Glossary

This glossary includes terms used throughout the application.

Activity-Based Costing: An accounting system that allocates costs of all activities to each item (rather than spreading costs uniformly across all items, which is what simpler methods like traditional cost accounting do), so that you know exactly how much it costs to sell an item once you include all supply chain costs such as transportation, labor, and overhead.

Accrual Fund: Either an allowance, or a funding method used to allocate trade funds to accounts. When it is applied as an allowance, the manufacturer agrees to pay the retailer a set amount for every case that they buy during the year (this can include all base volume and all promoted volume). In return, the retailer agrees to run a set number of promotions for the manufacturer throughout the year. The difference between an accrual fund and a case allowance is that, with the accrual fund, one deal is done for the entire year's worth of promotions, and with the case allowance, different terms are negotiated for each event.

When the accrual fund method is used for trade fund allocation, it is used to decide how many trade funds will be allocated to a specific account. Retailers usually set accrual funds aside to fund only promotions.

Ad: Promotion of a good in various media channels, including print, radio, and television.

Ad Allowance: A dollar amount that the retailer receives for every case that the retailer purchases from the manufacturer (paid after the ad has run).

Ad Zone: A collection of stores that offer the same advertised promotion.

Allowance: The amount of discount that the retailer receives from the manufacturer. There are two types of allowance: performance allowance and non-performance allowance.

Assortment: The mix of items that retailers stock. They periodically review their assortment to figure out which items should be discontinued, and which new items should be added.

Backhaul: A term used in logistics when a truck picks up another load for a return trip after unloading its original haul.

Backhaul Allowance: The manufacturer provides the retailer with a backhaul allowance based on every case of product that the retailer collects from the manufacturer's warehouse using contracted trucks.

Base Price: The regular non-promoted shelf price.

Basis Point: A basis point is the smallest measure used to quote financial return. One basis point equals one one-hundredth of a percent. For example, the difference between a net profit margin of 2.25% and 2.50% percent is 25 basis points.

Bayesian Inference: A highly sophisticated approach to statistical modeling that is useful in sparse data environments. Bayesian Inference is based on theories by Rev. Thomas Bayes, who lived over 200 years ago. Phil Delurgio is one of a handful of experts outside academia experienced in building large scale, robust Bayesian models.

Bayesian Shrinkage: A Bayesian methodology whereby information is borrowed across products and stores in order to intelligently "shrink" model estimates and moderate extreme values.

BOGO: "Buy One Get One" Free. A promotion tactic often used to give consumers an incentive to buy and stock up on a product.

Blocks: See Store Zones.

Brand: The name (usually trademarked) that a manufacturer assigns to a group of items. The brand name is not always the same as the manufacturer name, since a manufacturer can own several brands. For example, Clorox brands include: Clorox, Pine-Sol, Armor All, Brita; Proctor & Gamble brands include: Tide, Mr. Clean, and Cover Girl.

Brand Class: Classifications of brands. Brand classes let you create brand relationships between products so you can set rules for optimizations. For example, you might put generic sodas in a Private label brand class and Coke in a National label brand class.

Brand Class Rule: A constraint applied between brands that dictates their price relationship. Example: Premium brands are always more expensive than economy brands.

Brand Family: Brand families let you further define subsets of a brand class. For example, you might have Coke and Pepsi products in a National label brand class and Generic soda A and soda B in a Private label brand class. To set a rule that controls the price relationship between Coke and Generic soda A, you must put the Coke products in a Coke brand family and Generic soda A in a Generic A brand family.

Brand Manager: The Brand Manager charts the strategy and tactics surrounding the Brand plan (for example, which new products get developed, and which marketing mix events will occur). The marketing research department supports the Brand Managers.

Business Rules: Constraints on the optimization that allow rules to describe strategies or policies that are important in guiding the outcome of the optimization to suit the customer's needs.

Cannibalization: The negative effect on sales of a product when a consumer buys one product instead of another (often due to pricing, promotion, or new desirable attributes). For example, when a new flavor of yogurt is introduced, it may cannibalize sales of other flavors or brands of yogurt. While consumers may not buy more yogurt overall (category expansion), they may alter the choice of their usual product for the new one.

Category: A collection of related products that are substitutes or complements. Retailers use categories to group and manage products (for example, produce, dairy, and frozen foods).

Category Manager: A person responsible for all merchandising activities for a category of products, including price, promotion, placement, and assortment.

