JDA Software Offers Price Optimization Strategies To Help Retailers Better Understand How And When To Mark Down A Product And Increase Sales

The retail landscape has changed dramatically. Multiple selling channels, constrained consumer spending, abbreviated product lifecycles and offshore sourcing all contribute to an increasingly more challenging retail environment. Retailers must tie their pricing strategies all the way back into demand plans to ensure that inventory is readily available at the desired location and price point. While retailers discount slow-turning products to allow for sales of high-margin items as a way to improve margin performance, many companies still struggle with how and when to mark down a product.

"Retail is becoming much more competitive today, as price sensitivity continues to erode consumer loyalty," said Jane Fazzalari, vice president, retail industry strategy, JDA Software Group, Inc. "The challenge of meeting margin goals while offering prices appealing to consumers has made time-phased markdown decisions a critical component of the product lifecycle strategy. It can cost a company dearly if done incorrectly. Therefore, more than ever, retailers need an optimal pricing strategy to achieve their business objectives."

JDA Software Group, Inc., The Supply Chain Company, offers the following effective merchandising and pricing recommendations to help retailers maximize sales:

• Deliver localized assortments. In an ideal world, retailers score big sales by selling products at full price and avoiding hefty markdowns. In reality, seasonality, uneven selling cycles and fluctuations in consumer demand can all have a negative impact on sales, causing inventory stagnation or missed revenue. Markdowns are therefore inevitable. However, a truly consumer-driven retail business can minimize markdowns by recognizing its products' attributes and the shopping habits of its customers – demographics, geographical conditions, calendar holidays, etc. – so that the right product is delivered to the right store and sold at the right price. A localized assortment strategy that is tied to a retailer's demand plans is one of the most effective ways to improve profit margins without slashing prices. Retailers make accurate forecasting and merchandising decisions that match specific consumer demand. When possible, retailers that implement a localized assortment strategy should also match their pricing and promotions to assortment lists at the store or store-group level.
• Have a comprehensive view of demand. When assortments and product promotions fail to move inventory, markdown clearance becomes the last resort. Aged inventory in the store must be liquidated to make room for new inventory. In addition, today's economic uncertainty has turned many consumers into discount shoppers. Therefore, markdowns can drive traffic into the store and ultimately help products sell faster. But how do retailers determine the optimal markdown price and still manage to meet margin goals? They must assess the true margin impact of each product, tailor markdown plans by store/location, factor in the price sensitivity of their customer base and understand the opportunity costs. For example, a 40 percent markdown on new summer apparel at mid-season might increase sales and prevent the potential losses, as compared to offering a 70 percent markdown on summer apparel at the end of the season when shoppers have already set their sights on fall collections. Advanced technology that enables retailers to use a set of business rules that control minimum/maximum price reductions, the number of reductions and the price formats for each product will help close the gap on lost sales.
• Link pricing strategies to space and labor management. Typically, the three greatest expenses for retailers are inventory, labor and real estate. Even if localized assortments and optimized pricing help move inventory, mismanagement of the store space and labor can still hurt net profitability. This has led some retailers to shift to smaller stores, leaner assortments and faster logistics. Hence, product replenishment has moved from two to three times a week to enhance shelf productivity. Additionally, markdowns and product promotions may create extra activity in the store. A store staffed with the right number of associates to meet store-specific traffic demands can help retailers save on labor costs and capture revenue opportunities.

For more information visit www.jda.com.

About JDA Software Group, Inc.
JDA Software Group, Inc., The Supply Chain Company, is a leading provider of innovative supply chain management, merchandising and pricing excellence solutions. JDA empowers more than 6,000 companies of all sizes to make optimal decisions that improve profitability and achieve real results in the discrete and process manufacturing, wholesale distribution, transportation, retail and services industries. With an integrated solutions offering that spans the entire supply chain from materials to the consumer, JDA leverages the powerful heritage and knowledge capital of acquired market leaders including i2 Technologies, Manugistics, E3, Intactix and Arthur. JDA's multiple service options provide customers with flexible configurations, rapid time-to-value, lower total cost of ownership and 24/7 functional and technical support and expertise. For more information visit www.jda.com.

SOURCE: JDA Software Group, Inc.