For such a simple word, “markdown” produces some pretty strong emotions in people. When customers hear the word “markdown,” they quickly gravitate toward whatever is being sold, like a predator to its prey. But when business owners and retailers hear this word, it strikes fear into their very souls.
From a business perspective, markdowns mean lower profits and a cheapened brand image. When you’re forced to discount products, it means you (a) ordered too much inventory, (b) miscalculated demand, (c) are failing to attract the right customers, or (d) have some unique combination of these problems.
While it may be impossible to avoid markdowns at this point in the sales cycle, you can diminish your chances of having to deal with costly markdowns in the future by paying attention to one critically important component of your business: marketing.
With the right marketing strategies in place, you won’t have to worry about markdowns. You’ll have a steady stream of customers and, quite frankly, you can convince them to pay whatever (reasonable) price you desire.
The difference between staples and statements
Before we dig into the various marketing tips and sales strategies that will transform your approach to markdowns, we need to clear up a concept that leads many retailers astray. In order to diminish the volume of markdown items you have on your shelves, you must have a clear understanding of the difference between staples and statements.
According to Paul Trujillo of Wasp, a leading inventory software provider, staples are “Inventory items that know no season; they are needed any time of the year.” He uses the example of milk at a grocery store or t-shirts at a department store.
As for statements, “These are impulse buy items that aren’t sold year-round. They can be seasonal, but they are definitely products used to lure customers into the store. Or they are strategically placed by staple items to direct a customer’s train of thought.” Trujillo uses the example of eggnog around the holiday season.
Why does the difference between staples and statements matter in terms of markdowns? Well, in almost all cases, the risk for markdowns comes with statement items. The reason is that you have plenty of time to sell staples. There really isn’t any time crunch or pressure. Rarely will staples have to be discounted in order to turnover inventory. On the other hand, statement products must be sold within a very specific time frame and are considerably riskier to hold onto.
Five marketing tips worth your time
If you want to eliminate markdowns, you need to turn your attention toward selling statement items quickly and efficiently. While some statement products will do this on their own, the majority will need some assistance from your marketing department. The following marketing tips should get you thinking about different ways you can speed up the sales process, without having to unnecessarily slash prices.
Create a sense of urgency
Urgency is your best friend. If you can make the customer feel like a product is flying off the shelves — or that it will no longer be available in X amount of time — then you can encourage them to make a purchase that they may have otherwise delayed. This idea is rooted in the FOMO (Fear Of Missing Out) phenomenon.
For ecommerce companies, try increasing stock urgency. “One of the most powerful ways to add real urgency to your landing pages is to advise visitors that if they don’t act soon, they might miss out,” says Marcus Taylor of ConversionXL, a leader in website optimization. “There are two ways to do this: through stock urgency, and through time-based urgency.”
In an in-store environment, posting signage that says something like “Today Only” can be effective. You can also limit the number of items displayed on the floor.
Use strategic placement
Whether online or offline, strategic product placement is very important. Brick and mortar stores are known for placing staple items in the very back of the store and statement items in the front. This forces customers to walk past all of the seasonal products at least twice. As a result, they’re more likely to add a seasonal item (or two) to their cart.
For ecommerce storefronts, strategic placement may look like highlighting statement products on your homepage — or even suggesting an “add to cart” prompt during the checkout process.
Use statements to compliment staples
For decades, retailers have been using staple products to sell statement products. The classic example is a mannequin at a department store. While the blouse may be the statement item customers come to purchase, a necklace or scarf can be strategically placed over the blouse to create positive associations and encourage multiple purchases.
Ecommerce stores like Amazon do this by featuring a “Frequently Bought Together” feature on the product page. For example, say you’re buying a vacuum cleaner (which could be considered a staple product). Amazon would bring up an image that features bags, and tells you how much it costs to purchase the items together.
Sometimes, all you have to do is ask. By training your sales associates to communicate with customers and engage in conversations, you can generate traction and make shoppers more aware of your statement products.
At checkout, try something as simple as this: “Oh, I love this blouse. Did you see the new scarf we just got in stock? It’s only $20 and pairs really well with this. You’d look great in it.” This won’t work on everyone, but it definitely builds a positive rapport between your customers and sales associates.
Try unique pricing strategies
Unique pricing strategies are a great way to increase the sale of statement products. One technique that’s worked for years is the odd–even pricing strategy.
“Consumers are more likely to buy something at a price ending in an odd number that is right under an even whole number,” one expert says. “That is why a lot of things are priced $4.99, $4.97 or $4.95 instead of just saying it costs $5.00. Staying right under that next whole number somehow makes the product more appealing.”
Other common pricing strategies include decoy pricing and loss-leader pricing. Tactfully using these techniques to your advantage can directly increase sales.
It’s time to kick markdowns to the curb
Markdowns aren’t as evil as some businesses make them out to be. There is a time and a place for discounts and you can actually develop a profitable reputation as the low-price leader in your industry. However, we can all agree that it’s typically better to maintain meatier margins and enjoy higher profits per product. If you want to accomplish this, then markdowns have to go.
Businesses wrongly assume that markdowns are the result of choosing poor product or starting with an incorrect price point on the front end. This isn’t necessarily true, though. Markdowns are often the result of poor marketing and exposure.
By changing your approach to marketing and ensuring statement products are showcased in the appropriate manner, you can drastically reduce the volume of markdowns in your stores.
This article was written by Larry Alton from CIO and was legally licensed through the NewsCred publisher network.