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BETTER TIMES IN STORE We are seeing the emergence of profit-enhancing “demand-based” software now because computers have declined in cost and increased in power so much that they can crunch incredibly complex algorithms with massive amounts of data at costs and speeds that are literally a fraction of what they would have been 10 years ago [June/July 2002]. The change has allowed researchers to experiment with many new approaches to setting prices, testing promotions, or assessing alternative product features. These previously infeasible applications have arrived inside corporations just in the past two to three years. For most companies, the long boom of the ’90s had made revenue growth relatively simple. At the same time, the advent of re-engineering and the emergence of enterprise-resource-planning, supply-chain-management, customer-relationship-management, and e-commerce software allowed manufacturers and retailers to increase efficiency, improve customer service, and reduce costs. Now, though, these sorts of efforts to increase productivity face diminishing returns. At the beginning of the 1990s, drug chain retailers had an average gross margin of 36% and net margin of 0% to 2%. Today, their gross margins are 24%, and net margins remain at 0% to 2%. These companies achieved the incredible feat of reducing costs by a third over one decade, and this type of increase in efficiency has occurred in industry after industry. But even the most optimistic among us can hardly believe that the approaches that worked in the ’90s will produce comparable gains this decade. To make matters worse, with the 2001 recession, revenue growth has, at best, hit a wall. Retail appears to be one of the first industries to benefit from the new wave of technology because at that final point before the consumer, where costs are at their highest and margins lowest, the greatest gains can be made. However, other industries can also reap significant benefits from using the new software to manage price, revenue, and profits. I fully expect that this type of demand-based software will have a significant influence on corporate profitability in the years to come. —Gerard Cunningham
TRADING PLACES I applaud JetBlue Airways’ chief executive David Neeleman for his repeat visits to the front lines to get to know his customers [February/March 2002]. Working in front of the customer on a consistent basis is the only way to differentiate between the overall needs of customers and what may be an isolated concern or request of one customer. I have seen too many times when senior executives make a token visit to the front lines. Upon returning to headquarters, they run everyone through an all-hands-on-deck exercise to resolve the one problem they were exposed to that day. All customer concerns or requests should be addressed, but only consistent exposure to customers will identify what the priorities are. —Matt Menzies
RISING FROM THE ASHES I read your article [June/July 2002] with great interest. Thank you for pointing out that numerous online companies have survived the dot-com meltdown. The survivors have at least a few things in common: They provide fast, reliable services at reasonable prices—without having to sell their products or services below cost. —Joseph C. Panettieri
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