Category Plan: All promotions for one category that intersect in time with a specified date range. They are the basis for category predictions and forecasts, and allow accurate what-if analyses of different promotion plans.

Chain: A branded collection of stores with one owner (for example, Longs, and Winn-Dixie).

Client: The user-interface application installed at the customer site.

Coefficient: A number representing the relationship between a dependent variable (for example, sales volume or share) and an independent variable (for example, base price or discount).

Comp Shop: A technique used by retailers to find competitor prices. For example, if Longs has Dove soap on its "comp shop list", or if Longs "comp shops" Dove, it means that Longs regularly conducts store checks at competitor stores to make sure that they meet or beat the competition's price on Dove. This is also referred to as a Competitor Price Audit.

Competitive Prices: Prices that are perceived to be a good value compared to what the competition is charging.

Competitor Prices: Prices that the competition (other stores that consumers could choose to shop instead) is charging for the same items.

Competitor Price Rule: An example of a business rule, this feature allows users to enforce rules that ensure that prices are competitive. For example, you could impose a rule that says prices on cereals are within 5% of competitor prices.

Complementary Products: Items that consumers usually buy together. The classic example is hot dogs and hot dog buns.

Constraint: A rule that forces the optimization to generate results that fall within a certain range.

Consumer: A person that buys items at a store.

Consumer Demand Model: A system of equations that predicts how much consumers will buy depending on factors such as price, seasonality, and promotions.

Consumer Response Model: See Consumer Demand Model.

Consumer Loyalty: The affinity that consumers have for a product or retailer that makes them more likely to purchase a specific product, or shop at a specific store.

Contribution Margin: The dollars remaining after variable costs are subtracted from adjusted gross margin. A more accurate measure of profit than gross margin.

Contribution Margin%: Contribution margin divided by revenue.

Cost of Capital: The costs associated with carrying merchandising inventory.

Cost of Goods: The amount of money that the retailer pays the manufacturer for the product. It can be specified in terms of a case, pound, unit, or ounce, for example.

Cost Per Incremental Unit: Original price minus promoted price plus any trade funds.

Cross-Elasticity: The relationship between the purchase of one product and the purchase of another. If the products are completely independent, the cross-elasticity is zero. If products are complementary, the cross-elasticity is positive. If products are substitutable, the cross-elasticity is negative.

Cross-Elasticity of Demand: See Cross-Elasticity.

Deal: Promotional pricing for a good.

Demand: The amount of a product that will be purchased at a particular price.

Demand Curve: Demand over a range of prices over a period of time.

Demand Group: A collection of highly substitutable products. The price and promotion of one item in the group directly affects demand for the other items.

Discount Price: The sale price of a product (also known as Temporary Price Reduction).

Display: A form of in-store promotion to draw attention to a particular product or line of products.

Drop Ship Method: When middlemen avoid carrying costs of inventory by sending single unit orders for products to manufacturers (or major stocking distributors), who drop ship the merchandise directly to the customers of the middlemen.

DSD: Direct Store Delivery. Shipment from manufacturer to retail store which bypasses any middlemen such as distributors or wholesalers.

EDLP: Every Day Low Pricing. Wal-Mart is the leader in EDLP, building trust among consumers by offering low prices every day. Others choose to have higher everyday prices but promote or discount heavily.

End Cap: A display at the end of an aisle.

Equivalent Retail Price: Price per equivalent unit, calculated by taking shelf price divided by the standardized unit of measure.

Equivalent Unit: A standardized unit of volume using equivalization.

Equivalization: The assignment of a standardized unit of measure to a product based on the product's description and the spread of sizes/counts that apply to that description. This allows direct comparison across a wide range of sizes. For example, both one case of Coke and two 12-packs of Coke = 1 equivalent case.

Event: A group of promotions arranged around a theme. They are used to group promotions for long-term planning, the creation of media such as circulars, FSIs, advertisements, wraps, and event-specific planning meetings.

IBM Price Optimization and Price Management: DemandTec by Acoustic software system that helps retailers and manufacturers maximize profits by setting the optimal price for every product in every store.

Financial Modeling: A process that enables retailers to understand the cost drivers of their business, including fixed and variable supply chain costs. See Activity-Based Costing.

Fixed Cost: A cost that does not vary depending on production or sales volume.

Flat Fee: A lump sum of cash that the manufacturer pays to the retailer to secure a display or an Ad. It can be viewed as the fee for renting the display space or for the ad space even though it is not a direct payment for either one.

Forward Buy: The purchase of an amount of product that exceeds immediate needs to take advantage of favorable pricing offered for promotions.

