Enterprises Are Profiting From PMPO
The price management and profit optimization (PMPO) solutions market is expected to reach $1 billion by 2007, according to a new Yankee Group report. Research has also revealed that enterprise investment in PMPO leads to 10 to 20 percent profit improvements at a rate unlike other packaged software solutions on the market. Yankee Group also found that most companies implementing PMPO solutions are Fortune 1000 enterprises, the majority of which are realizing impressive ROI from profit improvements. Enterprise budgets are averaging up to $5 million for pricing solution deployments, indicating strong growth for future PMPO initiatives.
"PMPO solutions are about achieving price optimization. Price optimization is really about setting the optimal list price that takes into consideration margin, target revenue goals, and market share goals a company has," says Kosin Huang, program manager at Yankee Group. "It's all about understanding customer elasticity."
According to Huang, there are a host of factors driving the growth in this market. Pricing solutions are increasingly becoming enterprisewide deployments, many times being large-scale global rollouts. Leading system integrators and consulting firms like Accenture, Deloitte, and IMB Global Services are building practices to facilitate PMPO strategy, process, and technology implementation projects. Also driving this market is an increased number of educated and qualified RFPs combined with C-level executives refocusing on revenue and margin growth rather than cost cutting.
"These are initiatives that are started at the C-level," Huang says. "As leading companies in industry verticals start [using] this technology, it's only natural to have others follow. Also, there are some major third-party consultancies closing multimillion [dollar], end-to-end deals that are driving the growth of this market."
There are two categories of PMPO vendors to watch: Those that serve retailers (retailers are the biggest--and first--implementers of PMPO solutions), and those that focus on nonretail or cross-industry pricing problems. ProfitLogic, recently acquired by Oracle, is a good example of a retail-pricing provider, along with DemandTec and JDA Software Group. While traditional giants like Oracle, SAP, and Siebel continue to play in this space, best-of-breed vendors differ greatly by providing differentiated functionality from basic ERP and CRM price list execution systems, according to Huang.
The analyst also says that during the next two to three years, acceleration of comprehensive end-to-end pricing projects that span strategy, process, and technology will establish PMPO software as a "fundamental pillar" of price management initiatives. With more enterprises rolling out price optimization, price execution, or price analysis solutions, these separate deployments are building momentum for the adoption of full-suite pricing solutions like PMPO, which includes all three modules.
The reason why so many enterprises are seeing solid ROI associated with PMPO software implementations reflects the importance of determining the right price. "The price of a company's product is critical," Huang says. "Being able to accurately change market price, update prices consistently throughout an organization, and figure what customers are willing to pay is critical. Even just a two or three percent ROI is millions of dollars, because you're directly affecting your profit margin."
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