Markdown pricing

Reiner G, Natter M (2007) An encompassing view on markdown pricing strategies an analysis of the Austrian mobile phone market. OR Spectrum 29 173-192... 

W. Elmaghraby, A. Gulcu, and P. Keskinocak. Optimal markdown pricing in the presence of rational customers. Working Paper, Georgia Institute of Technology, 2002. 

B. P. Pashigian. Demand uncertainty and sales A study of fashion and markdown pricing. The American Economic Review, 78(5) 936—953, 1988. 

To understand the impact of stockouts and maikdowns at a particular firm, we analyzed data for a line of 300 dresses at a major catalog retailer over a 3-year period. When a dress is sold at a price below procurement cost, we incur overstock costs corresponding to the difference between procurement cost and (he markdown price for that dress. Stockouts occur when a particular dress is not in stock and the sale is lost, an event that could be recorded due to the nature of catalog retailing. The corresponding understock cost per unit for this dress is the difference between full price and procurement cost. Table 1 summarizes the total number of dresses purchased... 

Pashigan, P.B., Demand Uncertainty and Sales A Study of Fashion and Markdown Pricing. American Economic Review, Vol. 78, 1988, 936-953. 

Price decisions on how to set posted prices, individual-offer prices and reserve prices in auctions how to price across categories how to price over time how to markdown (discount) over the product lifetime... 

The important message is that supply chain cost under uncertain demand has two components. The first is the traditional cost associated with physical distribution. But distribution cost does not fully capture the economic impact of supply chain design decisions. One should also consider the effect of price markdowns and lost profit opportunities. Later chapters, particularly Chapter 28, are dedicated to adding flexibility to the supply chain s design. 

Much of the research considers demand to be a function of price alone, but Urban and Baker [152] study a model in which the demand is deterministic, multivariate function of price, time, and inventory level. They also study the case with a price markdown during the season and show how to decide the optimal order quantity. 

Generally, research on clearance pricing and inventory decisions assumes that customers are myopic, i.e., they do not exhibit strategic behavior El-maghraby et al [49] is an exception to this. The authors focus on markdown... 

In Smith et al [137], the authors develop a model to plan promotions and advertising, and use scenarios to represent market conditions. The decisions of the firm are the promotion price and the ad size or cost, where the ads are limited by a budget. The deterministic demand depends on the price as well as the ad type, and demand scenarios occur with some probability specified by the user. With additional constraints such as a limit on the number of markdowns. 

T. L. Urban and R. C. Baker. Optimal ordering and pricing policies in a single-period environment with multivariate demand and markdowns. European Journal of Operational Research, 103(3) 573-583, 1997. 

The typical analytical approach is to study the source of inefficiency (often related to double marginalization), and various mechanisms for achieving channel coordination and/or Pareto improvement. Mechanisms so studied recently include resale price maintenance, full-line forcing, quantity discounts, manufacturer returns, quantity flexibility, sales rebates, revenue sharing, price protection, and markdown allowances. New studies continue to be produced at a prodigious rate by generalizing the basic framework, perhaps by adding retailer decision variables (e.g., some form of effort, in addition to retail price... 

Decisions based on advantages internal to a focal firm, and on the search for cheaper prices, are but two common factors in cormpting the flow of materials and information and the focus on the end-customer. Cormption is displayed by poor customer service, stock write-offs or markdowns, and a lot of resource devoted to fire fighting. ... 

A downside to the buyback clause (or any equivalent practice, such as holding-cost subsidy or price support) is that it leads to surplus inventory that must be salvaged or disposed. The task of returning unsold product increases supply chain costs. The cost of returns can be eliminated if the manufacturer gives the retailer a markdown allowance and allows it to sell the product at a significant discount. Publishers today generally do not ask retailers to return unsold books instead, they give a markdown allowance for them. Retailers then mark them down and sell them for a considerable discount. 

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