Description
Promoting old - fashioned values in a
modern, competitive marketplace
The H.E. But t Grocer y Company
(www.heb.com) has a histor y of
providing exceptional customer
ser vice, low prices and a friendly
shopping environment, all of which
have helped it grow into one of
the largest independently owned
food retailers in North America.
H- E- B currently has more than 300
supermarkets and over 55,000
employees in the southwest United
States and Mexico.
Promoting old-fashioned values in a
modern, competitive marketplace
The H.E. Butt Grocery Company
(www.heb.com) has a history of
providing exceptional customer
service, low prices and a friendly
shopping environment, all of which
have helped it grow into one of
the largest independently owned
food retailers in North America.
H-E-B currently has more than 300
supermarkets and over 55,000
employees in the southwest United
States and Mexico.
Key to H-E-B’s success is its reputa-
tion for consistently low pricing,
supported by an extensive set of
pricing rules —for example, ensuring
better value for larger sizes of particu-
lar products, pricing popular-selling
items carefully in comparison with
competitors’ prices, and ensuring that
private-label products are priced less
than the equivalent national brands.
H-E-B’s pricing came under increased
pressure when giant discount retailers
entered its market. To help offset this
competition, H-E-B added a new layer
of pricing constraints, based on
Competitive Price Index (CPI) aver-
ages, which tracked its pricing versus
other retailers.
? Challenge
To thwart the advances of giant
discount retailers and support its
evolving business strategy, leading
grocery store chain H-E-B needed
a more strategic pricing system
? Solution
A comprehensive consumer
demand management enterprise
software solution from IBM Business
Partner DemandTec, hosted by IBM
e-business Hosting
™
IBM Global Services
The price is right at H-E-B, thanks to
a consumer demand management
solution from IBM and DemandTec.
Overview
? Key Benefits
Ability to simulate complex pricing
strategies prior to implementation,
achieve business rules compliance,
meet financial objectives and
continually enhance customer
satisfaction and price reputation
2 3
“DemandTec software
helps us achieve a
better price image while
enabling us to meet our
fnancial objectives and
lower cost of goods sold.”
— Mark Bradshaw, director of category
pricing, H.E. Butt Grocery Company
Making this more complex set of rules
and constraints work together in a
dynamic business environment proved
to be a challenge for H-E-B. From an
information system perspective, the
company’s existing library of spread-
sheets made it diffcult to defne winning
pricing strategies and quickly execute
accurate prices across hundreds of
stores and tens of thousands of prod-
ucts. While H-E-B was working on its
next set of prices, competitors would
preempt those moves with yet another
set of price changes. “Pricing data is
highly perishable,” explains Mark
Bradshaw, director of category pricing,
H-E-B. “With our previous spreadsheet
software, we could react to information,
but sometimes not until after our
competitors had changed their pricing
strategies.” Additionally, H-E-B’s
software was unable to model and
forecast consumer demand from a
merchandising perspective, or provide
insight into strategic considerations such
as the optimal price differential between
its private label products and leading
national brands. Nor could the legacy
systems systematically track pricing
inconsistencies, such as if a particular
smaller-sized item was a better deal
than the larger size of the same product.
As a result, prices started to fall out of
alignment with H-E-B’s overall merchan-
dising strategy.
Keeping competitors at bay with a next-
generation pricing system
Retailers can gain a huge advantage
over their competition with a precise
capability to understand, forecast and
shape consumer demand—which can
lead directly to increased market share,
sales revenue and profts. To maintain its
competitive position—and protect its
long-standing price reputation with its
customers —H-E-B needed a pricing
system that would enable it to effectively
manage its complex set of pricing rules,
provide accurate insight into consumer
demand for its products in a dynamic
merchandising environment and support
its dual objectives of delivering great
value to customers while achieving market
share and fnancial performance goals.
To overcome these challenges, H-E-B
turned to IBM Business Partner
DemandTec, Inc. —because of the
company’s strong implementation team,
robust application functionality and the
results that other retailers had achieved
with the software. “H-E-B evaluated
several software vendors and chose
DemandTec because of the features
and functions provided by the
DemandTec Price product,” says Scott
McClelland, division president, H-E-B.
Headquartered in San Carlos, California
and employing 150 people, DemandTec
(www.demandtec.com) differentiates
itself from competitors by providing
sophisticated software that leverages
the science of consumer demand
management to create superior mer-
chandising strategy, planning and
execution. DemandTec’s leading
enterprise software applications help
retailers make better pricing decisions,
and execute pricing and promotion
strategies that are designed to help
increase proft, revenue and market
share, while maintaining or growing their
price image and customer loyalty.
Capitalizing on a complementary
relationship and proven technology
Keeping in mind the primary goals of
enforcing H-E-B’s pricing rules and
aligning prices with the CPI targets of
each category, DemandTec’s software
platform analyzed two years of point-
of-sale (POS) data to provide H-E-B
with a detailed forecast about how
each of the company’s pricing rules
would impact consumer demand and
fnancial performance of every item in
every store. The software also analyzed
all possible combinations of rules,
items, zones and time periods,
enabling H-E-B to run virtually unlim-
ited scenarios in an accurate virtual
merchandising environment.
2 3
This ability to simulate complex pricing
strategies and assess their impact on
volume and fnancial performance prior
to execution is critical in helping H-E-B
make more informed, accurate deci-
sions. Bradshaw explains, “To try to
improve our price performance against
the competition in a particular product
category, we determined that using our
previous manual spreadsheet method
would have meant a considerable
investment on H-E-B’s part. But with the
simulation capabilities of DemandTec
software, we were able to predict how
we could overachieve the index target
and simultaneously increase our gross
margin dollars —which amounted to a
major improvement in that category.”
While DemandTec implemented H-E-B’s
solution, the software applications run
on leading IBM technology at an
IBM e-business Hosting facility. Taking
advantage of DemandTec software as
a service through IBM allowed H-E-B
to get its solution up and running faster
and more cost-effectively compared with
an in-house deployment. IBM provides
the infrastructure to run DemandTec’s
proven reliable, scalable and high-
performance applications. The joint
consumer demand management service
is usage-based, allowing H-E-B to pay
for only what it uses —without the usual
up-front infrastructure costs of managing
a complex system of applications,
networks and hardware. To accommo-
date the computing demands of
DemandTec’s data-intensive modeling
activities, the application uses
IBM
^
®
pSeries
®
servers running
IBM DB2
®
Universal Database
™
informa-
tion management software and IBM
TotalStorage
®
Enterprise Storage
Server
®
systems, enabling exceptional
processing speed, power and scalability.
The price is right at H-E-B
H-E-B is also using the predictive
capabilities of DemandTec software to
help its procurement department lower
the total cost of goods. “When one of
our suppliers informed us of a cost
increase on a key product, we were able
to use the software to determine that
by raising the price on that item, the
supplier would experience a negative
impact on its volume of 50 percent,”
says Bradshaw. “By showing that
information to the supplier, our business
development manager was able to
negotiate a lower cost of goods and
save H-E-B a signifcant amount of
money. It all amounts to a win-win-win
situation for the consumer, the supplier
and H-E-B.”
The sophisticated modeling and
forecasting capabilities, and dynamic
rules management functionality of
DemandTec software allow H-E-B to
effectively and proftably compete with
larger discount retailers without match-
ing prices item for item—something that
H-E-B was unable to do before imple-
menting DemandTec software. With its
pricing under control, H-E-B can offer
a superior shopping experience with
improved service, fresher produce and
a higher-quality product assortment at
prices customers want. In the future,
H-E-B plans to explore DemandTec’s
promotional and markdown tools. “I see
us improving our ability to evaluate
market-basket data, assess key value
items in a category and determine
elastic and non-elastic items,” explains
Bradshaw. “With that level of under-
standing, we can write better pricing
and promotional strategies to make
better business decisions.”
By taking advantage of a fexible,
scalable and reliable IBM hosting
environment, H-E-B can avoid the
specialized skills and up-front and
ongoing operating costs of an in-house
solution, and can add functionality as
business needs dictate. The usage-
based pricing model is designed to
help ensure that H-E-B pays only for
the service it needs, when it needs it,
and can tap into extra capacity at any
time, on demand.
For more information
To learn more about IBM and IBM
e-business Hosting solutions, contact
your IBM representative or visit:
ibm.com/e-business/hosting
© Copyright IBM Corporation 2005
IBM Global Services
Route 100
Somers, NY 10589
U.S.A.
Produced in the United States of America
07-05
All Rights Reserved
IBM, the IBM logo, ^, DB2, DB2 Universal
Database, e-business Hosting, Enterprise Storage
Server, pSeries and TotalStorage are trademarks
or registered trademarks of International Business
Machines Corporation in the United States, other
countries or both.
Other company, product and service names may
be trademarks or service marks of others.
References in this publication to IBM products
or services do not imply that IBM intends to
make them available in all countries in which
IBM operates.
This document is based on information
provided by the H.E. Butt Grocery Company
and DemandTec, Inc. and illustrates how one
organization uses IBM products. Many factors
have contributed to the results and benefits
described; IBM does not guarantee comparable
results elsewhere.
G565-1223-00
doc_559011394.pdf
Promoting old - fashioned values in a
modern, competitive marketplace
The H.E. But t Grocer y Company
(www.heb.com) has a histor y of
providing exceptional customer
ser vice, low prices and a friendly
shopping environment, all of which
have helped it grow into one of
the largest independently owned
food retailers in North America.
H- E- B currently has more than 300
supermarkets and over 55,000
employees in the southwest United
States and Mexico.
Promoting old-fashioned values in a
modern, competitive marketplace
The H.E. Butt Grocery Company
(www.heb.com) has a history of
providing exceptional customer
service, low prices and a friendly
shopping environment, all of which
have helped it grow into one of
the largest independently owned
food retailers in North America.
H-E-B currently has more than 300
supermarkets and over 55,000
employees in the southwest United
States and Mexico.
Key to H-E-B’s success is its reputa-
tion for consistently low pricing,
supported by an extensive set of
pricing rules —for example, ensuring
better value for larger sizes of particu-
lar products, pricing popular-selling
items carefully in comparison with
competitors’ prices, and ensuring that
private-label products are priced less
than the equivalent national brands.
H-E-B’s pricing came under increased
pressure when giant discount retailers
entered its market. To help offset this
competition, H-E-B added a new layer
of pricing constraints, based on
Competitive Price Index (CPI) aver-
ages, which tracked its pricing versus
other retailers.
? Challenge
To thwart the advances of giant
discount retailers and support its
evolving business strategy, leading
grocery store chain H-E-B needed
a more strategic pricing system
? Solution
A comprehensive consumer
demand management enterprise
software solution from IBM Business
Partner DemandTec, hosted by IBM
e-business Hosting
™
IBM Global Services
The price is right at H-E-B, thanks to
a consumer demand management
solution from IBM and DemandTec.
Overview
? Key Benefits
Ability to simulate complex pricing
strategies prior to implementation,
achieve business rules compliance,
meet financial objectives and
continually enhance customer
satisfaction and price reputation
2 3
“DemandTec software
helps us achieve a
better price image while
enabling us to meet our
fnancial objectives and
lower cost of goods sold.”
— Mark Bradshaw, director of category
pricing, H.E. Butt Grocery Company
Making this more complex set of rules
and constraints work together in a
dynamic business environment proved
to be a challenge for H-E-B. From an
information system perspective, the
company’s existing library of spread-
sheets made it diffcult to defne winning
pricing strategies and quickly execute
accurate prices across hundreds of
stores and tens of thousands of prod-
ucts. While H-E-B was working on its
next set of prices, competitors would
preempt those moves with yet another
set of price changes. “Pricing data is
highly perishable,” explains Mark
Bradshaw, director of category pricing,
H-E-B. “With our previous spreadsheet
software, we could react to information,
but sometimes not until after our
competitors had changed their pricing
strategies.” Additionally, H-E-B’s
software was unable to model and
forecast consumer demand from a
merchandising perspective, or provide
insight into strategic considerations such
as the optimal price differential between
its private label products and leading
national brands. Nor could the legacy
systems systematically track pricing
inconsistencies, such as if a particular
smaller-sized item was a better deal
than the larger size of the same product.
As a result, prices started to fall out of
alignment with H-E-B’s overall merchan-
dising strategy.
Keeping competitors at bay with a next-
generation pricing system
Retailers can gain a huge advantage
over their competition with a precise
capability to understand, forecast and
shape consumer demand—which can
lead directly to increased market share,
sales revenue and profts. To maintain its
competitive position—and protect its
long-standing price reputation with its
customers —H-E-B needed a pricing
system that would enable it to effectively
manage its complex set of pricing rules,
provide accurate insight into consumer
demand for its products in a dynamic
merchandising environment and support
its dual objectives of delivering great
value to customers while achieving market
share and fnancial performance goals.
To overcome these challenges, H-E-B
turned to IBM Business Partner
DemandTec, Inc. —because of the
company’s strong implementation team,
robust application functionality and the
results that other retailers had achieved
with the software. “H-E-B evaluated
several software vendors and chose
DemandTec because of the features
and functions provided by the
DemandTec Price product,” says Scott
McClelland, division president, H-E-B.
Headquartered in San Carlos, California
and employing 150 people, DemandTec
(www.demandtec.com) differentiates
itself from competitors by providing
sophisticated software that leverages
the science of consumer demand
management to create superior mer-
chandising strategy, planning and
execution. DemandTec’s leading
enterprise software applications help
retailers make better pricing decisions,
and execute pricing and promotion
strategies that are designed to help
increase proft, revenue and market
share, while maintaining or growing their
price image and customer loyalty.
