By Nikki Baird, Managing Partner
2/3/2009
Last week, DemandTec announced the acquisition of Connect3, a firm specializing in marketing and promotion management. Technology synergies aside (I haven’t had a chance to look into that part yet), this is a great combination of products: DemandTec’s expanding base of merchandising and pricing solutions, together with the tools to help turn optimized offers into execution. Promotions, as our recent research on pricing trends found, is a critical space for 2009 – retailers are very focused on trying to eke out whatever they can from price-conscious consumers.
DemandTec’s acquisition is also an important step forward in the evolution of price optimization software. In the early days of the software, it was a fairly stand-alone process tucked away within merchandising. But as acceptance of the technology has increased, along with an understanding of the value it can provide, retailers are increasingly looking to better connect pricing capabilities and solutions with the rest of the enterprise. Offering that connection all the way through to the circular, coupon, or email campaign is rapidly becoming a must-have, just as it is critical to get price optimization connected all the way to the shelf in the store.
What other connections will be needed in future? Here’s my take:
Inventory. It boggles my mind to see retailers planning offers to customers with little regard for the supply chain implications of their demand tinkering. What is the point of offering a promotion if you don’t have the product available to meet the demand such an offer will generate? And it’s a double-whammy for retailers: here you’ve spent precious marketing dollars to lure customers into the store, and now not only will you lose out on this sale, you might just push them over the edge into abandoning you altogether.
Promotion optimization can make this challenge even more complex, if you tie it into a loyalty or CRM program. With promotions, you can look at historical demand spikes to ascertain future promotional lift. With offers, especially if you are using trigger-based offers, you have to be able to predict how many people will actually trigger the offer, and of those, how many will redeem it. And pass those predictions on to the supply chain – by geography at a minimum – so that they can have the product poised and ready to deliver when those offers are redeemed.
Space. If price is the regulatory valve that determines the speed of movement of inventory, then the space allocated to that product on the shelf is the size of the pipe. If you’re making pricing decisions that speed the flow of product movement, without taking a look at the subsequent impact on replenishment – and the constraint that number of facings and depth place on how many can sit on the shelf – you’re simply increasing the chances of a stockout. It’s not just forecast inaccuracy that drives poor service levels on promoted products.
Other Marketing Vehicles. I admire the synergy possible between DemandTec and Connect3 – the latter of which provides critical process automation to a very messy marketing process. It’s proof that the circular alone is not going to be the marketing vehicle of the future. Oh, it’s not dying out in 2009 or probably even 2012, but it will eventually: JCPenney’s CEO commented once on circulars – a comment that has stuck with me. At NRFTech last summer, he said that in 2008, the same spend on circulars reached half of the people it did at the beginning of this decade.
In the meantime, there are online vehicles, email vehicles, and increasingly in-store (back to triggered offers again) and mobile vehicles – as I just forced my husband to buy a $1 Kraft recipe app for his iPhone so that I could play with it. Retailers, especially grocery retailers, have been almost singularly focused on the circular, but that same process is going to need to be coordinated across far more channels before promotion optimization reaches its full potential. Add more fields to your customer database: promo optimization is going to need to know what vehicle was used to make the offer to a customer, and which channel was used to redeem it. Without that information, how can you be sure the right kind of offer ever makes it into your target customer’s hands?
It’s not clear to me yet whether these additional connections will need to be functionality provided by optimization vendors, or simple integrations with other solutions that do these jobs already – or something in between. But no matter what, these connections at a minimum will need to be made before we reach anything close to maximizing the potential of this space. And in this economy, if you’re not tight on the offers you make to consumers, you’re not going to be right with your customers.
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