Profit Optimization

Sector Outlook, Fourth Quarter, 2003

In 2003, applications that optimized pricing or promotions based on consumer price sensitivity and availability of product were a focus area for B2B Analysts, Inc.

Our research covered the products and technologies of some 22 companies, all of them small and all of them with interesting ideas.

Our basic question in the report is, "Can profit optimization (aka price optimization) actually provide benefit to companies?

It seems clear that the answer is "Yes." Companies that work through large amounts of demand data to a) determine price sensitivity and then instruct and b) set prices in a way that maximizes profit can produce better pricing decisions than human beings can--at least under certain circumstances and in certain industries.

This is exciting, but as usual in the software business, there are many caveats.

In buying price optimization software, you are not just buying software; you are buying a relationship with a group of mathematics experts who create the algorithms and apply them to your situation. Are these people any good? Will they continue to be very good in the future? How often do they need to step in and adjust the algorithms you have? How can we tell when they are right? Answers to these questions are not clear.

From what we've been able to tell, this is a besetting problem in the price optimization field. Almost every vendor has a product whose power and efficacy depends on their Ph.ds. Which product is best? Well, each vendor says something along the lines of, "Our Ph.ds are better than their Ph.ds."

Our price optimization report is not yet available in printed form. If you would like a copy of the report or would like to get consulting from us on selecting a price optimization vendor, please contact us.