Content area
Full text
Introduction
Consumers in an affluent society expect to be able to purchase the products that they desire, at the time of their choice -- whether these are food items in a supermarket, clothes in a department store, airline tickets or hotel accommodation. Therefore, maintaining high product availability is a key goal for retailers. However, the flipside of high availability is high wastage levels on the items that do not get sold. It is important for retailers to minimize their losses incurred due to product wastage -- such losses can run into hundreds of millions of pounds (or euros). Therefore, many businesses, in a diverse range of industries, employ price markdown strategies in order to reduce the wastage losses incurred when products reach the end of their selling periods.
The aims of this paper are to demonstrate the commonalities in markdown pricing between different industries and to explain the role that analytics can play in setting intelligent markdown prices.
However, intelligent markdown pricing relies on more than just analytics -- we will show the importance of, and interplay between, people, process and technology. These need to be employed together to help the retailer manage its waste losses as part of the regular business operation process.
Markdown pricing across industries
Markdown pricing strategies are employed in many industries. The applications we will discuss in this paper all concern products that approach the end of their lifecycle. In order to avoid having to dispose of wasted goods, the retailer would prefer to mark down the product while it is still 'sellable'. This is done in order to fetch at least some money from a product that would otherwise need to be written off.
Markdowns benefit the consumer, in terms of providing a choice between paying the full price for a product with a long shelf life or a reduced price for a short shelf life -- this choice tends to be welcomed by many consumers. At the same time, store managers generally prefer to sell those products reaching their 'sell-by' dates, rather than have to remove them from the shelves and dispose of them in the waste bin. Therefore, the store manager should support the introduction of an intelligent markdown pricing strategy.
What different industries have in common...