RSR Research: DemandTec Acquires Connect3 – Pricing Moves Closer to Execution

Feb 09, 2009

By Nikki Baird, Managing
Partner, RSR Research

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

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?

Please practice The RetailWire Golden Rule when submitting your comments.

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8 Comments on "RSR Research: DemandTec Acquires Connect3 – Pricing Moves Closer to Execution"

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Leon Nicholas
Leon Nicholas
14 years 1 month ago

The increasing proliferation of alternative marketing vehicles needs to be accounted for in a world where traditional marketing mix analyses are woefully inadequate. Particularly as retailers, especially Walmart, leverage tactics such as mobile marketing and POS-timed in-store TV, manufacturers must be able to measure the ROI on these vehicles. The leverage that data-driven analyses have traditionally given to manufacturers will be lost if suppliers can’t account for new media.

Liz Crawford
14 years 1 month ago

To me, inventory and space are the table stakes. The savvy marketer’s edge is furnishing digital access to promotion awareness and redemption options. With Whole Foods showing a huge following on Twitter, and 80% of Gen X Shoppers buying online (and 72% of boomers), the digital venue is no longer merely a “nice to have.” Get the learning and sales bump now. Playing catch up later is a recipe for market share loss.

David Zahn
14 years 1 month ago

I think the key is the same as it always has been–what is the shopper’s motivation or “job” to perform and how well does the shopping experience allow that shopper to complete a transaction that is satisfying? The industry can categorize and label real well–but it relies on that which is quantifiable–and the shopper is making emotional decisions (and defending it with “logic”).

The connection that needs to be made is to get closer to the shopper/consumer and not start with the answer set of: price, promotion, assortment, placement, product supply, etc, and then trying to divine what the shopper must have been thinking by behavior. Easier to say (or write) than to do it–but that is the (partially) missing element.

Bill Robinson
Bill Robinson
14 years 1 month ago

Like everything in retail, synchronicity is the key. It is ironic that almost every technical innovation over the last 20 years has been created and brought to market by a niche player such as Connect3. Niche players can fashion their solution elegantly to deal with all of the nuances and complexities within their domain space. But they can’t reach outward to explore the implication of their solution in the extended domains such as supply chain, work force management, space management, etc.

Good for DemandTec for filling the void. Let’s hope their product managers don’t emasculate the Connect3 solution such as we’ve seen with other niche product acquisition by larger solution companies. Are you listening Oracle, SAP, Epicor?

David Dorf
14 years 1 month ago

Understanding the impact of promotions on demand and the downstream impact on the supply chain and space is crucial to maximizing revenue. Of the two, the relationship to the supply chain is most important.

Phil Rubin
Phil Rubin
14 years 1 month ago

This is the beginning of the art (and science) of the possible with respect how merchants and customers interact.

I agree with Liz about inventory and space being a must but increasingly, customers expectations are not nearly being met. Where merchants can link shopper behavior (including lost sales, browsing, inquiries, returns, referrals and past purchases) to inventory and marketing communications–both merchant originated and customer originated (i.e., through social media), they will rise far above the rest of their competitors.

Phillip T. Straniero
Phillip T. Straniero
14 years 1 month ago

As a former Trade Marketing executive for a major CPG, I cannot overemphasize the inventory control aspect of the execution. The basis of a good trade management system needs to be in the forecasting module which DemandTec can well perform on a chain-wide and store-specific basis.

This certainly allows for pre-promotion inventory management for the CPG (including manufacturing & distribution), warehouse-specific requirements for the retailer, store-specific inventory requirements based on historical product/pricing/demographic influences, and the inclusion of in-store display requirements to support the anticipated demand with zero out-of-stocks.

In an environment where price is becoming the primary influencer for consumer/shopper purchases DemandTec’s expansion of their promotion management/execution toolbox is timely and will be beneficial to the retailer and the CPG in their desire to secure retailer performance/execution and meet the ROI goals of their trade promotion investments!

Kevin Sterneckert
14 years 1 month ago
For many retailers, promotions equal roughly 60% of the sales at the register. The paradox here is that of the retailers that are using some form of optimization to manage pricing, fewer than 10 companies are using it for promotion optimization. We are beginning to see hints of a new era of the use of this technology…google Giant Eagle and Galleria (they’re using optimization to select the right item and quantities for endcap displays by store). I’ve spent a significant amount of effort working to understand the slow adoption rate and what really needs to change to really see promotion optimization take off like it should. It is clearly more than integration or connected systems. I believe there are a total of 10 major changes that need to be realized before we will see this space take off. * Start where you end today–recommended promotional items. Let the software and science do the heavy lifting and simplify the entire process. * Include robust workflow/task management as well as role-based activity management and reporting. * Demystify… Read more »

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