Smart markdowns– The right markdown at the right time
Say you REALLY crave a piece of cherry pie. Like right now. Then you’re probably willing to pay a higher price for it. If you think a piece of cherry pie would be a nice dessert at some point, the price you are willing to pay probably will be lower. If, suddenly EVERYBODY is craving cherry pies at the same time, the price will probably go up. This is dynamic way of setting discounts och prices is not a new thing.
Even a century ago the prices would go up if a product is low in stock and down if there is a high supply. As time passed, stores grew bigger with a lot more products. That made the dynamic discount strategy inefficient and hard to keep up with. A static discount saved time and effort and became the new standard.
Then, in the 1980’s, something happened. Airlines pricing systems got deregulated and the airlines could set the prices as they wished. The industry started to invest heavily in computer programs automating the pricing process. This was a huge success and other industries, such as hotels and car rentals followed. This leads to good things like less empty seats on planes or in a theatre.
Internet and e-commerce took it even further and now it's widely used in all sorts of retail online. However, it’s still not common practice in offline retail. Yet. Here are 5 reasons why automated dynamic discounts should be best practice in food retail.
- An AI calculates the optimal discount for each specific product
- The discount is set to give you the most value
- If you have ESLs, the price can be update several times a day
- You will be able to sell products before they expire
- On average you save 15% on your markdowns
Finally, and most importantly, having a dynamic markdown strategy reduces food waste. Huge amounts of perfectly good food goes in the bin without even being discounted or discounted at the wrong time with the wrong amount. By dynamically setting prices you get a higher chance to actually sell the products before they expire.
We like to do our research. When we developed our Smart Markdown solution we asked around about what might be the concern about using these kind of strategies.
Ambition
Some retailers are looking long-term and are benchmarking against the e-commerce players. They are angling for a fully automated solution, which is a large pie to eat straight away.
Infrastructure
In a way related to ambition, for traditional retailers there are considerations and perceived limitations on existing infrastructure that need to be addressed.
Risks
As dynamic pricing is still new (oh, well) in physical stores, there are risks attached – how will consumers react? Why have others failed?
These concerns are valid and when looking to protect and grow a business it can feel a bit scary to take a step into the dark. But trust us, automated dynamic pricing and markdowns has potential to create huge value, and it seems to be here to stay.
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