Retail Markdown Optimization: Split Packs & Damaged Items

In a previous blog, we explored how dynamic markdown pricing on expiring products can save retailers millions. The beauty of these AI-powered markdown solutions, however, is that their benefits extend beyond everyday markdowns and enable retailers to tackle a variety of nuanced challenges. 

A Quick Recap: The Problem with Traditional Markdown Strategies

Traditional retail markdown strategies are typically static and manual. In many stores, pricing decisions rely on broad discounting rules that don’t consider the unpredictable nature of SKU quality. When a multipack arrives with missing units or when an item is slightly damaged, the standard response has often been a one-size-fits-all markdown. This approach can lead to either over-discounting—which eats into margins—or under-discounting, leaving items unsold and generating waste.

Inefficient retail markdown optimization costs retailers lost revenue and significantly contributes to food waste. 

For a more detailed look at the basics of dynamic markdown pricing, check out our blog here.

Embracing a Smarter Approach: AI-Powered Markdown Solutions

Enter AI-powered markdown solutions—an approach that transforms retail markdown optimization. These solutions use dynamic markdown pricing to automatically analyze real-time data and set optimal discounts for every product type. Whether you need to adjust pricing for split packs, damaged goods, or varying pack sizes, modern markdown software leverages advanced algorithms to drive effective retail price optimization.

Retail markdown optimization - How It Works

Unlike manual processes or rigid rule-based systems, AI-powered markdown solutions use a range of data points to recommend precise markdowns. Whilst there may be nuances in different solutions, they will all typically include the following:

• Real-Time Data Integration: The system continuously monitors inventory levels, sales trends, and even time-of-day factors. In doing so, it continually evolves and remains a relevant and trusted asset to your store operations.
• Smart Analytics for Sales Recovery: Instead of defaulting to a blanket discount, the system evaluates the previously mentioned data, as well as historical sell-through rates and current demand. This ensures that discounts are optimized to improve overall sales recovery.
• Tailored Pricing Recommendations: Whether it’s a split pack with missing items or a slightly damaged product, the system calculates the optimal discount for every product and every scenario. This allows retailers to balance quick sell-through with minimal margin erosion, whilst reducing waste for even the most difficult products.
• Automated Markdown Processes: By automating the pricing strategy, retailers can reduce manual errors and free up staff time. This automation is a key feature of retail price optimization software, contributing to overall waste optimization. In doing so, it also supports retail markdown compliance solutions that ensure consistent execution across stores.

So, what impact does retail markdown optimization have on challenging products?

It’s very easy to fall into the trap of setting a default pricing strategy for split packs or damaged goods. As a retailer, you want to shift these SKUs to ensure you don’t lose revenue, and the lower appeal of these products for customers means the natural reaction is to apply a steeper markdown.

However, this doesn’t need to be the case. As a retailer, if you have already invested in or are looking to invest in an AI-powered markdown solution, the system's infrastructure allows you to get more out of these hard-to-love products. 

We will use some real-world scenarios to explain how.

A retailer receives a 4-pack of yogurt with one unit missing. When the store associate goes to action the markdown, they can enter the volume of units missing (in this case, 1) into their hand-held terminal. The AI-powered markdown solution then uses the proportion of missing units and analyzes past sales data for that product, current inventory levels, and local demand to apply the markdown. As a result, instead of a binary 50% discount, the system may suggest a 32% discount designed to preserve margin whilst encouraging the customer to purchase the product.

Similarly, if a store associate locates a damaged box of cereal, the system will prompt the user to input the severity of the damage. Based on the input, the AI-driven markdown solutions assess the severity of the damage (as well as the real-time data mentioned previously) and recommend a discount that reflects the reduced value without unnecessarily penalizing the sale price. In this way, dynamic markdown pricing helps optimize every sale, no matter the product's condition.

The benefits of retail markdown optimization on challenging products

Taking these real-world examples into account, if applied across an entire estate, retailers can start to realize tangible benefits:

1. Improved Sell-Through Rates:

With dynamic markdown pricing, retailers see better sell-through rates regardless of product state because products are priced based on each unique situation. Instead of applying a uniform discount, the system tailors markdowns to real-time data, ensuring that even split packs or damaged items have the best chance to sell.

2. Higher Sales Recovery:

AI-powered markdown solutions determine the minimum discount necessary to make a sale, helping retailers recover more of the product’s original value, regardless of the level of damage, pack size, or missing items.

3. Enhanced Operational Efficiency:

By automating the markdown process, even for challenging products, you ensure that pricing adjustments are applied consistently across all locations. This efficiency is especially valuable for large grocery retailers that need to maintain retail markdown compliance solutions across multiple stores.

4. Sustainability and Food Waste Reduction:

Damaged goods and split packs all too frequently end up in the bin. By applying the right markdowns at the right time using an AI-powered markdown solution, you increase the chance of a sale and reduce the amount of food waste created. Not only do you reduce unsold inventory, but you also support broader sustainability goals.

5. Customization and Flexibility:

Every store is different, and predicting which items might get damaged or go missing is impossible. AI-powered markdown solutions allow for highly customizable markdown management, meaning that the system can adapt its recommendations based on store format, regional trends, or even specific product categories. This level of flexibility makes the solution ideal for grocery retailers.

Ready to improve your retail markdown optimization?

By leveraging AI-powered markdown solutions and automated markdown processes, you can optimize pricing for expiring items and split packs, damaged goods, and varying pack sizes. This holistic approach to markdown management is key to reducing retail waste, improving sell-through rates, and driving overall profitability.

If you’re ready to see how dynamic markdown pricing can revolutionize your pricing strategy and deliver tangible business results, it’s time to take the next step. Explore our retail price optimization software and discover how our AI-powered markdown solutions can empower your team to achieve operational excellence and sustainability goals.

Learn more about our AI-powered markdown solution and schedule a demo today: