So if blindly chasing ever-deeper discounts isn’t effective, what should retailers do? Fortunately there are proven strategies that leverage data and science to implement a meaningful, effective and margin-preserving strategy.
The best way to stop killing profits with a willy-nilly markdown strategy is to start making data-driven, fact-based decisions. This is easier said than done if you’re operating under the traditional paradigm, but with some fresh thinking and investment in change, you can make the “science” of discounting work to your advantage. Here are some best practices to give you the edge:
Know Your Customers
Because no two markdown strategies are the same, what’s going to work for one set of items and customers won’t necessarily work for the next. To arrive at the best plan of action, you need insights into your specific customer base and a deep understanding of what makes your existing customers, prospective customers, and your wish-list customers “tick.” You’ll need to know…
- What are their preferences at each stage of their shopping journey?
- Who or what influences their purchase decisions?
- How are their behaviors changing as a result of technology?
- What, if anything, promotes their “buy now at any price” mentality?
The answers to these questions and others like it are just the tip of the iceberg. Knowing what matters to your target customers—and how to deliver it—is an excellent starting point for exploring pricing strategy. This may be common sense; but today, things are moving fast and your customers have more options than ever. Your brand has value, and what you do with your prices has an effect on how the marketplace perceives it.
Challenge Your Existing Strategy
If you’ve been playing the markdown game for fear of losing customers, how closely does your strategy align with your business goals? Even if price is a primary focus, are your sales numbers where you need them to be?
Challenge your current markdown strategy and ask yourself:
1.) Do you watch sales from last week and if they weren’t good, reactively add a discount for this week to hope for improvement?
2.) Do you always take your first mark of 25% off after 8 weeks of sales everywhere with the next one at 50% in two weeks regardless of how each individual location is going?
3.) Do you consider omni-channel in sales and fulfillment in the plan or is it just another independent entity?
4.) Have you been maximizing your budgets? Or just trying to make sure you don’t blow them up while trying to get through the inventory
5.) Do you manage by forward outcomes? Look at the lifecycle and put a full, but adjustable plan together that is flexible for each location / channel?
This day and age, retailers constantly amass data that can—and should—be used to inform decisions. Technology solutions are being put in place to provide decision makers with actionable insights based on consumer, process, and point-of-sale data their business generates every day. Effective data crunching enables end-to-end price, promotion and markdown optimization that help professionals:
- Manage their prices to drive the desired outcome
- Know what’s working, what’s not working, and what the options are
- Plan, Anticipate, and Adjust for customer needs and marketplace changes
- Align discounts to customer behavior, strategic and sales goals, and budget
It’s no wonder that operating in a crowded, competitive, and increasingly omnichannel marketplace, a retailer may feel forced to massively discount to gain sales. But that doesn’t mean they have to accept low profit margins as the cost of doing business. Price is indeed important to today’s shopper, and it stands to reason a markdown strategy that carefully accounts for customers’ perceptions of price—and leverages data to optimize prices—is a means to the end the damaging cycle of kneejerk markdowns.
Resources: A New eBook and Visit Revionics at NRF
Download Revionics’ new eBook Fit For Fashion: Discounting in Style for more about the markdown pressures faced by today’s retailers and learn how to put an end to destructive margin-eroding discounts.
And don’t miss your chance to connect with us at NRF's Retail's Big Show 2017 from January 15-17. We’ll be showcasing our SaaS solutions for Price, Markdowns and Promotions at Booth 3553. Plus, Revionics, EKN Research and Farmacorp are participating in an expert panel – “Facing the Future: Trends in Pricing and Promotions for 2017” – on Monday, January 16, 10:15-11:00 a.m. EST at the Jacob K. Javits Convention Center EXPO Hall, Room 2, Level 1.
Click here to set up a meeting with one of our experts at NRF, and we’ll see you at Retail’s Big Show!