A Retailer’s Guide to Markdown Optimization

    Cutthroat competition in retail demands sharp pricing strategies, and thin margins require retailers to make decisions based on as much data as available. Blue Sky’s MDO (Markdown Optimization) empowers retailers with data-driven insights to optimize markdowns, minimize dead stock, and maximize profits.

    What is Markdown Optimization?

    Markdown optimization uses data like shelf-life, stock levels, current pricing, product lifecycle stage, and seasonal trends to recommend the most effective timing and amount of price reductions. This strategic approach maximizes inventory turnover by minimizing excess stock. Utilizing a Markdown Optimization solution such as Blue Sky’s MDO allows retailers to decrease inventory and maximizing profit by analyzing historical data and recommending the best course of action for markdown timing and retail price to maximize margin.

    Let’s take a look at what Blue Sky’s Markdown Optimization Service offers retailers:

    MDO is a service that provides retailers with:

    • Strategic Markdown Recommendations: Leverage data analysis and pricing recommendations to determine optimal markdown timing and depth for each product at every location.
    • Reactivity in insights: Gain a single source of real-time and up to date truth for informed markdown decisions based on continuously evaluated progress in sales and profits across your entire business.

    Benefits of MDO Service:

    • Effortless to launch: No need for in-house markdown expertise or costly solutions. Blue Sky handles everything from set-up to ongoing operation.
    • Improved Profitability: Reduce dead stock and optimize margins through strategic markdowns.
    • Increased Agility: Respond quickly and effectively to continuously changing market trends and customer demands.
    • Enhanced Efficiency: Free up your team to focus on core business activities.

    Getting Started with MDO:

    The MDO process is designed for simplicity and quick wins. Here’s what you can expect:


    Start by providing Blue Sky with your historical sales and pricing data. This data provides valuable insights into customer behavior and past performance.  Blue Sky then leverages its advanced algorithms to generate initial markdown recommendations. These recommendations consider factors like product popularity, remaining stock levels, and historical trends.  However, insights don’t stop there! Collaborate with Blue Sky’s team of experts to refine pricing recommendations continuously.  Together, we can tailor the markdowns to your specific business circumstances and goals and achieve optimal results, maximizing inventory turnover and profitability.

    So, once again, the steps are:

    1. Provide Blue Sky with your historical sales and pricing data.
    2. Blue Sky generates initial markdown recommendations based on your data.
    3. Collaborate with Blue Sky to review and refine pricing recommendations for optimal results.


    Upload your actual sales data on a weekly basis to ensure Blue Sky has the most up-to-date information to analyze. In return, you’ll receive weekly markdown recommendations delivered securely, allowing you to make informed decisions about your pricing strategy. For even greater control, Blue Sky offers an optional user interface that empowers you to conduct real-time simulations and A/B test data directly in what-if scenario testing. With this level of access, you can test different markdown scenarios and fine-tune your strategy for maximum impact.


    MDO Features:

    Advanced Markdown Analysis:

    • Considers historical sales data, product attributes, and location specifics.
    • Accounts for new items and locations, product lifecycles, and promotional events.

    Data-Driven Recommendations:

    • Analyzes demand parameters and pricing effects to suggest optimal markdown strategies.
    • Provides recommendations for product grouping and pricing strategies.
    • Continuously measures and improves recommendation based on ongoing sales data.


    Data Requirements:

    MDO leverages your existing data to generate markdown insights. Here’s what you’ll need to provide:

    Mandatory Data:

    • Hierarchies (calendar, product, location)
    • Sales and pricing history data
    • Product attributes (optional, may enhance recommendations)

    Optional Data:

    • Store clustering and pricing groups 
    • Promotional plans 

    Ready to Take Control of Your Margins?

    With minimal setup time and ongoing management required, MDO allows you to focus on what matters most – running your retail business and maximizing profits.

    Check out our MDO offerings and contact Blue Sky today to learn more about how MDO can optimize your markdown strategy and boost your bottom line!

    Leave a Reply