Our markdown optimization solution has produced a 2 million estimated incremental increase in standard margin during Black Friday 2020. The overall estimated potential during 2021 is to deliver a 5 to 6 percent uplift in gross sales per promotion. Generally, the solution increases sales and financial targets, increases the speed of decision making through automation and reduces the time that an article stays in stock.
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How do you determine the best markdowns and discounts for e-commerce articles during sales events? A key player in the textile and footwear industry is confronted with this decision repeatedly for every retail season. Sales events such as Black Friday provide the opportunity to increase commerce during the regular season. An important question is then what articles should receive a discount, and how much, to realize sales targets while protecting your margins. Another type of sales events such as end-of-season-sales are intended to sell of remaining stock at the end of the season. The key problem here is how to distribute your markdowns so that margins are optimized conditional on articles being sold out after the event ends. ACMetric has developed a solution that suggests discounts in both types of sales events and provides guidance for the overall markdown strategy of our client.
In cooperation with the client, we developed an econometric model that takes a large amount of historical data on transactions, marketing and more as input and returns the estimated uplift in sales due to applying a discount. These sales uplifts are obtained at a fine granularity and provide results on each possible discount for each available article for any moment in time. Therefore, it allows the client to disentangle discount effects not only between different types of sales events, but also between days of such events. This is a valuable property as we expect uplifts to behave very differently between the first and last day of an end-of-season-sales event. Additionally, there is a large discrepancy in uplifts between a week before Black Friday, the actual day and a week after.
The model, which was developed in Python, stores the data in the cloud via the Amazon EMR big data platform and runs preprocessed using Spark. It allows for a wide arrange of user settings which enabled our client to integrate it into interactive dashboards. These can then be used by business to develop a markdown strategy that optimizes for a variety of criteria such as margins, revenue and stock levels, while imposing restraints on markdowns, stock and estimated sales.
The uplift numbers have been used both in the US and Europe with positive feedback from the client. Estimated incremental increase in standard margin during Black Friday 2020 is around 1.9 million. The overall estimated potential of the solution is to deliver 5 to 6 percent uplift in gross sales per promotion. Generally, the solution increases sales and financial targets, increases the speed of decision making through automation and reduces the time that an article stays in stock.