Are You Training Your Customers to Expect Markdowns?

Since the great recession of 2008-2009, retail customers haven’t been the same. While millions were out of work and losing their homes, paying full price at retailers fell out of style. The same attitude toward money that led to the rise of the sharing economy led consumers to off-price retailers. And millennial consumers, who came of age during the worst economic downturn in nearly a century, stayed on the thrifty side when the economy rebounded.

Fast forward to today, and retailers are still having trouble attracting customers to stores. In fact, more than 60% of retailers in a recent survey said attracting new customers is their biggest challenge.

Research shows there’s good reason to use strategic markdowns as a way to attract customers. One study revealed that 45% of American women won’t even consider entering a store unless they see markdowns of 41% or more. That means that a 40% off sale isn’t enough to attract half the population! The same survey revealed that a vast majority expect discounts, and the average consumer is only willing to pay 76% of full price.

And with anchor stores like Macy’s having massive clearance sales ahead of store closings, it’s hard to compete at full price.

Through all of these factors, your customers have been trained to expect markdowns. But it’s not just the recession and department store liquidation sales. Your core customers – the ones most engaged with your brand – are learning from your actions. And a cycle of poor customer experience caused by inventory issues could be to blame.

The problem stems from poorly planned buys, which lead to allocation nightmares. It’s a pattern we’ve seen time and time again. Buyers miscalculate the right quantities to purchase, leaving the allocation department with big problems to solve.

See also: Why Do I Need Assortment Planning?

When buyers purchase too much of a product, allocators have to find a place to put it all. Stores get more merchandise than they can realistically sell, and permanent markdowns are necessary to clear the unsold inventory.

On the other hand, when buyers purchase too little of a product, the buy gets spread too thinly. Some stores are left without products to sell, and others receive only a limited quantity. Items sell out quickly leaving customers wanting more – and leaving potential sales unrealized.

Whichever way the pendulum swings, the mistakes affect the customer experience. Customers come to believe that your stores never have the products they want, because they’re always sold out, or because the products were never allocated to their preferred locations. They also come to believe the items that are in stock will inevitably be marked down, and wait for them to go on sale.

Think about how that affects your ability to attract and retain customers. They either don’t find what they want, or they learn that delaying their purchase will result in them getting a better price. Either way, you’ve lost the opportunity to sell to them at full price. Buy too little and you sell out before demand is exhausted. Buy too much, and unwanted stock piles up.

In order to break that cycle, you need to buy and deliver the right quantity of each item for each location – enough that customer demand can be fulfilled, but not so much that customers are guaranteed to find what they want at clearance pricing.

Solving the problem comes down to perfecting the science of determining buy quantities. When buyers are able to match their buys to customer demand, there’s less pressure on allocation to find homes for excess merchandise.

To improve the buying process, we recommend measuring demand and clustering your stores before assortments are bought, and clustering using multiple dimensions of customer demand to purchase products only for the locations that can actually sell them. This necessitates a much more detailed level of planning than most retailers employ, but it also helps improve margins as well as the customer experience.

See also: How To Buy Based On Customer Demand

When buy quantities are matched to what stores can actually sell, the rest falls into place. There are no overbuys to allocate, and no underbuys leaving stores empty. Customers learn that they’ll find the items they want in store, and they’ll learn that waiting until products go on sale means missing out.

For the retailer, that means sell-through improves along with gross margins. So does customer satisfaction, and customers’ likeliness to return.

With fewer clearance sales eating into margins, you’ll have more wiggle room for planned promotions to attract customers in a way that’s profitable and sustainable.

Plus, you can learn more about your customers’ preferences because your sales numbers won’t be skewed by sellouts and overstocks. Items that sell out (or need to be marked down) will do so on their own merits.

Customers want and expect markdowns, but to be a successful retailer you need to make sure that markdowns happen on your own terms. When margins are tighter than ever, there’s not much room for error. By improving the way you plan and buy assortments, you can get better control over your markdowns and make your customers happier.

So, are you training your customers to expect markdowns?

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