Trust Issues: Leading With The Heart And The Head

Trust is a difficult concept to calculate when millions of dollars are at stake. Merchandising analysts at retailers for years have resisted the move toward using pricing, promotion, and markdown software, relying more on their gut feelings to tell them when the price is right.

But merchandising specialists have to realize that retail revenue-management software can help them stay close to customers and trends. "Many still view the software that resides in a server somewhere as telling them how to do their job," says Scott Langdoc, VP of retail research at AMR Research.

Not so, proponents say. And that has put the burden on vendors--Athens Group, DemandTec, IRI, i2 Technologies, Khimetrics, KSS, Manugistics, Oracle, SAS, and others--to develop software that delivers insight into purchasing, promotion, and markdown decisions in a way that lets retailers remain in control. That includes letting merchandisers override the software's recommendations, as well as simplifying the process of using the technology.

Early experiments with price-optimization software in the retail industry weren't without pain, and projects sometimes slowed to a crawl. Retailers struggled with difficult implementation issues such as complex integration requirements with legacy merchandising and pricing systems.

To ease new deployments, start with a few stores and products, Langdoc suggests. Hosted applications also are available to smooth the process.

Adopters have proved the financial benefits are there. Initial price- and markdown-optimization tests and implementations have seen improvements of anywhere from 2% to 10% on gross profit margins and, in some cases, as much as a 6% increase in sales, depending on the industry segment and the merchandise categories targeted.

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Fine-Tuned Pricing