Making the most of markdowns with advanced sourcing strategies

Rob Shaw at Fluent Commerce explains that, while consumers are used to retail discounts, it is possible to wean them of sale prices with other less damaging strategies.

Discounts are a great way to coax customers into stores, both online and offline. From Boxing Day to Easter Sunday, Black Friday and Cyber Monday, increasingly extravagant markdown events have conditioned generations of consumers to expect never to have to pay full price. And this, partnered with money saving coupon codes, 25% off stunts, and student discount offers, forces us to beg the question: why would they ever want to?

The evolution of a ‘mark down’ culture has left consumers both expectant of, and dependent on, discounts. It’s one of the biggest challenges facing retailers today.

Against the backdrop of an uncertain economic reality, and a global crisis that has drastically changed consumer habits, it is imperative that today’s retailers know how to maintain their margins—especially when offering discounts.

Incentivising the modern consumer

The discounting trend has grown exponentially over the last few years. eCommerce has opened up a virtual highstreet where consumers can quickly and easily compare prices and scout for additional discount codes and deals.

According to research from RetailMeNot, almost all consumers (94%) search for a deal or offer when shopping online, and over four-fifths (81%) say finding a great offer or discount is on their mind throughout the entire purchase journey.

And, with customers increasingly shifting online to shop, bricks and mortar stores have often responded by launching massive markdown campaigns in a bid to increase footfall.

In order to thrive in today’s market, both online and instore, retailers must satisfy this customer demand for discounts, whilst also maximising their margins.

Here are four ways this can be achieved with advanced sourcing strategies:

1. Shift the focus from discounts to other perks

Discounts incentivise the modern consumer, although having the most competitive price won’t guarantee a sale. According to KPMG’s 2017 Global Online Consumer Report, although price was cited by 57 per cent of consumers as a top factor in deciding which website to buy from, the next key attributes were enhanced delivery options and easy return policies.

This shows there’s more to a sale than just discounts: retailers also value services like free shipping, quicker fulfilment, and easy returns. These advanced sourcing strategies can be achieved using a distributed order management system.

With accurate inventory visibility across all locations, be it a distribution center or local store, retailers can fulfill from the location closest to the customer. This service is genuinely valued by customers, even without a discount. And, if the deal matches that of another retailer, convenient fulfillment may push the sale across the finish line.

2. Decrease costs, increase order size

When selling discounted products, one of the best ways to counterbalance the markdown cost is to increase the order size. Traditionally this is done through complementary product suggestions.

However, smart retailers are applying the additional logic to their cross-sell offers by recommending items that can be sourced from the same location as the primary item on the Product Detail Page (PDP).

By suggesting orders that can be shipped or collected from a single point of fulfilment, retailers can ensure no split shipment or order consolidation is required. The result: customers get their order quickly, and retailers can keep costs to a minimum.

3. Invest in Order Management Solutions

By investing in the right technology offerings, retailers can save money in the long run. When retailers receive an online order, many factors can influence the best place to source the inventory, but the fact of the matter is: not all inventory is equal. Certain stock locations have more ‘built in costs’ than others, depending on if there are higher markdowns in a particular store, already incurred transportation costs, or on the likelihood that the inventory will sell.

A Distributed Order Management System enables retailers to source stock from the best location, tailored specifically to the business and inventory type. This may be the location with the highest markdowns, most inventory, oldest inventory, or lowest sell-through rate.

4. Get with the season

When it comes to seasonal inventory, especially weather dependent stock, it’s also worth retailers considering the scope of the inventory location. Retailers should apply the same logic to inventory and replenishment, questioning: if it’s February-time in the UK, should they ship winter merchandise from a store that has a long winter season, or a store where the weather will be warmer sooner?

When it’s late in the season, retailers should also consider replenishing stores via store transfer, rather than by a warehouse. This is when stores with low stock in a favourable climate are replenished from stores with high stock in a less favourable climate, where it’s less likely to be sold, or more likely to be heavily discounted.

Markdowns aren’t a new trend, nor is the desire for a deal going to change anytime soon. However, retailers need to ensure that their reduced costs don’t come at a cost for their company.

From fulfilment to optimisation, online and instore, retailers can utilise multiple strategies to appease the UK consumer’s appetite for a good deal – all while ensuring their own costs are kept to a minimum.


Rob Shaw is MD EMEA at Fluent Commerce.

Main image courtesy of iStockPhoto.com

© Business Reporter 2020

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