Markdown Optimization

A markdown differs from a promotion in its goal and in what follows it. A promotion is temporary and the price returns to the regular level afterwards; a markdown stays in place until the stock is gone and aims to free shelf and warehouse space, not to build traffic. The purchase cost of the units already on hand is sunk and does not enter the decision. What counts is the revenue each markdown path brings from now on, plus the residual value of whatever is left at the deadline.

• Value recovered = Σ (price in period × units sold in period) + residual value per unit × units left at the deadline
• Sell‑through = units sold ÷ units available at the start of the period

Markdown optimization in practice

The cost of waiting is easy to underestimate. Take 100 units with four weeks of selling time left, a regular price of 100, sales of 10 units a week at that price, a residual value of 20 per unit and a price elasticity of −2.5. Holding the full price sells 40 units and leaves 60 for salvage: 4,000 + 1,200 = 5,200. A 20% markdown from the first week lifts sales to about 15 a week, sells 60 units at 80 and leaves 40: 4,800 + 800 = 5,600. Waiting two weeks and then cutting the price by 50% sells 20 units at full price and about 45 at 50, leaving 35: 2,000 + 2,250 + 700 = 4,950. The late, deep markdown recovers less than no markdown at all, because half of the selling time passed at a price that did not move the stock. The figures use a linear approximation of the price response; for deep discounts the response has to be estimated from the item's own markdown history.

Sell‑through on its own is a misleading target. A markdown that clears all the stock a week before the deadline was deeper than it needed to be, and the margin given away on the last units is lost, not earned. Where markdowns recur on the same items season after season, the cause sits upstream in the buying or replenishment quantity, and a better markdown only limits the damage. For fresh food the same logic runs on a horizon of days: the residual value at the expiry date is zero or the cost of disposal, so the discount is set per store and day against the remaining shelf life rather than per season.

Veritico PRICE covers markdown optimization alongside price management and price optimization and runs on the pricing engine of Logio's partner Yieldigo. The expected benefit stated for clearance sales is a 1–3% higher margin. On the stock side, Veritico STOCK manages items by shelf life to reduce write‑offs and discounted sell‑offs. See the PRICE module, markdown optimization and expiry management.

Related terms

• Price Optimization
• Dead Stock
• Overstock
• FEFO and FIFO
• Price Elasticity of Demand