Across the entire retail technology landscape, CIOs and line-of-business executives continually assess whether to acquire capabilities from vendor partners or to allocate resources for custom development in-house – and the world of price, promotion and markdown optimisation is no exception. With more than 15 years under my belt leading implementation teams focused on technology that optimises across the entire price lifecycle, I have some road-tested observations to share. The most sweeping thing to note is that when it comes to science-based price optimisation, retailers who opt to build their own is the rare exception. There are some obvious and not so obvious – reasons why.
1. Specialized Skills are Needed to Build Pricing – and It’s Critical to Get It Right
Shopper research repeatedly affirms that price is the single most important factor in people choosing where to shop, and it’s imperative that retailers deliver the right prices, particularly when it comes to those items that most impact shoppers’ price image – the Key Value Items. Today’s landscape requires a deep understanding of retail across all phases of the product’s lifecycle, from everyday prices through promotions to markdown. Optimisation software also relies on strong development skills, including the ability to create and design software that scales elastically to meet varying demand levels, typically requiring cloud-native architecture. Good cloud architecture also incorporates critical fail-over and geographic redundancy features to ensure business continuity.
Data science, including machine learning and artificial intelligence (AI), is also integral to optimisation at every phase. Only with deep science can software separate true demand signals from the noise, and factor in price sensitivity and competitive elasticities to support what-if modelling and ultimately recommend prices, offers and markdown plans that utilize predictive forecasting based on both historical data and current shopper, competitor and market behaviours.
In short, retail price optimisation taps a wide and formidable array of skills, and generally speaking, technology vendors are better positioned to successfully compete for and manage people with these skill sets. While there are some exceptions in a few retail giants, such as Amazon, which have successfully developed their own pricing in-house, a clear conclusion emerges: if it were easy to build your own optimisation software, tons of retailers would do that. But it’s not. Partnering with the right vendor ensures access to the range of required skills with the benefits of cost-sharing across many, many retailers.
2. Design, Architecture and Development is Just the Beginning
While retail in recent years has seen a dramatic acceleration of change and evolution, the global pandemic revealed just how dramatically – and how fast – the fundamentals can shift. As shoppers flocked to online channels at unprecedented rates. Retailers who did not have or quickly implement omnichannel pricing capabilities and automated processes quickly fell behind, sometimes fatally.
Once price, promotion and markdown optimisation systems are designed, they need to be constantly evolving to reflect changing infrastructure needs and options as well as new user requirements. At the same time, data science, AI and machine learning are also evolving rapidly. While established price science providers continually invest in updating skills organization-wide, it’s much more daunting for the typical retailer to keep up.
Among those who do try the homegrown route, they often discover that their solutions quickly fall behind current user needs and technologies. Multiple times I’ve observed these solutions grow stale, which leads to less and less trust and utilization among users. Often retailers who had determined to go their own path abandon the effort and turn to leading providers instead – meanwhile having lost months or years and significant human and economic resources in the effort.
3. Established Providers Bring Expertise from A Range of Retailers, Who In Turn Help Drive Future Requirements
Seasoned vendors draw on an array of experience across dozens of retailers in every vertical and geography, giving their customers the benefit of a deep, practical knowledge of best practices. Moreover, this deep immersion is reflected in the vendor’s product strategy with firsthand experience of retailers’ needs today and challenges on the horizon.
Retailers who choose their vendor partner carefully have the opportunity to influence development priorities. This can happen organically through regularly scheduled collaborations at the user, manager, and executive sponsor levels. Often vendors also facilitate Customer Advisory Boards, Special Interest Groups or other multi-retailer forums to ensure that an active, productive dialogue drives clearly articulated roadmap priorities and enables retailers to plan ahead to leverage new capabilities effectively.
On a day-to-day basis, vendor strategists are trusted advisors to retail pricing teams on the nuances of leveraging science including KVI updates, what-if scenario planning, and even dynamic pricing. Leveraging this partnering approach, retailers can continue to grow more sophisticated and fluent with advanced product capabilities, unlocking continuing ROI for their organizations.
For Most Retailers, Partnering is the Preferred Path
Retailers who make the effort up front to carefully assess vendor options, including in-depth discussions with existing longtime customers, are rewarded with multi-year partnerships that deliver measurable business impact, free up team members from manual processes to focus on strategic value and evolve continually to meet changing market needs. It’s not surprising that leading retailers worldwide point to longstanding strategic relationships with price lifecycle optimisation partners as a key pillar of their success.
DemandTec offers AI-powered lifecycle pricing solutions for retailers.
