Rhythms In The Data

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The software can predict the whole-store revenue and margin impact of price changes in key items, provide what-if decision support to simulated options before strategy is  implemented and assess the impact of price changes by competitors. It takes into account numerous variables, such as seasonal factors, price elasticity and inventory presentation. It helps retailers respond immediately to competitors' strategies and determine future product sales so overstocking and understocking can be avoided. Ken Ouimet, co-founder of price optimization company KhiMetrics, estimates that price optimization increases revenue by a minimum of 1 percent of total profit. One of the challenges facing providers, including Revionics, is determining the accuracy of sales data provided by retail customers, according to Rob McNair, a revenue management expert with One World Management Co. in Vancouver, British Columbia. "It's not always easy to label events, such as a football game that leads to a spike in demand for beer, that need to be separated out from normal sales so they don't unduly influence price recommendations," points out McNair. "The problem is you have to train the store owner to do this or do it somehow yourself."

Price-optimization software is extremely complex and can take years to develop. "There is a fair amount of rocket science that goes on behind the scenes," says Todd Michaud, who joined Revionics in 2006 as president and CEO. "Our customers are shielded from that sophistication, though. They simply give us the data, and we give them an optimized price. It seems easy to them. It's all done via the internet so we have customers all over the United States."

The Local Connection

The development of price optimization has strong Sacramento roots. Two of the pioneers of the technology, brothers Ken and Tim Ouimet, grew up in the capital, where their parents still run Comparative Prices International, a company that sells competitive price data to stores. When Ken went on to study physics and chemical engineering at UC Davis, he decided that many principles of science could be applied to the buying decisions of consumers.

In the late 1990s, the Ouimet brothers founded KhiMetrics, one of the first price-optimization providers, which was acquired last year by SAP for $170 million, according to Michaud. One of KhiMetrics' first hires was Smith. "Jeff was impressive," says Ken Ouimet. "He came from a software development background, but he clearly understood sales and marketing. He is a bright, valuable guy. It didn't surprise me when he started Revionics."

When KhiMetrics uprooted to Scottsdale, Ariz., early in 2000, Smith chose not to leave Sacramento. "I like it here," he says. "This is my home. My question was, 'What now?' " Studying the market, Smith saw that while at least a dozen price-optimization companies were emerging to battle for these huge retailers, the market for small- and medium-sized retailers remained untapped.

Smith immediately faced a major challenge. Could he develop software that would fit his clients' needs and budgets? Smith solved the first problem by working with a small team to develop a software program that he calls the Retail Advanced Pricing System, or RAPS.

"Along with RAPS, he created an interesting business model to attack this market," says Ken Ouimet. At the heart of the Revionics business model is the fact that companies can order services over the internet for thousands a month rather than the six-figure commitment to set up and customize a solution on the retailer's in-house network. "That makes it simple and takes a lot of the fear away for the smaller retailers," adds Ouimet. "It's a good model."

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