- The cause: modern supply chain disruptions and overstock
- Why does markdown optimization matter now?
- How can AI help with markdown optimization?
- Why now is the best time for retailers to switch to AI markdown solution: expert view
- Smart markdown campaigns with Competera Markdown Optimization
In today's rapidly evolving retail landscape, where staying competitive is paramount, retailers are constantly seeking innovative solutions to optimize their pricing strategies and maximize profitability. With the advent of AI technology, retailers now have an unprecedented opportunity to revolutionize their markdown campaigns and unlock new levels of efficiency and accuracy. In this article, we delve into the reasons why now is the perfect time for retailers to embrace AI solutions for markdowns.
The modern retail industry has been greatly impacted by supply chain disruptions, with the COVID-19 pandemic and the Russian-Ukrainian war exacerbating the problem. Nearly two-thirds (60%) of small and mid-sized businesses (SMBs) reported losses in revenue during 2022 due to supply chain delays.
Overstock became a significant problem for retailers, as it ties up valuable resources and can lead to significant financial losses. The relationship between supply chain disruptions and overstock is clear - when there are delays in the supply chain, retailers are often forced to order more products than they need in order to ensure they have enough inventory on hand.
However, when the supply chain normalizes, they are left with excess inventory that must be sold at a discount, leading to decreased profit margins. This is where markdowns come in.
While dealing with overstock and modern supply-chain disruptions, markdowns are common strategies retailers use to clear out excess inventory and recoup some of their losses. In plain words, a markdown campaign is a pricing strategy used by retailers to sell products that are not selling at their original prices.
By reducing the price of overstocked items, retailers can incentivize customers to make purchases and free up valuable space in their warehouses. However, the traditional markdown approach to clearing stock relies on manual processes and human expertise, which can be time-consuming and prone to errors.
Clearing old stock with traditional markdown campaigns leads to regular money leakages and margin loss.
Moreover, markdown optimization matters now more than ever because retailers are facing increasing competition and pressure to operate efficiently. Most industry observers predict supply chain disruptions and overstocked inventory to stay for a long time, so retailers need to be agile in their pricing strategies to stay ahead of the curve.
Luckily, AI-driven Markdown optimization, on the other hand, leverages advanced algorithms and technologies to analyze data and identify the best possible pricing and promotion strategies for each product.
Let’s take a closer look.
AI can be a game-changer for retailers looking to optimize their markdown strategies. By analyzing vast amounts of data and considering multiple factors, including demand, and inventory levels, AI-powered pricing solutions can provide retailers with recommendations to make smarter pricing decisions.
Therefore, after launching the markdown campaign, the solution analyzes the current campaign performance to hit the stock level without margin loss.
AI markdown solutions are using RNN (Recurrent Neural Network). This network uses historical sales data to recommend optimal discounts at an SKU level. The platform's algorithm analyzes the data and sets parameters such as maximum promotional depth, markdown time frames, and expected stock level.
Using these parameters, the algorithm generates sales predictions that help retailers achieve their targeted stock levels while maximizing their margin rates. This level of accuracy is critical for retailers who want to optimize their pricing strategies and stay competitive in today's ever-changing market.
RNN is also a time-series-based algorithm that provides accurate sales predictions based on historical data. By using this data, retailers can make informed decisions about pricing, inventory management, and promotions.
This comes especially handy for retailers who have a large number of SKUs and need to make quick decisions about pricing and promotions. With RNN, retailers can stay ahead of the competition by making data-driven decisions that are backed by accurate sales predictions.
This technology has the potential to revolutionize the way retailers approach pricing strategies and is a must-have tool for those who want to stay competitive in today's market.
Senior Competera Pricing Advisor
Ph.D., former Head of sales strategy & revenue optimization practice at PwC
"For a few reasons. Firstly, the retail industry is highly competitive, and retailers are always looking for ways to gain an edge over their competitors. By using AI-powered markdown solutions, retailers can optimize their prices and improve their margins, which can be a crucial factor in staying ahead of the competition.
Then, consumer behavior is changing rapidly, and retailers need to adapt quickly to stay relevant. AI-powered markdown solutions can help retailers identify trends in customer behavior and adjust their pricing strategies accordingly.
Moreover, AI-powered markdown solutions can analyze vast amounts of data to provide highly accurate pricing recommendations. Don’t want to lose profits? Avoid underpricing or overpricing your products.
Lastly, AI technology has advanced significantly in recent years, and AI-powered markdown solutions are becoming more sophisticated and effective. In the current retail climate, it’s basically innovate or die.”
Competera’s Markdown solution is the top second-generation AI/ML solution which makes a qualitative difference in the software market.
In particular, the solution has core functionality that allows users to create separate markdown campaigns and select products for markdown pricing manually or via auto-assignment. The users can also choose the optimal markdown logic to either grow sales volume or revenue. Moreover, users can immediately run markdown optimization or schedule future markdown activities.
Additionally, users can set up the repricing logic for all the markdown campaigns in the group, while within each markdown campaign's settings, specific parameters can be adjusted, such as repricing intervals or specific repricing conditions related to competitors' followership.