Price discounts stocks optimization

Pricing, Discounts and Stock Management : Finding the Balance

Pricing a product or service is a delicate balance- enticing the customer while maintaining margins and ensuring consistency with other products isn’t an easy feat. Clarity, strong judgement, and relationships are three aspects of the balancing act that can often be overlooked.

 

Make Pricing Clear and Concise

While the rise of online retail has increased product transparency, it has also introduced a price transparency that has created price competition like never before.  Often times retailers will try to make up for this transparency with convoluted pricing strategies.  Unfortunately, the consumer understands this strategy and begins to distrust the retailer.  Advertising an upcoming discount and then subsequently increasing prices is a poor pricing decision that frustrates the consumer.  With so many suppliers visible online, creating customer frustration and distrust is a quick way to poor performance, eventually eroding sales as well as margin.  It is beneficial for retailers to make their pricing strategies as clear and concise as possible.

Price points are a great way to create easy to understand promotions.  For example – a product promotionally priced at $19.99 is easier to understand than a product priced at $24.99 with a 20% off coupon.  Clarity without gimmicks will gain consumer trust overtime leading to brand goodwill and returning customers.

 

Take Care of Stock Issues Now

Every retailer has experienced a situation where they made a poor stock decision.  Consumer trends can be difficult to forecast, and sometimes even the weather plays into why a product did or didn’t sell.  It is important to exercise a strong sense of judgement when making decisions that are often damaging to the bottom line.  Marking down a product and taking care of a stock problem as soon as it becomes apparent is a difficult decision to make in the short run, but it will pay off in dividends in the long run.  Hanging on to stock that is out of style, out of season, and aging is a one-way ticket to an even lower margin for months to come.  The benefit of addressing stock concerns early: you will capture the consumer’s attention before he or she can find an alternative that satisfies their want or need.  Get ahead of the problem and correct for the next season.

 

Work and Communicate with Vendor Partners

Stock issues don’t always have to be corrected with a markdown that you fund. Working with vendors and suppliers is an important aspect of maintaining margins and satisfying the customer. It is important to communicate those issues with a vendor or supplier if you have one. Maintaining these relationships and communicating issues ahead of time has the potential to save the business especially if it is in a tough spot.  Work with suppliers to swap poor selling items for strong sellers if possible.  Sometimes different accounts sell items better than others, it could potentially be in the suppliers interest to take back your poor selling stock, because it’s performing better elsewhere. Perhaps there is also an opportunity for a margin agreement, this type of agreement allows the retailer to markdown an item and the supplier will pay for the markdowns up to a certain percentage.  While this may seem like there is no upside for the supplier in this type of agreement- if you can’t afford to buy new stock from the supplier because of old, bloated inventory levels, they will start to suffer too.  The push and pull of this dynamic relationship is important for both parties, and when executed effectively promotes strength and growth for both the retailer and supplier.

 

Maintaining clarity, judgement, and relationships isn’t always easy especially when the business is reporting to shareholders hungry for margin.  However, even with outside pressure it is important to remember that longevity is the goal, especially in an industry that is facing rapidly changing consumer attitudes towards shopping. Difficult decisions will arise when managing stock and markdowns, but neglecting these three principles will result in decreased customer loyalty and eroding margins. Giving the customer a clear pricing message, addressing stock issues early, and leveraging vendor relations will pay off in the long run.

ActiveViam for Pricing tackles this challenge through data science, by providing the expertise and the technology through which our clients can analyze past and present markdowns and uncover the customer insights that have driven their success or failures. When looking at the future, a powerful ‘What-If’ analysis environment enables our clients to apply the rules derived from their previous analysis, test a variety of markdown scenarios, select the best one and revisit it at any time to make sure it remains optimal.

We provide them with a set of precise, data-driven rules that govern markdowns and the analytics platform to deploy them effectively, so they can industrialize their process on the largest scale while maintaining a precise level of optimization. Crucially, the process remains fully transparent and rules can be analyzed, challenged and updated at any time. Select the right pricing strategy, know the items that need to be marked down, and manage your vendor giveback potential all within ActiveViam’s analytical pricing platform.

Related resources

eBook – Private label brands in pricing: optimize now, build up over time
eBook – Price-indexes and marketing insights
eBook – Dynamic Pricing
eBook – The paradoxes of price image
eBook – Assess the maturity of your pricing
eBook – Taking advantage of Big Data to regain margins
eBook – 3 lessons learned on price image

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