RSR Research: A Model for Delivering Sophisticated Technology to SMB

Discussion
Dec 20, 2007

By Nikki Baird, Managing Partner, Retail Systems Research

Through a special arrangement, what follows is an excerpt of a current article from Retail Paradox, RSR Research’s weekly analysis on emerging issues facing retailers, presented here for discussion.

Small and mid-sized businesses (SMBs) – particularly the mid-sized retailers, those between $250 million and $1 billion in revenue – have long recognized the value of sophisticated tools, but the segment continues to be a difficult market to penetrate for technology providers. From our recent pricing survey as one of many examples, SMB is more likely to disdain consultants and turn to custom development to get what they want. Vendors, for all the talk of “quick start” or “hosted” capabilities, are still challenged to create a business model that meets their profitability objectives at a price point where SMB will buy.

That’s why a recent announcement by Willard Bishop Consulting, KSS, and Retalix puts an interesting twist on the business model for serving SMB retail. Typical partnership announcements provide for a “paper” relationship where the consulting company has a few consultants trained on the solutions in question, and the tech vendors have pledged to integrate their solutions. The WBC-KSS-Retalix announcement is different, with a couple of customers already in progress. The announcement focuses on price optimization capabilities: WBC will help retailers define and codify their pricing strategy, taking them through a pricing “health check” that becomes the basis for defining business requirements that will map to KSS’s price optimization capabilities, which in turn are in the process of being integrated into Retalix’s merchandising and store solutions.

I’ve struggled for a long time with the concept that you should re-engineer your processes before you implement the technology to enable the process. I don’t think this is the right approach. If you only optimize along one dimension, you risk sub-optimizing the whole, and the process only makes up one piece of a puzzle that also contains technology and people. If you really want to optimize a process, you should re-engineer the process in the context of the technology that you’re going to use to enable that process (and the skills or roles of people who will use the process). This way, you don’t come up with a super-efficient or productive process and then find that there is no solution out there able to support it.

Retalix, WBC, and KSS are helping retailers optimize their pricing process in the context of solutions that already play well together. It gives an SMB retailer access to world class consulting capabilities and sophisticated price optimization technology, but already tuned and streamlined for the world of SMB. It requires an important tradeoff: to access this kind of solution at a price you can afford, you need to buy in that you’re going to follow a pretty tight methodology, and that the methodology is going to lead you to a semi-preconfigured solution with preconfigured integration points. That means giving up on a lot of customization, and being open to process changes that will enhance the value you can get out of the technology. But I just can’t see that as a bad thing…

Discussion Questions: What do you find are some of the overall challenges of bringing retail technology to the SMB retail space? What do you think of a merged solution such as the one from Willard Bishop Consulting, KSS, and Retalix as a way to reach SMB?

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8 Comments on "RSR Research: A Model for Delivering Sophisticated Technology to SMB"


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Paula Rosenblum
Guest
14 years 5 months ago

Mark…have you forgotten our poster-child of small retailers?

Small retailers are just like big ones appetite wise, they just have smaller budgets.

Mark Lilien
Guest
14 years 5 months ago

I agree with Nikki about the need for configuration guidance: as software gets more flexible, the configuration maze can be more confusing. Paula, I agree with you that many smaller retailers are financially constrained. However, there are many huge, well capitalized retailers whose systems are so customized that they’ve lost their ability to keep up with the competition. Some large retailers remind me of steroid-pumped weightlifters who are stronger than anybody but have no agility. Often the medium-sized retailers who stick to the best off-the-shelf packages keep their competitive edge more easily.

Bill Bittner
Guest
Bill Bittner
14 years 5 months ago

The concept of the “Semantic Web” or Web 3.0 is what will finally address the hurdle that makes automation implementation too difficult for small and medium size businesses. Web 3.0 addresses the relationship between data attributes and allows software applications to automatically make inferences from different sources. This will allow small and medium size businesses to implement solutions without maintaining custom databases.

