Price Management and Profit Optimization Seen Set to Boom

ROI driving increasing enterprise investments in PMPO, Yankee Group reports; double-digit market growth predicted for this supply chain segment

ROI driving increasing enterprise investments in PMPO, Yankee Group reports; double-digit market growth predicted for this supply chain segment

Boston — July 15, 2005 — Will 2006 will be the year for price management and profit optimization (PMPO) solutions to break out? Yes, says technology firm Yankee Group, which calls PMPO "the best-kept secrets with enterprises."

Market growth of PMPO solutions is expected to reach $1 billion by 2007, ARC predicts in its report, "Price Management and Profit Optimization Solutions Are the Best-Kept Secrets in Enterprise Software." Today, enterprise budgets average up to $5 million for pricing solution deployments, indicating the growing breadth of PMPO initiatives, the consultancy said.

The majority of companies implementing these solutions are Fortune 1000 enterprises that have realized impressive return on investment (ROI) from profit improvements of up to 20 percent. No other packaged software in the market delivers the same type of top-line benefits while addressing bottom-line inefficiencies, according to ARC.

Leading Indicators Point to Rise

As the market gains momentum, a number of leading indicators signal the growing role that PMPO will play in top-level business strategies:

  • Pricing solutions are increasingly becoming enterprise-wide deployments, often large-scale global rollouts.

  • Leading systems integrators and consulting firms, such as Accenture, Deloitte and IBM Global Services, are building practices to facilitate PMPO strategy, process reengineering and technology implementation projects.

  • An increased number of educated and qualified request for proposal (RFPs) signal a downstream pull for pricing solutions.

  • C-level executives are refocusing on revenue and margin growth rather than cost cutting.
Best-kept Secret

Yankee found that enterprise investment in PMPO leads to 10 percent to 20 percent profit improvements at a rate unlike any other packaged software solutions on the market. In addition, enterprises experience a significantly improved margin contribution and revenue uplift, as well as better managed market volatility and supply balance. Many leading companies that already adopted PMPO solutions have either met ROI expectations or, in many cases, exceeded them.

"PMPO has been the best-kept secret of early enterprise adopters, many of whom are using these solutions to outmaneuver competitors and gain market share," said Kosin Huang, program manager at Yankee Group. "Many of these companies are hesitant to attest to the amazing ROI stories from their implementations, for the fear of losing a unique competitive advantage."

During the next two to three years, acceleration of comprehensive end-to-end pricing projects that span strategy, process and technology will establish PMPO software as a fundamental pillar of a complete price management initiative, Yankee believes.

Enterprises are beginning by rolling out a price optimization, price execution or price analysis solution; however, these deployments are self-funding and are building momentum for the adoption of the full suite of pricing capabilities, which includes all three modules.

Additional Articles of Interest

— 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.

Benchmarking is one way to improve your supply chain's competitive advantage. For easy guidelines that will help overcome any challenges benchmarking may present, read "Standardizing Benchmarking to Achieve Results."

— P-cards continue to advance, and e-payables solutions are making headway, but the convergence of the financial and physical supply chains is still a work in progress. Read more in "Enabling the Financial Supply and Demand Chain," in the April/May 2005 issue of Supply & Demand Chain Executive.