Best Practices for End-to-End Merchandise Optimization

By Richard Huston, Director of Solutions Consulting, Revionics Inc.

Markdowns are sometimes seen as a way to just push out unwanted inventory and clear space for more desirable products.  Here are some questions and thoughts to consider…

Do you have thoughtful merchandising strategies for markdowns?

As part of the product and pricing lifecycle, the markdown strategies are important for capturing revenue at the end of a products life on your selves.  Consider that varying strategies affect price image, how much inventory you will sell, and how much revenue you will get for that inventory.  Whether the event is an aisle reset, product discontinuation, or seasonal clearance, your pricing actions are seen and heard by your customer.

Is your markdown approach to just move out inventory?

Today with price optimization software, one can review the impact of a strategy to move inventory, capture sales, or a blend of both. Many organizations just use markdowns as a way to move out the final inventory, when really one can make better fact based decision regarding different markdown cadences (steps, dates, and prices) and a forecasted capture rate (percent of the original retail value) of the inventory sell through. So, don’t sell yourself short!

Are you taking advantage of localization?

Most organizations just set a national price point to certain types of merchandise as a way to reduce store effort at the shelf level. For some products, this approach could be the best, yet for most products, knowing the inventory position, consumer demand, and each product’s elasticity at that location could yield much stronger performance.  Developing a markdown pricing approach that takes this localization into account can help drive from selling our products short to driving better bottom line.

Are you measuring and managing your results to meet the financial budget?

Many of the markdown mechanisms are used to just meet the budget given and little fact finding to verify the viability, sort of a “this historical performance with some management percentage added in”.  With what-if simulation, setting strategies, bringing in inventory positions, developing markdown specific price elasticities, a markdown event can be planned and more fact based.  As the event is in-flight, the actuals performance can be tracked and the event re-optimized based on localized changing demand patterns.  This yields real-time feedback and responsiveness.  In addition, measuring forecasted to actual performance against the budget, allows the discussion with management and finance to take on a whole new meaning.

In summary, your markdown strategy can be enhanced with markdown price optimization to turn “final clearance of inventory” into a driving revenue capture pricing action.

Learn more about Revionics’ Markdown Optimization solutions.