A Brief History of Pricing Technology
Pricing technology is definitely not new.
The airlines industry first pioneered pricing strategy with what they called “yield management” – discounting seats on less popular routes and maximizing prices on routes that have a lot of demand. The Professional Pricing Society was established in 1984 as the field began to heat up (check out their blog). The hotel industry got on board in the late 1980s using what was referred to as “sophisticated computer techniques,” followed by retail-specific software technologies.
The manufacturing sector is one of the more recent industries to benefit from price technology, though technologies vary widely across vertical markets such as food, chemicals and consumer packaged goods. As Managing Automation’s Chris Chiappinelli points out, pricing technology for manufacturing has made a lot of progress since the days of scratch paper, gut instinct and spreadsheets:
“For a long time now, the practice of product pricing has involved more art than science, with product managers and sales professionals governed mostly by what ‘felt right.’ In recent years, however, science has started to gain the upper hand, and the sun may be setting on the era of ‘pricing by the gut.’”
As technologies have evolved and fragmented to serve more specific niches, analysts and vendors have struggled to classify different breeds of pricing technology. Some might say the category has had a bit of an identity crisis. Depending on the industry and market, you’ll find price-related software under labels ranging from “yield management” to “merchandise optimization” to “demand and revenue management.”
We’re currently experiencing the next evolution in the sophistication of pricing technologies with the maturation of the Software-as-a-Service (SaaS) delivery model. SaaS makes it possible to offer massively scalable, high-powered number crunching software based on finely-tuned, dynamic algorithms - a major stride compared to the past industry standard of static, rules-based systems that require on-site installation and ongoing customization. I could go on about the benefits of SaaS for price optimization, but I’ll leave that for another post.