Capitalizing on a complementary
relationship and proven technology
Keeping in mind the primary goals of
enforcing H-E-B’s pricing rules and
aligning prices with the CPI targets of
each category, DemandTec’s software
platform analyzed two years of point-
of-sale (POS) data to provide H-E-B
with a detailed forecast about how
each of the company’s pricing rules
would impact consumer demand and
fnancial performance of every item in
every store. The software also analyzed
all possible combinations of rules,
items, zones and time periods,
enabling H-E-B to run virtually unlim-
ited scenarios in an accurate virtual
merchandising environment.
2 3
This ability to simulate complex pricing
strategies and assess their impact on
volume and fnancial performance prior
to execution is critical in helping H-E-B
make more informed, accurate deci-
sions. Bradshaw explains, “To try to
improve our price performance against
the competition in a particular product
category, we determined that using our
previous manual spreadsheet method
would have meant a considerable
investment on H-E-B’s part. But with the
simulation capabilities of DemandTec
software, we were able to predict how
we could overachieve the index target
and simultaneously increase our gross
margin dollars —which amounted to a
major improvement in that category.”
While DemandTec implemented H-E-B’s
solution, the software applications run
on leading IBM technology at an
IBM e-business Hosting facility. Taking
advantage of DemandTec software as
a service through IBM allowed H-E-B
to get its solution up and running faster
and more cost-effectively compared with
an in-house deployment. IBM provides
the infrastructure to run DemandTec’s
proven reliable, scalable and high-
performance applications. The joint
consumer demand management service
is usage-based, allowing H-E-B to pay
for only what it uses —without the usual
up-front infrastructure costs of managing
a complex system of applications,
networks and hardware. To accommo-
date the computing demands of
DemandTec’s data-intensive modeling
activities, the application uses
IBM
^
®
pSeries
®
servers running
IBM DB2
®
Universal Database
™
informa-
tion management software and IBM
TotalStorage
®
Enterprise Storage
Server
®
systems, enabling exceptional
processing speed, power and scalability.
The price is right at H-E-B
H-E-B is also using the predictive
capabilities of DemandTec software to
help its procurement department lower
the total cost of goods. “When one of
our suppliers informed us of a cost
increase on a key product, we were able
to use the software to determine that
by raising the price on that item, the
supplier would experience a negative
impact on its volume of 50 percent,”
says Bradshaw. “By showing that
information to the supplier, our business
development manager was able to
negotiate a lower cost of goods and
save H-E-B a signifcant amount of
money. It all amounts to a win-win-win
situation for the consumer, the supplier
and H-E-B.”
The sophisticated modeling and
forecasting capabilities, and dynamic
rules management functionality of
DemandTec software allow H-E-B to
effectively and proftably compete with
larger discount retailers without match-
ing prices item for item—something that
H-E-B was unable to do before imple-
menting DemandTec software. With its
pricing under control, H-E-B can offer
a superior shopping experience with
improved service, fresher produce and
a higher-quality product assortment at
prices customers want. In the future,
H-E-B plans to explore DemandTec’s
promotional and markdown tools. “I see
us improving our ability to evaluate
market-basket data, assess key value
items in a category and determine
elastic and non-elastic items,” explains
Bradshaw. “With that level of under-
standing, we can write better pricing
and promotional strategies to make
better business decisions.”
By taking advantage of a fexible,
scalable and reliable IBM hosting
environment, H-E-B can avoid the
specialized skills and up-front and
ongoing operating costs of an in-house
solution, and can add functionality as
business needs dictate. The usage-
based pricing model is designed to
help ensure that H-E-B pays only for
the service it needs, when it needs it,
and can tap into extra capacity at any
time, on demand.
For more information
To learn more about IBM and IBM
e-business Hosting solutions, contact
your IBM representative or visit:
ibm.com/e-business/hosting
© Copyright IBM Corporation 2005
IBM Global Services
Route 100
Somers, NY 10589
U.S.A.
Produced in the United States of America
07-05
All Rights Reserved
IBM, the IBM logo, ^, DB2, DB2 Universal
Database, e-business Hosting, Enterprise Storage
Server, pSeries and TotalStorage are trademarks
or registered trademarks of International Business
Machines Corporation in the United States, other
countries or both.
Other company, product and service names may
be trademarks or service marks of others.
References in this publication to IBM products
or services do not imply that IBM intends to
make them available in all countries in which
IBM operates.
This document is based on information
provided by the H.E. Butt Grocery Company
and DemandTec, Inc. and illustrates how one
organization uses IBM products. Many factors
have contributed to the results and benefits
described; IBM does not guarantee comparable
results elsewhere.
G565-1223-00
doc_559011394.pdf