Automated Price Markdowns—a losing strategy

A common feature of the more established point of sale systems geared for the consignment and resale industry are automatic price markdowns.  Percentage markdowns can be set at pre-determined intervals (e.g. 30, 60, 90 days).   Markdown Tags indicate both the date of the price reduction and the new price. Then, when an item sold, the sales clerk is not required to change the price at the register as any price markdown is recognized when the price tag is scanned.  This means faster sales transactions and improved accuracy.

It also means slower inventory turnover and thus less sales revenue according to NextGen’s limited data to-date and related reports from NextGen clients having moved from automated markdowns to NextGen Pricing,   This has been born out by studies  in the retail sector.

Whether actively promoted or not, if markdowns are near-continuous, regular shoppers become accustomed to the process. This not only increases off-price demand, but also can decrease full-price sales. As some retailers assume ever more aggressive markdown strategies, the net effect is a serious erosion of price and more importantly margin much earlier in the product’s lifecycle. Promotions are one of the reasons commonly given for Kmart’s near demise. It has been estimated that some retailers actually sell less than ten percent of their products at full price – their customers have been trained well. White Paper: Managing Markdowns: Why Prevention Is Better Than The Optimization Cure