Dave Leonard says his newly released price-optimization software differs from competing products in two main ways: It doesn’t set prices mainly based on what competitors are charging, and its price is affordable for small and midsized retailers and distributors.
Leonard has been working on pricing software for decades, seeking a scientific way to price the replacement parts for General Motors vehicles he sells as CEO of Original Parts Group Inc. The company also manufactures parts when GM has stopped making them, and sells them to other wholesalers and distributors, a B2B component that makes up about 20% of his business. Leonard founded Advanced Pricing Logic Software Inc. in 2010 to begin selling the pricing software he developed, which was called Promoter. He is introducing this week the new version, Pricexpert, which Leonard will demonstrate next week at the annual National Retail Federation trade show in New York City.
At the heart of Pricexpert is the concept that pricing starts by determining the value of each product, both to the company selling it and to the buyer. It takes into account how fast a product moves, whether suppliers ship it reliably, profit margin and return on investment on each SKU, and more. Once the software determines a price based on what Leonard calls “value drivers,” only then does it test the price against what competitors are charging, and makes automated adjustments based on business rules set by the company deploying the system.
That’s quite different from how small and midsized businesses, the target market for Pricexpert, set prices now, Leonard says.
“When midmarket companies think about pricing they first think about their competition,” he says. “They don’t understand the science behind pricing. There are other metrics within their own organization that are much more powerful and will help them determine whether they should move a price up or down.”
Competing products were developed for large companies, and in some cases can cost $1 million to deploy, Leonard says. He says Pricexpert can be installed for less than $10,000. Advanced Pricing Logic hosts the software and clients access it via the Internet, a model known as software as a service, or SaaS, that’s typically easier for small companies to add than maintaining software on their own servers. In addition to the initial charge, there is a monthly fee that can range from $3,000-4,000 for smaller companies that only need the basic features to $7,000-8,000 for companies that license additional modules.
Nikki Baird, managing director at research and advisory firm Retail Systems Research, says what she likes about Pricexpert is that it makes price-optimization technology available to smaller companies.
“They’ve found a way to take a lot of the capabilities that historically were only accessible to really large companies with IT departments and put it within reach of smaller retailers,” Baird says, based on seeing a demonstration of the software. She says most of the pricing software available has cost, if not $1 million, “at least in the high six figures to get deployed.”
Leonard says he has been testing Pricexpert for the last few months at his own company, Original Parts Group, including by having the software reprice the more than 110,000 SKUs he sells through nine printed catalogs, OPGI.com, and a showroom at the company’s headquarters in Seal Beach, Calif. He says a process that would have taken him months to complete manually and at least a week with his older Promoter software took eight hours with Pricexpert.
The base Pricexpert software enables a retailer or distributor to manage prices by setting business rules, such as the markup desired for each SKU and rounding each price up to end with 99 cents. Additional modules let a client company figure in other factors, such as how quickly a product sells and vendor performance.
One of the features that will be particularly useful for distributors and wholesalers allows them to set different rules for tiers of customers, Leonard says. For example, smaller customers might get a 30% discount, while larger ones get larger price breaks. It also could help a distributor see that if it raises its price on one product it might affect the likelihood of customers buying related products. “It lets you see where you should keep a price the same, and where you can raise it where elasticity allows that,” he says.
Leonard says he’s invested millions of dollars of his own money into developing Pricexpert, and thus is not beholden to investors who want quick returns. That, he says, allows him to keep the price within the reach of smaller companies.
Original Parts Group started small, as he first sold auto parts from the trunk of his Chevrolet El Camino at auto enthusiast swap meets in 1982. By the late 1990s he was selling more than 40,000 SKUs, and manufacturing some parts that General Motors no longer made. By then, pricing all those SKUs had become unmanageable, which led him to begin developing pricing software for his own use.
He says companies should look at pricing as if they were generals leading armies into battle. “You need to first assess your own troops and your generals and ammunition,” he says. “Our program allows a company to assess their own strengths and weaknesses, and then compare that to the market. That’s the way pricing should be done.”
Leonard declines to reveal the sales of Original Parts Group, but says he has 120 employees, a warehouse of 100,000 square feet with an additional 50,000 square feet of office space, and stocks more than 110,000 SKUs. He says more than 50% of his sales come from the web, and about a fifth of his revenue comes from selling to wholesalers and distributors.
The version of Pricexpert released this week is called version 4.1. Leonard says 4.2 will be released this summer. That product, he says, will make it easier for retailers to price separately for stores and the web, and to take into account such other factors as weather and seasonality.
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