Managing Consumer Demand: Art Becoming Science

Mar 04, 2004

By Al McClain

As a veteran of the days of the “pile it high” school of merchandising, it’s
sometimes hard to realize that retailing is fast becoming more of a science
than art, but it is. . . and maybe that’s a good thing.

In a world where Wal-Mart wins on price all or at least most of the time, applications
that can help retailers price, promote and forecast strategically, on an SKU
by SKU basis if necessary, would seem to be almost magical tools if utilized
properly. All that scanner data may finally be doing something other than taking
up space in data warehouses.

In a presentation adjacent to the MarkeTechnics convention in San Francisco,
DemandTec unveiled DemandTec4™, a new version of its consumer demand management
(CDM) application, with the promise of better pricing, merchandising, promotion,
and markdowns, all leading to improved revenue and profit. This improved web-based
application goes beyond their previous offering by enabling retailers to use
a rule-based system to price all merchandise, and test complex “what if” scenarios.

Spokespersons for Duane Reade, Radio Shack, HEB, and Cargill extolled the virtues
of the system. Duane Reade, a Manhattan-based drug chain, had been under the
assumption that baby formula was not a destination category in their stores
— figuring that shoppers went to discounters, Toys R Us, and other large format
operators for formula and simply bought it at Duane Reade on fill-in trips.
However, a study done a year ago found that customers shopping for babies are
their most profitable customers.

Using DT4, rather than lowering price on all baby items which they might have
done in the past, they were able to lower their margin just on baby formula.
The result was improved traffic and enough additional sales of more profitable
related baby items that they recouped 2x the investment they made in the price
reduction. Radio Shack, with 79% of sales being ‘assisted’ sales, has significantly
increased earnings by better understanding price elasticity on individual items,
and strategically pricing them accordingly.

Moderator’s Comment: How
advanced is consumer demand management (CDM) today and is it effective in improving
a retailer’s competitiveness?

Since Wal-Mart is generally shooting for the lowest price,
it seems not to be an overstatement to say that better CDM tools can help everybody
else play on something closer to a level playing field.

McClain – Moderator

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