| A markdown is a reduction on price, usually to clear | | | | which is a general process that often incurs |
| inventory before it becomes obsolete or needs to be | | | | considerable expense. All too often, product is |
| removed to make way for new stock. It is a planned | | | | overbought at end of life and requires significant |
| reduction in the selling price of an item. | | | | markdown to clear excess inventory. Markdown |
| Let us take an example of fireworks for a holiday. | | | | comes with two significant liabilities. Firstly markdown |
| Retailer wants to finish old stocks at the end of the | | | | utilizes an understanding of price elasticity to generate |
| holiday. Fireworks left unsold at the end of the holiday | | | | the most profit in liquidating an inventory. Moreover, |
| season will have to be sold at prices often below | | | | such markdowns tend to be priced either too low, |
| costs to clear inventory levels. Markdown | | | | resulting in lower margin; or too high, resulting in lost |
| management helps cut the losses by pushing out the | | | | revenues and leftover inventory. |
| last goods which may lose value if unsold. | | | | Proper markdown analysis help retailers to determine |
| While ideally the best approach would be to order just | | | | which items should be markdown, when and which |
| enough items which can be sold at full price | | | | markets to cover. Markdown Analysis requires base |
| sometimes retailers inevitably end up with unsold | | | | factor information such as inventory level, average |
| inventory. This problem is more rampant in the fashion | | | | sales volume; price elasticity; salvage value and time |
| and electronic retail industry where products get | | | | frame by which the retailers need to sell out. Data |
| outdated quickly. Scientific markdown management | | | | should first be prepared for analysis usually through |
| approach help retailers to leverage their pricing | | | | data analysis software like SAS or even excel (for a |
| capabilities and drive new levels of performance in | | | | small retailer) and then mathematical techniques be |
| retail capabilities. | | | | applied on the data to extract the coefficients and |
| The buzz in the retail software world in the last couple | | | | factors required to plan an effective markdown |
| of years has been focused on providing retailers with | | | | management plan. Through price changes at the right |
| markdown optimization tools. Every Retail product has | | | | intervals of time, a schedule can be developed |
| three phases of product life cycles; product launch, | | | | automatically for each product to maximize revenue |
| growth and end of life. More attention is paid to | | | | and profits. |
| product launch and growth, rather than end of life, | | | | |