How do you manage markdowns and promotions to optimize margins and sell-through?

1 What are markdowns and promotions?

Markdowns and promotions are price reductions that retailers use to stimulate sales, clear excess inventory, or compete with other retailers. Markdowns are permanent price changes that reflect the lower value of the merchandise, while promotions are temporary price changes that create a sense of urgency and value for the customers. Both markdowns and promotions can have positive or negative effects on the retailer's margins and sell-through, depending on how they are planned and executed.

2 Why are markdowns and promotions important?

Markdowns and promotions are important for retailers as they can influence the customer's perception of the brand, value proposition, and assortment. Additionally, they can affect the retailer's cash flow, inventory turnover, and profitability. Markdowns and promotions can help the retailer increase sales and revenue, improve inventory management, enhance customer loyalty and satisfaction, and gain competitive advantage. This can be done by attracting more customers, encouraging them to buy more or higher-priced items, clearing slow-moving or seasonal merchandise, offering great deals and rewards, and differentiating the retailer's offer from other retailers.

3 How to plan markdowns and promotions?

When planning markdowns and promotions, retailers should take into account their sales history, inventory levels, margin goals, and market conditions. Timing and frequency should be based on the merchandise life cycle, seasonality, and customer demand. The depth and breadth of the markdowns and promotions should be based on the merchandise category, price point, and elasticity. Additionally, communication and execution should be based on the retailer's marketing channels, store layout, and signage. Finally, the measurement and evaluation of the markdowns and promotions should be based on the retailer's key performance indicators, such as sales, margins, sell-through, and customer feedback.

4 How to optimize margins and sell-through?

Optimizing margins and sell-through requires finding the ideal balance between the price and the quantity of the merchandise sold, to maximize the retailer's profit and minimize the inventory risk. To do this, retailers can use data and analytics to forecast sales and inventory, and adjust the markdowns and promotions accordingly. Additionally, dynamic pricing can be used to change the prices based on the demand, supply, and competition, and artificial intelligence and machine learning can be leveraged to optimize the pricing decisions. Segmentation and personalization can be used to target the right customers with the right offers, and omnichannel and cross-selling can be used to increase the customer's exposure and access to the merchandise, as well as offer them complementary or alternative products or services.

5 How to avoid common pitfalls of markdowns and promotions?

Markdowns and promotions can also have some drawbacks and challenges for the retailer, if they are not planned and executed properly. For instance, frequent, deep, or inconsistent markdowns and promotions can erode the retailer's brand image and value perception. Additionally, markdowns and promotions that are not aligned with the customer's willingness to pay or the merchandise's perceived value can cannibalize the retailer's full-price sales and margins. Furthermore, customer confusion and dissatisfaction can arise if the markdowns and promotions are not communicated clearly or accurately, or if they are not honored or fulfilled as promised. Finally, the retailer's resources and opportunities can be wasted if the markdowns and promotions are not measured or evaluated, or if they are not used to generate insights and learnings for future improvement.