Sell Through Seasonal Inventory Without Slashing Prices
How Price Optimization can help you manage seasonal inventory and maintain your margin
As the seasons change, so does customer demand. While consumers are still riding a summer high, retailers have already moved through back-to-school and planning for the holiday season. This means there is a seasonal sell-through on the horizon.
While season change brings excitement for the consumers, it can create headaches for those responsible for moving seasonal inventory (while also tasked with maintaining margins on that product).
Not only are retailers being challenged to maintain margin targets, with growing frequency they’re being asked to move seasonal products without deep discounting, or discounting at all. This is particularly common with luxury brands and those looking to move up-market.
In this blog, we’ll explore the challenges online sellers face managing seasonal inventory, and how a generative pricing strategy together with retail pricing solutions, like Price Optimization, can help retailers move seasonal merchandise without major margin malaise.
What is Seasonal Inventory and Why is it Important to Sell Through?
Seasonal inventory refers to merchandise, or products, that have a limited shelf life as they are only in demand for a certain duration of time during the year. Examples include sandals, which are desirable in July, not January (at least in North America), or Halloween costumes, a product line used only on a specific day.
So why is it important to move seasonal products? Selling through seasonal inventory is crucial for a few reasons:
- Avoiding expiring products: Seasonal products may have expiration dates and not keep until their next selling season. Failure to move these products can damage profit margins if they expire and are no longer safe to sell.
- Costly to hold inventory: Keeping excess inventory in a warehouse ties up capital, leads to inefficient space utilization and increased storage costs.
- Continuous revenue generation: Effective sell-through of seasonal products ensures revenue generation remains consistent, which is essential for all businesses.
The Role of Pricing in Managing Seasonal Inventory
The price of a product and the brand are two of the most significant factors in a customer's purchase decision. Customer perception of a brand is linked to price, and price is a lever for customer acquisition and retention. They are irrevocably linked to customer experience and purchase decisions.
Similarly, price is a key factor in managing seasonal inventory, so much so that “seasonal pricing”, the practice of adjusting prices based on a time of year or seasonal demand, is so commonplace it can be overlooked as a pricing strategy.
The most basic seasonal pricing strategy involves weighing your pricing campaigns for conversion or sales, in order to sell through your seasonal inventory.
A common approach to selling through seasonal merchandise is discounting, This might look like an ‘end-of-season’ sale or mark-down. While discounting is an important component of many brands’ pricing strategies, deep discounting can wreak havoc on margins and profitability metrics.
Drawbacks of Deep Discounting
- Margin erosion: steep discounts reduce profit margins at the category and SKU-levels
- Brand perception: excessive discounting may lead customers to question the value and quality of the products, inviting them to ask the question, ‘is this worth paying for?’ tarnishing the brand’s reputation. This is particularly acute for prospective customers.
- Customer experience: deep discounts can condition customers to wait for sales, delaying purchases until prices drop, impacting cash flow management and permanently impacting margin goals.
- Price wars: risk of being perceived as a commodity and inviting a race to the bottom, making it a challenge to maintain brand positioning and uniqueness
In other instances, brands are electing to not include markdowns in their pricing strategies at all. This brand position is common with luxury brands or those looking to move up-market. Selling through seasonal inventory is still a challenge for these companies and this is where a generative pricing solution like Price Optimization can be particularly effective.
Regardless of a brand’s position on discounting, it is understandable why a business would like to avoid having to resort to deep discounting to move seasonal inventory.
How Price Optimization Solves For Sell-Through Pricing Challenges
Price Optimization is a retail pricing solution that uses AI and a multi-armed bandit (MAB) algorithm to set the most effective prices for products, enabling a retailer to sell through seasonal merchandise on their terms, without sacrificing as much margin by having to resort to drastic discounts.
A retailer sets up price campaigns within the Price Optimization console. These campaigns are defined as a group of products that share the same pricing strategy - the strategy could weigh towards profit, conversion, or a balance of the two. The retailer determines a price range, then the solution determines five equal-distant price points within this range for each item and begins to show these prices to customers on the retailer’s website. In real time, the solution shifts website traffic to the top-performing price point.
By utilizing Price Optimization, a retailer focused on seasonal sell-through can create tailored pricing campaigns weighted for conversion. Since the retailer determines the price range, they are able to set a range that minimizes margin impact. The solution will shift website traffic towards the optimal price that sells through on inventory without racing to the bottom of the range.
In this scenario, the retailer may choose different price ranges for different items based on inventory availability. For example, if the retailer has a large quantity of an item, sandals that they sell for $42, to sell through they might opt for a price range with a lower lower-bound, $25 instead of $35.If the retailer needs to move fewer units of a particular product, they may opt for a more narrow range.
Customizing campaigns in this way allows a retailer to drive conversions without explicitly showing a discount.
Another way Price Optimization supports seasonal sell-through is with layering pricing campaigns. Retailers can tailor their pricing strategy down to the SKU-level by implementing a series of layered campaigns. Grouping products into campaigns is an effective way to support inventory management because the retailer is better able to drive sales through pricing throughout the entirety of the season. This consistent sell-through means the business doesn’t have to resort to last-minute super-clearance sales.
Price Optimization uses first-party data to drive its price optimizations, making it especially effective for retailers who want to price based on their consumers’ willingness to pay. Price Optimization is a favorite of leadership teams as its data-backed approach provides actionable pricing insights based on real customer data.
Embracing Price Optimization for Seasonal Success
Seasonal inventory presents both challenges and opportunities for retailers selling online. Effectively managing seasonal sell-through without having to resort to super sales and slashed prices is crucial for cash-flow management, maintaining margins, and preserving brand reputation.
Price Optimization emerges as a valuable tool for addressing these challenges, allowing retailers to implement data-driven price strategies that drive conversion and minimize margin impacts. By embracing innovative pricing solutions online sellers can navigate seasonal sell-through with confidence and success.