B&Q PLC, a large retailer of home improvement products in Europe, has signed up for an application hosting service from IBM Corp. designed to help the retailer determine the most appropriate prices for its merchandise, the companies are announcing Tuesday.
The service in question, called IBM Consumer Demand Management Service with DemandTec, has been available since January. "B&Q is the first taker we're talking about publicly for this service, but we have other customers as well," said Dev Mukherjee, vice president of marketing and strategy for e-business on demand at IBM's Global Services unit.
The offering combines software for establishing retail prices from independent software vendor (ISV) DemandTec Inc. and hosting services from IBM Corp. IBM delivers as a hosted service the DemandTec software and charges clients based on usage.
This "software as service" offering is aimed at companies that don't want to go through the trouble of buying the DemandTec software, adding whatever new hardware, networking wares and storage units might be required for it, installing it, testing it and maintaining it, he said.
Through the IBM service, the client taps into the software remotely and IBM takes care of all the back-end work, such as installing it, maintaining it and upgrading it. "This is a very exciting new model," he said.
It is also very good business for IBM, whose e-business hosting services generated over US$1 billion in revenue in 2003, and have generated revenue annual growth of over 20 percent in the past three years, he said.
The DemandTec software is designed to provide sales-cycle data that retailers can use to evaluate the effectiveness of a particular campaign and predict the effect of price changes, among other things. B&Q plans to use it to keep prices as low as possible, B&Q said in the joint statement with IBM. B&Q could not be immediately reached for comment.
The offering benefits from being specific to one industry, which will seem more useful to potential clients -- in this case in the retail and consumer products sector -- than a more general service that isn't tailored to any specific type of industry, IDC analyst Amy Konary said. "It's not a horizontal product and that is a valuable feature," she said.
Insight into how a pricing strategy is working is very important in the retail sector, more so than in other industries, so this software addresses a key issue for retailers, she said. "Having better visibility in this area is really important for them," she said.
The ability to pay for the software based on usage should also be attractive for retailers, whose businesses tend to be very seasonal and thus fluctuate markedly, increasing at specific times in the year, such as Christmas, the return to school and Mother's Day for example, she said. Retailers should like that the heaviest usage of the software -- and thus the higher spending on it -- will happen when the company's income is rising due to rising sales volume, she said.
This service is priced to match the size of a retailer and the amount of retailer data. Clients will incur a one-time charge, which includes setup and enablement of the resources required, and then pay a monthly usage fee for the service based on the number of stores, number of store keeping units (SKUs) and total amount of data processed, according to IBM. The entry level pricing model for The IBM Consumer Demand Management Service for a retailer with up to 15 million SKUs pricing begins with an estimated one time charge of us$13,500 and estimated monthly recurring charge of us$9,300, IBM said.