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Top 5 Effective Markdown Strategies for Retailers (2022)

Mar 24, 2022

You might constantly be looking for ways to save money and make your business more profitable. And one of the best ways to do that is by creating a markdown pricing strategy. After all, if you can keep your prices low, you're going to be able to sell more of your products and make more money.

But how do you go about creating a markdown strategy? This article will give you the steps you need to take to create a successful markdown strategy. But before diving into the details of creating a markdown strategy, you should understand the markdown strategy and how it works.

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What is markdown strategy and how it works?

What Is Markdown Strategy?

Markdown strategy involves permanently lowering the price of the products, which may lead to more sales. It is a strategy used by online retailers to sell products at a lower price and is always useful in increasing the sales of products.

However, there is a difference between markdown and discounting the product. Markdown strategy involves permanently lowering the price of the products while discounts are for decided time. Markdown strategy helps in increasing the sales and helps to boost the sales in the long run. Therefore, it can be done by using different tools and methods.

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Retail markdown

Benefits of Markdown in Retail

There are many benefits of using markdown pricing. Some of those are as follow:

  • Markdown in the retail shops can boost the business and attract customers for the long term. It is used to attract customers for the long term. Markdown in the retail shops is mainly used for seasonal items. It also increases sales by attracting new customers to the stores. The discounts are given only one time, and after that, it returns to the normal price.

  • This process is commonly done by retailers when they have excess stock or have received lower than expected demand for a particular product. So, with a markup-down strategy, they can skyrocket the sale and benefit from it.

But you must be thinking about how to calculate markdown percentage. Let's get a deep dive into it.

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Calculate markdown strategy

How to Calculate Markdown Percentage

A markdown percentage is how much you reduce the price, usually to increase sales. The formula to calculate the markdown percentage is:

    Markdown Percentage = (Original Price - Markdown Price) / Original Price * 100

Now suppose that a shirt has an original price of $100, and after markdown pricing, it is sold at the price of $137.5, then the markdown percentage is calculated as:

Markdown in percentage = (150 - 137.5) / 150 * 100%

Markdown in percentage = 12.5 / 150 * 100%

Markdown in percentage = 8.33%

How to Markdown a Price?

The price of a product is based on two factors, i.e., cost and margin percentage. Markdown percent is when you must decrease the market price to cover the cost with a minimum profit percentage.

Suppose you incur the cost of $10 on the shirt (including manufacturing cost and marketing costs) and want 5% as profit, then you should price it at $10*1.05=$10.5.

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Markdown Strategies for Retailers

Effective Markdown Strategies for Retailers

When you have surplus merchandise in your retail store, it's time to plan the best markdown strategy. You've got to determine how much you can afford to sell your excess merchandise and then decide when to put it on sale.

Markdown strategies are one of the most challenging aspects of running a retail business. These ideas can help.

Plan ahead and don't wait until the merchandise has been sitting on the shelves for months before you start thinking about markdowns. A discretionary markup, sometimes called a throwaway markup, is built into the price of each product so that you'll be able to take a markdown when sales don't meet expectations.

1. Refer to your historical records

If you've sold a particular item, look up its sales history. How long did it take to sell? At what price point? Decide how much you can afford to sell below cost-price.

Many retailers build in a 50 percent markup, which means they could drop the price by 25 percent and still break even on that item. Of course, if you want your business to be profitable, you can't sell everything at cost price or even at half price. Assess how much stock remains and how long it's been there before deciding.

2. Limit your sales

This may sound counterintuitive, but limiting your sales can help keep customers coming back for more. You see this tactic often with major retailers like Target and Old Navy.

This practice helps keep customers coming back for more because they must act quickly if they want those deals.

Gift-with-purchase (GWP):

GWPs are an effective way of moving products without making it seem like you're desperate for sales. A GWP is an item of little value during a sale promotion as an incentive.

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MinewTag's ESL used in retail

3. Implement Markdown Strategies Faster with Electronic Shelf Labels

Retailers are always looking for ways to implement their strategies and make things easier for their consumers. To quote a famous phrase: "Make it easy for consumers and hard for competitors." If a consumer needs to go through a long process to buy a product, the chances are that he will look for another retailer with a more straightforward purchase process.

Therefore, implementing new ways to inform your consumers about the price and pricing of your products is an excellent idea as it will save you time and money. Moreover, electronic shelf labels will not only make updating your price faster but will also help you make more sales by doing so.

MinewTag offers a wide range of electronic shelf labels that use Bluetooth 5.0 with a fast ESL cloud platform that provides stable and fast warehouse management. You can mark down your product with just one click. MinewTag's ESL is faster and updates within 2 seconds.

Now you can electronically update the prices and information of the products in real-time. Whether you want to mark down a specific product up to 70% and from just one click, do things faster.