Creating dynamic Markdown Pricing campaign

Now that you’ve got the big picture on the requirements for the automation and the benefits of it, let’s dive into how to create those automations. We’ll show you how it works in Sniffie.

First let’s define the criteria

Creating a markdown strategy that targets specific products requires the implementation of dynamic filtering based on various criteria. In this example, we’ll delve deeper into the process of creating a filtered strategy for products that meet the following conditions:

1. The products should be in our own stock and not in a supplier stock
2. Our Stock level rule is set to medium stock, yet the stock level is higher
3. Stock name and type should be our own warehouse –
4. Products based on our demand forecast will not sell out the stock in more than 120 days
5. Products that have more than 100 units in stock currently (could be refined also by the value of the product)
6. The revenue for the last month is already low (days since last purchased >14) and,
7. The new customer rate is less than 10%.

Start by clearly defining the criteria for the products you want to target with your markdown strategy. A good tip is to do with a paper and pen, to understand what is going to happen.

As shown above in this example, we want to focus on products that are in stock, have medium stock level rule but have too high stock, and are stored in our warehouse. Additionally, we´re looking for items that will have a stock rotation over 120 days, and there are more than 100 units in stock, and the products generate less than 300 in revenue per month and have a new customer rate below 10%.

The reason for these filters is that we now already that products with high stock, low rotation, and low new customer rate are showing signs of coming out of season and our AI forecast is confirming that the selected products will not sell out in 120 days. So, we have our list ready.

Setting up the markdown pricing campaign in detail

At the same time, we develop a markdown pricing campaign that will automatically start and make sure we sell out the stock by the end of the campaign. This involves setting specific goals for stock clearance, profit and volume generation, and a preferred end stock level. In this case, we want all the products to be sold out by the end of the markdown.

After having your products filtered dynamically to your strategy, it is time to set up the markdown pricing campaign. This campaign will determine how the pricing automation system adjusts product prices to meet your objectives. Here’s a detailed breakdown of how to configure your markdown pricing campaign using the example settings provided:

1. Starting Price

Set the starting price for products in the campaign. You can make a price either before the markdown start or start immediately from the current price. This price point serves as the baseline from which the AI-driven pricing algorithm will make adjustments in response to various factors, such as demand, competition, and inventory levels.

2. Our Markdown Target

Choose a primary objective for your markdown campaign. In this example, the focus is on clearing inventory rather than maximizing profit. This means the pricing algorithm will prioritize moving stock quickly, even if it results in lower overall profit margins.

3. Price Adjustments

Determine the limits within which the pricing algorithm can adjust product prices. In this example, price increases from the starting price are not allowed. The maximum percentage price decrease allowed from the starting price is set at -70%, ensuring that the price will not be reduced beyond this threshold. Additionally, the maximum one-time price change is limited to -10%, preventing drastic price drops that could hurt your brand image or lead to a loss.

4. Market Behaviour

Adjust the pricing algorithm’s sensitivity to market conditions by setting the market behaviour parameter. In this example, the market behaviour is set to “Balanced” or “Volatile.” These settings allow the algorithm to learn and adapt more quickly, enabling it to respond effectively to rapidly changing market conditions or high levels of competition. Balanced setting uses more stable history combined with newer findings and the Volatile setting will emphasise more on recent findings. The shorter the campaign the more likely it is that you should choose in Turmoil.

5. Return Rates

If a product has a high return rate, include the return rate percentage in the campaign settings. This will ensure that the pricing algorithm takes the return rate into account when adjusting prices. For example, a higher return rate might signal a need for a more aggressive markdown strategy to clear inventory or might indicate issues with product quality or fit that should be addressed.

6. Desired Inventory at End Date

Set a target for the inventory level at the end of the campaign. In this example, the desired inventory is 0, meaning that the goal is to clear all stock by the campaign’s conclusion. The pricing algorithm will use this target to guide its price adjustments, aiming to achieve the desired inventory level within the campaign period.

By carefully configuring your markdown pricing campaign, you can create a data-driven, AI-powered strategy that helps you achieve your specific business objectives. The right campaign settings will enable your pricing algorithm to make smart, adaptive pricing decisions that optimize your stock management, improve customer satisfaction, and enhance your overall profitability.

Conclusion

Dynamic markdown pricing is a powerful process for any Ecommerce businesses, especially in industries with high seasonal stocks or best before dates. By leveraging the power of data and AI-driven algorithms, you can optimize your pricing strategies to improve stock rotation, reduce manual work, minimize waste, and boost profitability. With the right combination of data, dynamic filtering, and robust AI models, you can create a markdown pricing system that adapts to your unique business needs and helps you stay ahead of the competition.