Rhythms In The Data

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The Revionics story is an intriguing one, in part because the ending hasn't been written yet. The company has not yet progressed to the last act, the one involving market capture -- the one that really counts. The other aspect of the rise of Revionics that makes it worth a look is that it has taken place in Granite Bay, not Silicon Valley, a hint that the Sacramento area is beginning to build the infrastructure needed to sustain its own set of software success stories.

Optimize That Price!

The niche that Smith found in 2002 is relatively obscure but perhaps not for long. Revionics is in the business of providing price optimization, a $260 million industry that is expected to top $1.1 billion by 2010, according to a 2007 JP Morgan report.

The price-optimization market is beginning to fill out with major software providers such as SAS, DemandTec, SAP and Oracle offering services. SAP and DemandTec, which has its headquarters in San Carlos, are the early market leaders, although experts say it's too early to tell which company will grab market leadership in the long run. DemandTec's revenues are about $45 million annually, according to a company spokesman.

Big retailers, such as Wal-Mart, Safeway, Longs Drugs, Sears and 7-Eleven, and manufacturers including Hewlett-Packard, Maytag, IBM, Kraft, as well as most of the major airlines already swear by price optimization, according to KhiMetrics co-founder Ken Ouimet. So far, the providers have focused on the $1 billion-plus clients.

"It's natural since the industry is so new that we are all going after the low-hanging fruit," says Alexi Sarnevitz, senior director of global retail strategy for SAS. "But we also see a significant opportunity in the small- and medium-business markets. What our strategy will be regarding these markets I am not free to tell you." His comments are likely to give Smith hope, even while lighting a fire under his feet. So far, however, none of the larger providers has indicated a move into the smaller markets.

Maybe It Is Rocket Science   

In a nutshell, price optimization is the process of analyzing customer purchase data using a complex mathematical matrix and combining the results with the retailers' price and market-position strategies to gain optimum product prices. Profit-margin targets, sales history and current demand for the product, as well as competitors' prices, the price relationship between store and national brands, and a variety of other information, go into the mix. The process is not a simple one.

"The software can accurately predict, for example, what additional sales of baby food a grocery store will see when they put diapers on sale," says Susan Boyme, vice president of marketing for Revionics. "These are stocked next to each other, so the sale of diapers brings customers in and carries the sales of baby food. Similarly, it can determine to what extent a sale on hot dogs and buns will increase the sale of mustard but cannibalize the sale of hamburger. It's about helping retailers optimize profits without impacting their customer loyalty."

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