Retail Price Optimization Solutions Seen Still Emerging

No one solution provider leads pricing throughout the product lifecycle, Forrester finds

No one solution provider leads pricing throughout the product lifecycle, Forrester finds

Cambridge, MA — August 31, 2004 — More and more retailers are adopting price optimization solutions, but these applications are still a work-in-progress and no one vendor has taken the lead in offering solutions to cover the entire product lifecycle, according to a recent report from Forrester Research.

Forrester found that an increasing number of retailers are implementing pricing solutions that recommend the optimal prices throughout the product lifecycle — from initial pricing to markdowns — to improve top-line performance.

At the same time, these tools are evolving from standalone solutions to those integrated with the supply chain and offered by a variety of vendors. Forrester's assessment of the latest solutions from the five leading vendors revealed that pricing optimization is still an emerging market, with different leaders in each stage of the product lifecycle.

"Although most retailers understand the benefits of a tool that can manage prices throughout the lifecycle, we found that these solutions are still purchased as standalone tools to address specific needs," said Noha Tohamy, principal analyst at Forrester. "For example, an apparel retailer may purchase a markdown optimization component to better manage clearance prices, while a large grocer would be more interested in base pricing. The vendors need to provide a compelling integrated offering to overcome this challenge and prove the benefits of business intelligence across the entire product lifecycle."

To assess the latest price optimization solutions throughout the product lifecycle, Forrester applied its "Wave methodology" to offerings from the five leading vendors. Vendors from a variety of backgrounds were invited to participate, including: retail-focused (Khimetrics and DemandTec), enterprise resource planning (ERP) and legacy merchandizing (Retek), and supply chain planning and execution (i2 Technologies and Manugistics). ProfitLogic, JDA, and SAP declined to participate.

Vendors were rated in each component of the product lifecycle across three dimensions -- functionality, strategy, and market presence. All five vendors' offerings varied in each of the categories throughout the product lifecycle:

  • Initial pricing — recommends category- and store-level prices to meet corporate objectives. Khimetrics edged out DemandTec in functionality in Forrester's evalutation.

  • Promotions pricing — analyzes results from past promotions and their effectiveness and recommends the optimal promotional event throughout different phases of the product's life. Khimetrics is the clear leader, according to Forrester.

  • Markdown pricing — determines the best method for clearing inventory at the end of a season or end of life of a product. i2 is ahead of supply chain competitor, Manugistics, Forrester said.

  • Overall pricing — offers overall visibility and recommends optimal pricing along the entire product lifecycle. Retek led for the full suite offering, based on Forrester's analysis.
Forrester detailed its research in the report "Grading Retail Pricing Solutions," issued August 10.

For more information on price optimization solutions from both the buy- and sell-side perspectives, see the two-part series "Finding the 'Right' Price" in the July 2001 (sell-side) and August 2001 (buy-side) issues of iSource Business (now Supply & Demand Chain Executive) magazine.
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