Price Markdowns Research Articles

In‐store marketing: a strategic perspective

PurposeThe purpose of this paper is to examine two key dimensions of in‐store marketing, namely in‐store promotions and price markdowns. These seem to be the two most important aspects of in‐store marketing, though other dimensions such as retail personal service are also worthy of study.Design/methodology/approachA sample of 287 New Zealand clothing and shoe retailers was studied. Survey questions included the perceived importance of in‐store promotions and price markdowns. The aim was to explain these perceptions in terms of marketing strategies, threat of competition and environmental uncertainty.FindingsThe results indicate that a discount marketing strategy, environmental uncertainty and emphasis on price‐promotions are key to explaining retailers' perceptions and use of specific in‐store marketing activities. In addition, seven key marketing activities were found to distinguish high‐ and low‐performance retailers with respect to in‐store promotions.Practical implicationsThe study has highlighted strategic aspects of in‐store marketing, by focusing on two key components of in‐store marketing, namely in‐store promotion and price markdowns. The findings should provide much needed advice to retailers on the use of sales promotion tools in different environmental settings.Originality/valueThis paper should prove valuable to academic researchers and retailing managers (particularly to those in smaller countries), owner‐operated retail outlets, and chain stores.

Clearance Pricing Optimization for a Fast-Fashion Retailer

Fast-fashion retailers such as Zara offer continuously changing assortments and use minimal in-season promotions. Their clearance pricing problem is thus challenging because it involves comparatively more different articles of unsold inventory with less historical price data points. Until 2007, Zara used a manual and informal decision-making process for determining price markdowns. In collaboration with their pricing team, we designed and implemented since an alternative process relying on a formal forecasting model feeding a price optimization model. As part of a controlled field experiment conducted in all Belgian and Irish stores during the 2008 Fall-Winter season, this new process increased clearance revenues by approximately 6%. Zara is currently using this process worldwide for its markdown decisions during clearance sales.

Management Insights

Management Insights

Integrating auction theory with traditional measures of market power

Many recent studies have evaluated potential market power in the U.S. cattle procurement market using either new empirical industrial organization (NEIO) models or auction models. The model derived here shows the NEIO model holds in some cases, while the auction theory can fully describe market power in other cases, and in some cases neither model is adequate. An empirical analysis using an experimental cattle procurement data set found both the NEIO and structural auction models yield predictions of price markdowns that are lower than actual markdowns. Results from hypothesis tests indicate the NEIO model has the most explanatory power, but neither theory alone can completely explain price markdown behavior. [JEL Classifications: L13, Q13, Q18]. © 2010 Wiley Periodicals, Inc.

Understanding Inflation Dynamics: Where Do We Stand?

I summarize recent progress made in the literature on inflation dynamics. This has been a very productive area of research due to the development of the so-called New Keynesian model and the availability of new macroeconomic and microeconomic evidence. Nevertheless, a number of problems still subsist. In particular the importance of temporary price markdowns to inflation dynamics and the characteristics of the information set price-setters use for their price adjustment decision currently constitute unresolved issues.

An examination of the impact of coordinating supply chain policies and price markdowns on short lifecycle product retail performance

The study evaluates the implications of coordinating price markdown policies with supply chain policies of inventory replenishment, and transportation expediting on retail performance of a short lifecycle product. The product replenishment policies consider the freeze quantities and times for order placement along with the replenishment mode (typically water or air) in situations with demand uncertainty. The replenishment policy highlights the situation where the retailer commits for supplier capacity and material resources in case additional manufacturing and supply of product is needed due to high demand. Simulation model development and the related parameter assumptions are based on extensive discussions with executives from a leading US-based firm involved in retail operations for short lifecycle products. The situation in retail environments of products with short lifecycles is compared with a base case of low demand variability. Based on the current practices of the US retailer, we investigate the scenario in which only price markdown policy is used and the scenario in which the markdown policy is coordinated with the operational replenishment and expediting policies. Monte-Carlo simulation approach is used and statistical analysis is conducted to test the research hypotheses. Our results suggest that while in low demand variability situation relying solely on price markdowns result in better overall retail performance; in the presence of high demand variability the retail performance achieved by coordinating price markdowns with supply chain policies is higher.

What Do Excellent Service Promoters Do Differently?

The key finding is that excellent promoters have higher perceptions of the importance of promotion than non-excellent retailers and that they follow up by spending more on the total promotion budget. More specifically, excellent promoters give relatively more emphasis to wide reach promotion tools such as direct mail, print advertising, broadcast advertising and public relations and relatively less emphasis to in-store activities such as personal selling, in-store promotion and price mark-downs. The non-excellent promoters seem to be more preoccupied with price related promotion tools such as in-store promotion and price mark-downs and relatively less occupied with wide reaching promotion tools such as direct mail and broadcast advertising. There is no evidence that non-excellent promoting retailers are failing to contain costs and indeed are just as likely to be minimising costs as the excellent promoters. Rather, the non-excellent promoting retailers seem to be less successful in maximising audience reach for a given promotion budget, that is a productivity measure of promotion effectiveness rather than a cost minimising measure.

A model for determining price markdowns of seasonal merchandise

Retailers of seasonal merchandise often face the problem of selling a fixed inventory over a short selling season. For a small retailer, with a sunk investment in inventory, a major objective is revenue maximisation. This paper is concerned with the provision of decision support for the tactical problem of dynamically marking down the price of seasonal merchandise in order to increase/maintain revenue. A heuristic procedure is developed for quickly identifying, and highlighting for review, items which are “slow selling” and “economically viable for price markdown”. It is shown how a retailer can use such information in determining the timing and magnitude of price markdowns.

The Timing and Magnitude of Retail Store Markdowns: Evidence from Weekends and Holidays

We examine daily prices of eight goods at seventeen retail stores collected in Ann Arbor, Michigan, over a four-month period from November 1 to February 28. We focus on weekly and seasonal price patterns, and on the frequency of price markdowns or “sales.” There were frequent markdowns in the intensive shopping period prior to Christmas, and a tendency for such sales to occur on weekends. We interpret these findings as evidence that a significant number of markdowns are timed to occur when shopping intensity is exogenously high. We complement the imperfect information-based motives for sales in the literature by contributing an additional element based on the role of bulk shopping and increasing returns in the shopping technology.

The Effect of Various Price Markdowns on Consumers' Ratings of a New Product

The Effect of Various Price Markdowns on Consumers' Ratings of a New Product

The effect of various price markdowns on consumers' ratings of a new product

The purpose of the current study was to determine whether the magnitude of a price markdown affects consumers' purchase intentions and/or price perception. Four groups of subjects were all shown a brochure for a new TV video game selling for $49.95. Three different list prices were used: $200, $100, and $75. A fourth group, the control, was shown only the selling price. The results of the experiment indicated that the group shown the $200 list price (i.e., a 75% markdown) had greater intent-to-purchase the product than did the control group. There were no differences among the groups with respect to price perception.