RSR Research: DemandTec Acquires Connect3 - Pricing Moves Closer to Execution
Through a special arrangement, presented here for discussion is an excerpt of a current article from Retail Paradox, Retail Systems Research's weekly analysis on emerging issues facing retailers.
DemandTec has 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.
In the early days of price optimization 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 e-mail 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.
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.
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. There are online vehicles, e-mail vehicles, and increasingly in-store (back to triggered offers again) and mobile vehicles. 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?
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.
Discussion Questions: What "connections" across the retail enterprise need to be made to fully maximize promotion optimization? Of the "connections" listed in the article (inventory, space, other marketing vehicles), which most needs to be integrated into promotion optimization?