel.

True or false? Is it possible to lower prices and make more profit and revenue, even at a lower margin? For many, this seems counter-intuitive, but it is definitely true. We were recently working with a retailer on their detergents category where they had priced an Ajax product at $1.79. We found this product by sorting on price elasticity in the price review screen of RAPS Everyday Price Optimization. The price elasticity of Ajax was greater than 3.0, which represents very strong price sensitivity. Most items have a price elasticity between 0.8 and 1.4.  For those unfamiliar with the calculation, price elasticity is simply the percent change in units divided by the percent change in price. So a price elasticity of 3 simply means that if we drop the price by 10%, the units will increase by 30%. The table below compares profit and revenue between the current price of $1.79 and the $1.49 price suggested by Revionics:

Notice that both revenue and profit increase for the suggested price of $1.49, which is lower than the retailer’ current price of $1.79. Notice that while the margin decreased from 39% to 27%, both the profit and the revenue increased.

Many retailers are missing the opportunity to increase profit and revenue by lowering the price on sensitive items that are priced too high. Revionics solution, RAPS, applies powerful scientific algorithms to isolate the influence that price has on unit sales.  We empower the retailer by making this visible and actionable in their pricing strategy.

• True or false? Price sensitivity can vary by store. This is not a trick question—the answer is yes, of course, some stores are in affluent locations and others are not.

• True or false? Successful retailers know the price elasticity for each item in each store. Yes, as you guessed this is true.

Look for next month’s blog when we challenge our readers to a game of truth or dare…

Truth:  Do you know price sensitive each item is at each store?
Dare:  Challenge us to raise your profits while lowering prices.  This is a game  worth playing!

For some time,  Revionics University has been producing highly attended web seminars pertinent to the retail industry. These seminars have covered a broad range of topics regarding general trends as well as best practices in relation to pricing. With Revionics University expanding, courses targeted directly towards Revionics customers are now available.

Retailers often purchase software or a pricing service and do not fully utilize the value and potential from that purchase, utilizing only a small percentage of the capabilities. We at Revionics want to make sure that our customers are knowledgeable and up-to-date on the capabilities of the RAPS pricing software and price strategy services.  The best way to do this, we concluded, is through training that is easy to access and available to all. The Revionics University Customer Training courses are the latest edition to Revionics University and consist of several courses covering the topics of RAPS Everyday Pricing, RAPS Promotions, RAPS Markdown, and RAPS Insight Reporting. Advanced courses will be available in the near future for more intensive core functionality courses.  The expanded course offering will include topics such as advanced scenario planning, competitive response, promotion effectiveness, private label management, and more.

The Revionics University Customer Training courses should be leveraged within an organization as an aid in the building of expertise in using the RAPS modules. These training courses are recommended for new employees to become familiar in using the RAPS pricing software as well as seasoned users looking to become accustomed to the more sophisticated features offered. The Revionics Customer Training courses will be offered on Friday mornings, and recorded to make it easier for individuals to watch on-demand. Core introductory courses will be offered on a monthly basis.

Revionics University will be hosting a special course, “Understanding Elasticity and Product Demand” on Friday, November 6^th at 9:00am. This course is recommended for individuals who are interested in learning more about the science behind price optimization. Click here to register.

As I stated above, Revionics University will be adding additional courses in the near future. Your recommendations and suggestions on potential course ideas are always welcome. Please contact me for additional information on the Revionics Customer Training sessions at jsmith@revionics.com.

Historically, the US has led the adoption of advanced pricing software.  With retail price optimization being invented in the United States – particularly in Sacramento as a matter of fact, it makes sense US retailers are more comfortable with the technology since they have been exposed to it much longer.  Many of their domestic retail peers have implemented some type of price optimization solution and are reaping the significant rewards of doing so. In other words, optimization is a known and proven commodity in the United States.

Retailers outside of the US seem to have caught the optimization bug. Interest and inquiries are consistently gaining at a rapid pace.  Historically, these international retailers have tended to be more progressive, adopting new technologies sooner than their US counterparts. Adoption should be quick now that there is interest.   Through conversations with many of these retailers over recent months, I have discovered that they face similar challenges, but information on advanced pricing solutions is not readily available for them.  On a recent visit to a retailer in the Asia-Pacific region, it was not surprising to find us having the same discussions as with retailers in the United States; they are facing the same challenges and are thirsty for information on how to solve retail pricing problems.

International retailers have a great advantage compared to the early adopters many years ago in the US. They will be able to leverage the fact that price optimization has matured, with second generation price optimization systems now on the market as well as many installations completed and live for a number of years. International retailers should plan for a healthy return on investment through the use of price optimization systems, in both profit and productivity savings.  If you’d like more information, download my white paper to learn more about functionality to look for in second generation optimization solutions.

Last week, Federal Reserve Bank Chairman Ben Bernanki announced that the US is on the “cusp of recovery.”   I couldn’t agree more.   As you can see from my previous posting, I have suspected a turn in the economy for the past few months, and have urged retailers to start focusing on the recovery.   As a provider of pricing software, Revionics has a front-row seat to how leading companies adjust for different economic conditions.   Despite the obvious economic improvements that we are starting to see, it is clear that consumers generally remain very price sensitive.

Responding to the more frugal shoppers, a price war has begun in the supermarket industry.   Safeway announced the intent to lower their prices by 25%.    And at Revionics, many of our clients are also making significant price investments.    The goal for these retailers is to drive traffic and market share.    It is hoped that absolute margin dollars will increase by selling a lot more goods to price sensitive consumers.   Many retailers are reflecting on some key questions;  How do I remain competitive while maintaining my margins?  How do I reinvent my price image to better attract a value-centric shopper?   If I lower my prices, will I see a corresponding increase in sales?

So, with the positive signs in the economy, this has been a very good time for companies like Revionics that offer consumer demand centric pricing and promotion systems.    Retailers are looking for more sophisticated ways to make certain that their pricing and promotions are calibrated to the needs of their consumers.    Old strategies, old systems, and old techniques are no longer adequate for the pricing challenges ahead in this very unique economic environment.

Times are changing… or maybe it’s more appropriate to say times have already changed. The easy days of having the pricing function be side task in a retail organization are over; price is more important than it has ever been.

The economy seems to have un-expectantly jumped up and slapped retailers in the face, and knocked them back a few steps, a little dose of reality; but they are back fighting even stronger after gathering their wits. Nobody was prepared, nobody saw it coming, nobody wants it to be here, but it is here, so we have to deal with it. Higher unemployment, lower wages, higher medical costs, higher fuel costs; money is tight. Consumers are looking at the price they are paying for products, and you need to be looking at those prices as well; it is very important.

For decades retailers have had very friendly and somewhat naïve customers, life has been good, no need for them to watch every penny spent…. Well, times have changed. Consumers are more aware of product prices than they probably ever have been in their entire life; retailers have not had to deal with this in the past. Add that in with the proliferation of discount retailers, and it makes running your business much more difficult than it ever has been. To compete in today’s retail environment, it is imperative to have a sophisticated tool to help you out. Full lifecycle pricing analytical tools are now part of the mainstream arsenal of tools retailers can use to be successful; you can’t survive without it.

Price optimization technology has come to be a mainstream technology that has been around for over a decade.  There are hundreds of successful installations in use today, helping to implement retailers pricing strategy in a better fashion than if done via Excel sheets, with simple margin management, or by matching competition.    Retailers who have not taken the time to investigate today’s pricing technology are missing a critical opportunity to change with the times.