The Build v. Buy Debate in Price, Promotion and Markdown Optimization
Retailers considering implementing a full lifecycle price, promotion and markdown optimization system typically are familiar with the business benefits it delivers — enhanced shopper engagement, better alignment with price image and category strategy goals, and improved margins. However, retailers are often unsure how to make an informed decision about whether to build or buy a solution. In more than 15 years of leading price, promotion and markdown consulting practices, I've engaged in this conversation with many different retailers. Some very clear themes have emerged from those conversations. It’s worth exploring each in some detail.
If it Were Easy to Build, Everyone Would Do That
Close examination reveals that very few retailers have chosen to build price optimization, and among those that did, even fewer did so successfully. The cross-team skills needed are very diverse and specialized, including data science and machine learning, scalable platform engineering, retail domain expertise, and a deep understanding of pricing challenges and requirements. This is daunting, and very few retailers (with the notable exception of tech goliaths like Amazon.com) possess those kinds of specialized knowledge sets. There’s a reason why hundreds of leading retailers globally have opted to partner with focused price optimization technology solution vendors. There are also reasons why many retailers that start down the build-your-own path eventually reconsider and partner with an established vendor. Those retailers that do choose to build their own solutions inevitably discover additional complexities beyond the design and creation phases.
Optimization of Product Design and Creation is Just the Beginning
Retail is a famously fast-changing landscape and product requirements continue to evolve in areas including omnichannel capabilities, dynamic pricing and promotions, scalable cloud-based architectures, and user interfaces and requirements for integration with other retail solutions. Simultaneously, the fields of data science, artificial intelligence and machine learning evolve rapidly and significantly. Leading vendor organizations invest heavily in experts who are dedicated to staying abreast of market and science developments and demands.
By contrast, few retail organizations have the expertise or resources to continue to understand, prioritize and invest in product maintenance, let alone new features, science or product enhancements. As brittle homegrown solutions fall more and more out of step with current retail market needs and science capabilities, they begin to fall into a state of underutilization or even abandonment. By contrast, leading vendors today provide SaaS-based price, promotion and markdown optimization that enables frequent, seamless updates to keep the technology relevant and high impact.
Informed Views Driven by Engagement With a Range of Retailers
Vendors that focus on lifecycle price optimization have dedicated product strategists who engage deeply with a range of retailers addressing different challenges, enabling them to triangulate on product offerings that are most relevant to retailers’ real-world needs, both now and for the future. The nuances of real-time key value item analysis, what-if scenario planning, and even dynamic pricing can be very significant when it comes to providing hardened, road-tested science that delivers under real-world conditions, not just in a laboratory. Additionally, science that has been out in the real world for many years has continued to grow, learn and improve utilizing AI and machine learning capabilities that are core elements of leading optimization products’ architecture.
Overall, it’s the most predictable, successful and proven path to partner with a well-established price optimization vendor for full lifecycle pricing. Retailers can assess vendors effectively by personally engaging with their retail customers, giving them a front-row view of the real-world return on investment that has been delivered for retailers leveraging proven price optimization capabilities.
Niranjan Chandrasekaran is vice president, worldwide services, customer success and support, DemandTec. DemandTec offers lifecycle pricing to retailers and CPG partners, which takes AI to new heights and delivers optimal pricing, promotions and markdowns.