Retail technology priced to sell

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are already providing their customers with technology that promises similar results.

For now, Oracle's rivals remain cagey on their latest plans in the pricing sector. SAP declined to comment for this story, and Siebel Systems denied that it needs to make a move anytime soon.

Laurent Pacalin, general manger of CRM at Seibel acknowledged, however, that there is certain to be activity in the pricing-software market. "I think you're going to see a lot more of these companies consolidating because you cannot survive on something like retail pricing alone. The algorithms are so specific for an industry like that, that they do not apply directly to other areas of business, and we already look at pricing across many other industries."

What's the big deal?
For retailers, pricing-software offers a more sophisticated method for addressing issues of supply and demand that have traditionally led such companies to engage in a high stakes guessing game in deciding what products to stock, or when to cut prices. On a basic level, the applications use complex algorithms to help companies build detailed business models of consumer demand.

The software is expensive. ProfitLogic, for instance, charges upward of $2 million for its products. But using pricing software, companies can apply increased scrutiny to their merchandising and inventory systems to better understand the performance of specific stores or products. Measuring data stored in their point-of-sale devices, the companies attempt to offset factors that have long caused them to guess what sort of products their customers are hungry to buy, and how much people might be willing to pay for them.

Many of the applications under the enterprise resource planning (ERP) and customer relationship management (CRM) banners address the production and supply chain-related initiatives of companies in the retail space. Products such as ProfitLogic's software, which is already used by well-known retail companies including Ann Taylor, the Gap and the U.K.'s Tesco supermarket chain, aim to track trends such as fashion styles and seasonality that those systems aren't built to follow.

For instance, retailers have traditionally pigeonholed stores into so-called clusters, where they are organized into groups based on regional locations, or the types of products they sell. Performance of each individual store is then measured via a direct comparison to other stores, and companies make decisions on which items to stock or discontinue based on the comparative statistics.

The concept may seem simple, but the world's largest retailers may control tens of thousands of individual locations, making it hard to keep tabs on fast-moving fashion trends or buying habits before customers come looking for products.

Oracle's Phillips said that manufacturing resource planning technologies of the past have armed customers with massive amounts of data, but more-powerful tools are needed to garner better conclusions from the tidal wave of information provided by those systems. "This is the thing that actually transitions resource planning from being guesswork into an art form that (retailers) can quantify and use to get the right mix of products and learn over time," he said.

You might think that a company like Oracle, with thousands of engineers and millions of dollars spent each year in research and development, might build its own pricing tools. But Scott Friend, ProfitLogic's CEO, estimated that it has taken his team of economists, mathematicians and software engineers more than 15 years to build the algorithms that lie at the heart of the company's software.

He said that companies such as the Gap, which have a tremendous volume of stores and products, are always looking for new ways to work smarter.

"Pricing-software is at the heart of how the major retailers think about computing today," said Friend. "It's not about trying to be more efficient than Wal-Mart in the supply chain, it's about competing--with better customer intimacy, understanding customer demand at the store level, and using that information to select merchandise and pricing."

ProfitLogic's software differs from other applications in that it was created specifically to measure the massive amount of variables at play in any retail company's product plans, he said, whereas CRM tools tend to work best at measuring demand for goods that have linear performance over time.

Friend said this point alone is what will drive continued consolidation in the pricing space, since he believes Oracle's rivals can't likely build their own optimization applications using the same computing logic they include in their CRM products today. The executive said Oracle's rivals may try to build competing products from scratch, but that it won't be an easy process.

"It might not take the next guy 15 years to build their models like we did," he said. "But it won't be replicated overnight either."