Gross Margin: Revenue minus product cost.

Gross Margin%: Gross margin divided by net sales, expressed as a percentage.

Gross Margin Rule: Constraint requiring optimization results to be within a gross margin range.

Gross Profit: See Gross Margin.

Gross Profit%: See Gross Margin%.

Incremental Value: Forecasts the promotion's incremental profit change and cost per promoted product value by stripping out everyday business results. It is often considered the true indicator of a promotion's worth.

KPI (Key Performance Indicators): A set of measurements to assess success against predefined core objectives.

Labor Rate: An hourly labor cost including wages and benefits.

Last Digits: The digits in a price after the decimal point.

Line Pricing: Assigning a group of similar products the same price, usually across flavors (for example, 6 packs of soda, or all boxes of Jello).

Loyalty Card Program: A program that consumers sign up for to enjoy discount or reward programs in return for tracking of consumer behavior patterns. Also called Frequent Shopper Program.

Magic Price: A price at which demand increases dramatically. For example, pricing a 6-pack of soda at $1.99 may result in an unusually high demand vs. pricing it at $2.00.

Markdown: The amount by which a price is reduced to boost sales.

Merchandising: The promotion of products, including coordinating production and marketing, and developing advertising, display, and sales strategies.

Multiples: Price statements in which multiple products are offered at a particular price, for example 2 for $1.00.

Net Margin: See Net Profit.

Net Margin%: See Net Profit%.

Net Profit: Gross sales minus cost of goods sold, cost of operations, taxes, interest, and depreciation.

Net Profit%: Net profit divided by revenue.

Non-Performance Allowance: Additional funding from the manufacturer to the retailer that is not tied to promotions. Freight allowance, backhaul allowance, spoilage allowance, and buying allowance are some examples.

Offer: The proposal that a manufacturer makes to a retailer about the products that should be promoted, the manner in which these products should be promoted (for example, Ad, Display, or TPR), the time in which the products should be promoted, and the amount of money that the retailer will receive from the manufacturer (in a lump sum of cash, or as a saving off of the cost of the product, which are referred to as the deal terms).

Optimization: The process of finding the best formula (for example, prices, product mix, and promotion plan) for achieving a given merchandising objective.

Overhead: All operational costs other than supply-chain costs.

Overhead Allocation: The amount of overhead costs attributed to a particular product.

Panel Data: Tracking of individual consumer behavior over time to assess individual consumption patterns, impact of promotions, and switching behavior.

Pantry Loading: The act of stocking up on a product because it is on sale or promotion. Also known as Time Cannibalization or Stockpiling.

Performance Allowance: A discount that a retailer qualifies for after performing a promotion. There are two main types of performance allowances: Case Allowance (based on the amount of product that is shipped from the manufacturer to the retailer - shipment -based); and Scan Allowance (based on the amount of product bought by the consumer from the retailer - consumption-based).

Performance Period: The period of time that the promotion will run. It is the time when the promotion is performing, for example, when the product is on Display, Ad, or TPR.

POS Data: Point of Sale information that is collected by scanners upon check-out. POS Data shows the date, volume, and purchase price for all items sold.

Pre-Price: Products that have a price stamped on the packaging by the manufacturer.

Price Check: Confirmation of the selling price or retail price for a product.

Price Elasticity of Demand: The rate at which demand changes for a change in price. Change in demand divided by change in price.

Price Gap: The price difference between two similar products.

Price Image: The consumer perception of a retailer's prices and value.

Price Zone: Group of stores that always have the same prices across products.

Product Costs: The wholesale cost, or vendor cost, that a retailer pays a manufacturer.

Product Cube: The volume of space occupied by a product, expressed in cubic feet.

Product Elasticity: Price elasticity of demand for a particular product.

Product Groups: A group of products for a DemandTec by Acoustic user.

Product Pairs: A set of two products that have a promotional constraint established between them. For example, Dial White Bar Soap 3CT should be priced at 90% of Dial Gold Bar Soap 3CT.

Product Share: The ratio (in terms of percentage) of the revenue of an individual product (SKU) to the total revenue in one store.

Product Storage Type: The location in the store that houses a product. DemandTec by Acoustic values equals shelf (frozen or refrigerated).

Profit: Revenue less variable costs, fixed costs, and ABC costs.

Promotion: A temporary product price adjustment and/or consumer benefit tied directly to the purchase of a product.

Promotion Planning & Optimization: The DemandTec by Acoustic software service that helps retailers and manufacturers optimize product promotion decisions.

