Getting price right key to saving money

By ADAM GIFFORD

Price can influence demand. That may seem like a statement of the bleeding obvious, but it's not easy to get right in practice.

It's a problem supply chain optimisation software vendor Manugistics has been putting considerable effort into since it bought Talus, which made pricing software for airline tickets and hotel rooms.

"If you can proactively influence price, you can have a much better handle on demand profiles, which can help with the way you set up your supply chain," said regional manager Tim Moylan.

He said that while it had customers here, including New Zealand Dairy Foods and Goodman Fielder, this country had been relatively neglected.

That could change with a direct office to be established this year, as well as a sales and implementation partnership with services firm CGNZ.

It has an existing relationship with IBM Global Services.

"It is not a huge market, but there are opportunities here," Moylan said.

"The more complex the supply chain the better it is for us."

Manugistics is targeting the price-setting technology at telecommunications companies which put together complex bundles for business customers, as well as electronics and fast-moving consumer goods companies.

Moylan said price was not an area most organisations put a lot of science into.

"The first instinct people have when they go into pricing is discount to the max," Moylan said.

But there was no science. "The result may be you are either leaving a lot of money on the table or you are chasing unprofitable business."

He said using Manugistics tools, companies could build a market response model based on competitive behaviour, buying history and other relevant sector data.

"Based on selling a mix of products and services, you can determine a minimum, maximum and optimal price" and offer sales people incentives based on them, he said.

Moylan said other customers were using the software to model negotiation scenarios for areas where there might not be a lot of competitive pressure.

Ford Motor is successfully using it to improve the way it spends its US$8 billion ($12 billion) marketing budget.

"For example, it was able to work out it did not need to give a rebate to people buying a four wheel drive in snow areas, but it might have to for city buyers.

"Doing things like that, it has been able to save 10 per cent of its US$8 billion," he said.

Manugistics has taken a beating in recent years as the big application vendors such as SAP build supply chain optimisation technology into their suites. Revenue dropped 21 per cent on the previous year to US$51.6 million.