James Tenser
Guest
14 years 5 months ago
I think this fundamental issue has persisted since the introduction of the first boxed accounting solutions designed for small computers, like Peachtree and Quick Books. While significantly less expensive than custom mainframe systems, these applications still required plenty of set-up time and expert user know-how to deliver results. Suppose we introduced a boxed “Quick Price” application that sells for $1,000 a copy, and delivers 90% of the functionality of today’s leading applications. Would small and medium sized retailers possess the capability to put such a tool to beneficial use without expert help? Suppose instead, we offered “Quick Price” as a software-as-a-service (SaaS) or on-demand application, where the retailer pays an annual license fee per user (per “seat”) to access the tool remotely. This moderates the retailer’s IT investment, and shifts the burden of updates and maintenance to the host software provider, but does not eliminate the necessary set-up, integration, and expertise requirements that remain a barrier to entry. I’m generally wary of any software tool that imposes its own business process upon the end user.… Read more »
Andrew Gaffney
Guest
Andrew Gaffney
14 years 5 months ago

Retail technology providers are going to have to catch up with the Software as a Service model in order to make it possible for SMB retailers to research, buy and implement technology.

SMBs don’t have the time or budget to sort through various solutions and they typically don’t get much personal attention from the sales teams. If you look at the CRM and marketing automation space, there has been a leveling of the playing field as small firms can test drive hosted solutions and implement them.

I applaud the partnership Nikki describes and think it is definitely a step in the right direction, but there is still a big opportunity for somebody to make technology more turn-key for SMBs.

Nikki Baird
Guest
Nikki Baird
14 years 5 months ago

I just want to clarify–while SMBs may not need a lot of “customization”, almost every application I see today requires a significant amount of “configuration,” and it’s wading through that configuration step that gets a lot of buyers into trouble. Pricing is an excellent example–the pricing and optimization algorithms are modeled based on the buying company’s business practices; they don’t come straight out of the box. The buyer of such applications has to make a lot of decisions fast–and I’ve seen a lot of SMBs get bogged down in uncertainty over not just today’s version of the process, but how they want it to look in the future. And I don’t think it’s too much of a generalization to say that most SMBs don’t want to turn to consultants to help them figure it out.

Is there such a thing as “off the shelf” or “straight out of the box” software anymore?

Mark Lilien
Guest
14 years 5 months ago

I’m surprised by one of the main assumptions presented by RSR: that mid-size retailers prefer customized software. My impression is the opposite: that for the past 15 to 20 years, mid-sized retailers prefer turnkey packages, because custom solutions aren’t good value. If a chain of 100 apparel stores needs software, whether it’s price optimization, distribution center management, POS, merchandising, workforce management, etc., they have a reasonable variety of excellent, long-proven choices available from software suppliers to many other apparel chains. Customization is often minor or unnecessary if the software has flexible configuration and if the reference checking (to find retailers with similar processes and transaction volumes) is thorough.

M. Jericho Banks PhD
Guest
M. Jericho Banks PhD
14 years 5 months ago
Allow me to hitchhike on James Tenser’s comments regarding SaaS price optimization solutions by shining a light on the human element–or lack thereof. SaaS suppliers to SMBs sometimes neglect the “pull-through” aspect that is required for success. That is, they expect their brilliant software to “push” solutions through the client’s system, overlooking the human element at the client’s end that is required to satisfy individual and departmental needs. Solving employee needs (e.g., improving performance, testing programs, weeding out underperforming tactics and strategies, etc.) is missing from the equation. I call this “Creating Heroes,” and am convinced that it’s the true business of SaaS services. My sense from interviewing various SaaS suppliers is that they overlook or simply eschew the necessary step of working with individual users to meet their specific needs–which can include helping them to earn a promotion or even saving their jobs. When this happens, SMB client use begins a steady decline and eventually reaches a point where the WIIFM (What’s In It For Me?) is no longer attractive. Someone from the SaaS… Read more »
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