While consumers are not yet decking their halls nor hanging stockings by their chimneys with care, every retailer knows that peak season is here. This means that summer and back-to-school seasonal inventory needs to sell through asap.
But how does one sell through their excess inventory without wreaking havoc on profit margin? It’s not as if there is a simple, ‘sell-through button’… or is there?
Price Optimization might be the closest we can come to an easy button. It puts the power back into the hands of the retailer with dynamic AI-powered pricing that balances both conversion and profitability, according to company goals.
Read on to learn how businesses can leverage generative pricing to ditch those deep discounts and capture more margin while selling through seasonal inventory.
The seasonal sell-through challenge
With every seasonal transition comes a fresh wave of consumer demand that retailers must anticipate and then adapt to swiftly. While customers embrace the excitement of seasonal changes (The Pumpkin Spice Latte practically started a movement, #PSL), retailers grapple with efficiently transitioning their inventory while capturing as much profit margin as possible.
Scalable sell-through requires a keen understanding of the ebb and flow of seasonal inventory. While technology has made some aspects of inventory management easier, there are always new challenges; macroeconomic factors, supply chain disruption, a global pandemic, and that’s just the past 18 months. Combine this with ever-changing consumer preferences & buying patterns, fast-paced digital innovation, managing new selling channels…and you’ve got a complex sell-through challenge. It’s impressive that any of us make it to peak season!
The power of pricing: A dual role
How does one capture more margin during sell-through? Pricing of course! Often the linchpin of purchase decisions, pricing plays a dual role in managing seasonal sell-through. On one hand, pricing must be enticing enough to result in the customer making a purchase, while on the other, it must preserve profit margins and brand integrity.
There are several pricing strategies deployed to encourage sell-through. A couple of the most common include:
- Seasonal pricing | A traditional approach, seasonal pricing is the practice of adjusting prices based on the time of year and seasonal demand.
- Discounting | Involves markdowns or discounts on off-season products, might be marketed as an ‘End-of-Season Sale.’
An up-and-coming strategy:
- AI-powered pricing | A strategy enabled by modern technology, AI-powered pricing dynamically updates prices according to consumer demand and business’ balance of profit and conversion.
While discounting is fairly common and can be effective in driving sales, deep discounting can be detrimental to profit margins, brand perception and customer behavior. For DTC brands whose value lies not only in the products, but also in the brand experience, deep discounting can erode the perceived value and condition customers to wait for sales, negatively impacting cash flow and overall company profitability.
AI-powered pricing, a sell-through easy button
The solution to striking the right equilibrium between achieving optimal sell-through rates and preserving healthy margin lies in innovative pricing strategies like generative pricing.
Generative pricing, or AI-powered pricing, uses AI, machine learning (ML) and advanced analytics to determine the most effective price point, and then optimizes website traffic accordingly.
Price Optimization, Spresso.ai’s generative pricing solution, was built by retailers in direct response to their pricing challenges (like selling through seasonal inventory). It enables online sellers to action one of their most powerful assets, their first-party data, to dynamically optimize onsite pricing down to the SKU level. Price Optimization enables a retailer to maximize margin based on current inventory levels and desired sell-through date. After all, nobody wants to be saddled with sandals in January.
With generative pricing, brands can optimize seasonal merchandise pricing throughout the entirety of the season, encouraging a more consistent sell-through of inventory. This obviates the need for last-minute clearance sales that could tarnish the brand's reputation.
Ecommerce retailers and DTC brands can harness this technology to navigate seasonal sell-through without succumbing to steep discounts and inverted margins.
The DTC perspective
DTC brands face a unique set of challenges when it comes to seasonal inventory management. Unlike traditional retailers and legacy brands, DTC businesses operate predominantly through ecommerce where consumer expectations are high and competition is fierce. The DTC model's direct engagement with consumers means that brand perception and customer experience are paramount.
Since their inception, DTC brands have revered the customer and held brand perception in high regard. For some DTC businesses, this has resulted in a decision to not offer discounts, which can make moving seasonal products extra challenging.
Many DTC brands have fewer selling channels as they may not have the same wholesale infrastructure or brick-and-mortar locations as legacy brands and retailers. This can result in fewer opportunities to off-load off-season products causing higher warehousing expenses.
All of the above makes capturing more margin during sell-through that much more imperative. It also reinforces a business case for adopting a generative pricing strategy.
Strategic implementation and benefits of generative pricing
Advanced algorithms and AI aside, the way Price Optimization works is relatively straightforward with only a few of inputs:
- Profit - conversion strategy
- Test price range
With these inputs, the solution creates equidistant price arms to test and begins to allocate website traffic to these price points. Then in real-time the solution dynamically shifts traffic to the top-performing price point based on the company’s strategy and price range.
There are a suite of benefits of adopting a generative pricing strategy, a few of the more compelling are:
- Unlocking personalized pricing campaigns | Businesses are able to implement personalized pricing campaigns that align with specific inventory situations.
- Data-driven decision-making | One of the most significant advantages of a generative pricing strategy is its reliance on data-backed insights. Businesses can capitalize on their first-party data to fine-tune their pricing strategies according to their customers' willingness to pay.
- Dynamic real-time optimization | Website prices are optimized in real-time and dynamically updated, reflective of current market conditions and customer behaviors, giving the seller confidence in the right price at the right time.
Embrace price optimization for seasonal sell-through success
As the seasons shift, the leaves begin to change and pumpkin spice lattes are purchased, companies must master the art of seasonal sell-through. Price Optimization emerges as a powerful tool in the retail tech arsenal, not to be overlooked. Price Optimization enables brands to navigate the intricate balance between revenue and margin. By embracing this forward-looking pricing solution, businesses can ensure seasonal success while maintaining their bottom line as well as their brand's integrity in the eyes of the discerning digital consumer.