Replenishment Frequency: The number of times that store or DC inventory is replaced in a given time period.

Retail Price: The selling price or shelf price a consumer pays for a product.

Return on Trade Funds: The incremental value of the promotion (value of the promotion less everyday business) divided by trade dollars.

Revenue: The amount of sales in terms of dollars or local currency collected from consumer or business-to-business transactions.

ROI: Return on investment (after-tax operating income/ net (depreciated) book value of assets).

Sales: See Revenue.

Sales Volume: The number of units of products sold in consumer or business-to-business transactions.

Same-Store Sales: Same-store comparisons measure the growth in sales, excluding the impact of newly opened stores.

Scanner Data: POS data collected by a barcode scanner. See POS Data.

Scenario: A set of constraints and rules applied to product, store, price, and cost data that is optimized to achieve a particular business objective in terms of profit, revenue, and volume. The term "scenario" may be synonymous with "promotion".

Seasonality: An underlying trend in consumer behavior based on the time of the year (for example, the impact of Thanksgiving holiday on the purchasing behavior of turkey).

Shelf Depth: The amount of space between the front of a shelf and the back of a shelf.

Shelf Height: The vertical clearance of a shelf.

Shelf Width: The horizontal clearance of a shelf.

Single Product Rules: Optimization constraints applied to one product or SKU.

Size Class: An attribute assigned to a product to place the product in a particular group based on size, volume, or weight. Size classes let you create size relationships between products so you can set rules for optimizations. The allowable size classes are XXX-Small through XXX-Large.

Size Family: Size Families let you further define subsets of a Size Class. For example, you might have 12oz. Coke in a Small Size Class, and 16oz. Coke in a Medium Size Class. To create a rule between the two, such as the 16oz. Coke is always more than the 12oz., but not more than double the price, you must create a Size Family named Coke. If you do not create that Size Family, the rule would end up applying to all products in the 12oz. and 16oz. Size Class.

Size Group: A classification of a group of products based on their relative sizes (for example, 0-8 oz = small, 9-12 oz = medium, >12 oz = large).

Size Rule: A predefined relationship between two similar products based on their respective volumes, weights or counts.

SKU: Stock Keeping Unit. It is a number that a retailer assigns to a product.

Slotting Fees: The fees a retailer charges a manufacturer to insert or "slot" a new product onto shelves.

Store-For-Store Sales: See Same-Store Sales.

Store Groups: A set of individual stores that should be treated as one unit to achieve a business goal (for example, Region).

Store Traffic: The number of shoppers per unit of time.

Store Zones: A group of stores that share a set of prices. Also called Zones, Store Prize Zones, or Blocks.

Strategy: A set of pricing and promotion initiatives or activities that complement each other to achieve a particular business goal.

Substitute Products: Products that consumers perceive as having the same or similar utility. A substitute product is one that a consumer would purchase in lieu of another product without giving up a significant amount of perceived value.

Time Horizon: A promotion's time span.

Time Series: A set of values of a variable at periodic points in time.

TPR: Temporary Price Reduction. A reduction in the consumer price of a product for a temporary period of time.

Trade Funds: Funds offered by a manufacturer to a retailer for the promotion of a set of products, also referred to as Trade Spend. These funds are usually allocated to pay for promotional activities on the part of the retailer, including Ads, Displays, and Temporary Price Reductions (TPR).

Trend: An underlying relationship within a group of data points.

Two Product Rules: A constraint or rule relating two products together.

Unit of Measure: The type of size measurement.

Unit Sales: See Sales Volume.

UPC: Universal Product Code. A number and bar code that uniquely identify an individual consumer product issued by the manufacturer. The DemandTec by Acoustic standard is 14 digits.

Variable Cost: An expense that is associated with producing, stocking, or purchasing a SKU.

Vendor/Manufacturer: The company that makes the goods that the retailer buys. The vendor considers three main merchandising activities when deciding how to plan their promotion calendars and construct their offers: Displays, Ads, Temporary Price Reductions (TPR).

Vendor Cost Change: Manufacturer-driven change in the purchase price of a product.

Volume: The number of units sold for a particular SKU.

Volume Rule: A constraint on the volume range for a given product or group of products within an optimization.

What-Ifs: Varying key assumptions to determine how the end results of an analysis differ.

Zone Prices: Common prices implemented across multiple stores in an account.

Release

Planned set of new functionality for DemandTec by Acoustic application suite that becomes available to all users on a specified date.