The anticipated percentage reduction in a product's selling price, used to calculate the initial markup needed to achieve the desired gross margin.
What is Planned Markdown Percentage (PMD%)?
Planned Markdown Percentage (PMD%) is a pre-determined discount rate applied to products during a markdown event to drive sales and manage inventory effectively. It helps retailers optimise pricing strategies and achieve business goals.
How PMD% works
- Planning Stage: Retailers analyse their inventory and identify products that need to be cleared out due to slow sales or end-of-season considerations. They also determine the desired level of markdown to be applied to each product.
- Pricing Strategy: Based on historical data, market trends, and competitive analysis, retailers decide on the appropriate markdown percentage for each product category. For instance, they might apply higher markdowns to seasonal items that need to be sold quickly.
- Markdown Event: During the markdown event, the PMD% is applied to the original prices of the selected products. This new discounted price is then displayed to customers, encouraging them to make purchases.
- Clearance and Sales: With the reduced prices, customers are more likely to buy the products, leading to increased sales and clearance of excess inventory.
- Monitoring and Adjustment: Retailers closely monitor the impact of the markdown event on sales, inventory levels, and profit margins. They might adjust the PMD% as needed to optimise the results and achieve their objectives.
By using Planned Markdown Percentage, retailers can effectively manage their inventory, control pricing strategies, and improve overall profitability.
Pros of PMD%
- Inventory Management: PMD% allows retailers to efficiently manage their inventory by identifying and strategically marking down slow-moving or seasonal products. This helps prevent overstocking and reduces the carrying costs associated with excess inventory.
- Boosts Sales: By offering discounted prices through PMD%, retailers can attract price-sensitive customers, increasing foot traffic and online visits. This leads to higher sales volume during the markdown event and helps clear out aging or end-of-season products.
- Profitability Optimisation: Planned Markdown Percentage enables retailers to maintain better control over their profit margins. By carefully planning and setting markdown percentages, they can strike a balance between offering attractive discounts to customers and still maintaining a reasonable level of profitability.
Cons of PMD%
- Impact on Profit Margins: While PMD% can help increase sales volume, offering markdowns may also lead to lower profit margins for retailers. Setting markdowns too aggressively without careful analysis can result in reduced profitability for certain products.
- Brand Perception: Frequent markdowns might negatively impact the perceived value and brand image of the retailer. If customers become accustomed to constant discounts, they may hesitate to purchase products at full price, affecting the retailer's ability to sell products at their original price points.
- Inventory Risk: If the planned markdowns are not well-executed or timed, retailers may end up with excess inventory after the markdown event. This situation can lead to further price reductions or losses, impacting the retailer's overall financial performance.
Below you will find answers to common questions
How can implementing Planned Markdown Percentage (PMD%) benefit our retail business?
Implementing Planned Markdown Percentage can benefit our retail business in several ways. Firstly, it allows us to strategically manage inventory levels and clear out slow-moving or seasonal products, making room for new merchandise. By offering targeted markdowns, we can attract price-conscious shoppers, driving higher sales volume and increasing customer satisfaction. Additionally, PMD% helps us optimise pricing strategies, maximise sell-through, and minimise excess inventory, leading to improved overall profitability.
What are the potential risks associated with implementing Planned Markdown Percentage (PMD%)?
While PMD% can be beneficial, it also comes with certain risks. One key risk is that markdowns may lead to reduced profit margins, especially if not carefully planned and executed. Additionally, if we rely too heavily on markdowns to drive sales, it might impact the perceived value of our products and brand image. To mitigate these risks, we need to ensure that our markdown decisions are data-driven and aligned with our overall merchandising and pricing strategies. Proper analysis and forecasting can help us strike a balance between driving sales and maintaining healthy margins.