How to effectively manage markdowns, promotions and rebates

Supplier relationships are undoubtedly linked directly to retail business success. Today the world’s largest retailers see their suppliers as powerful resources that can be leveraged to move products to market faster and significantly enhance customer service levels. This has led to an attempt in establishing strong collaborative efforts with suppliers, sharing both overall business strategies and specific initiatives where suppliers are expected to play a pivotal role. Retailers have been taking the idea of supplier collaboration a step further by ensuring real-time visibility and collaboration. Supplier collaboration has tremendous productivity and efficiency benefits by streamlining and automating the traditional paper-and-time intensive activities associated with order management, procurement and delivery, product information management, vendor performance, product development, inventory management, promotion programs, rebates, customer insight and new product introductions. The following scenarios illustrate how retailers can achieve the various benefits related to markdowns, promotions and rebates by introducing a collaborative approach in the supply chain with a supplier portal.

In today’s drifting and often unpredictable economy, many retailers are facing problems of eroding margins, issues with discounting, and poor price setting. Not tracking these problems on time would mean a failure to comprehend the full impact these can have on cash flow and profitability. Typically, in any category 20-30% of the Stock Keeping Units (SKUs) contribute to 80% of the category sales. The remaining 70-80 % of the SKUs contributes to 20 % of the category sales. It is not uncommon for retailers to know that some SKUs sell as low as one piece a month per store, while the stock days cover could be as high as 12-24 months, requiring a heavy markdown to liquidate. While retailers try to balance between the need to liquidate and the need to maintain the average gross margin percentage, suppliers are called to pitch in and share the loss due to the markdown. However, it seldom works that way because of the lack of transparency and collaboration in the process. Since different products require different levels of markdown, a system that ensures a smooth collaboration between the suppliers and retailers helping them regulate the pricing and markdown with consistency is the need of the hour. A supplier portal that assists both retailers and suppliers collaborate and arrive at better pricing strategies will be the window of opportunity to liquidate slow moving stocks effectively. Lack of collaboration in the process may result in the distorted inventory leading to a huge crunch in the cash cycle.

Promotions are one of the key drivers of growth for Consumer Packaged Goods (CPG) companies. Successful promotion campaigns in order to drive early consumer adoption need coordinated and effective execution with excellent support from the suppliers. As a practice, retailers create their marketing and promotion calendar almost a year in advance, complete with details of the cut off dates for promotion submission and finalising advertising materials. However, in most cases, this plan is not shared with suppliers and suppliers are not consulted before making the plan. Retailers cite non-availability of easy-to-use platform that is exclusively built for retail as the reason for absence of collaboration in the promotion plans. As a result, the suppliers receive a notification about the promotion as late as just two days before the launch of a campaign. This leads to a poorly executed promotion campaign. A common portal where retailers can collaborate with suppliers, draw up the promotional plan and execute it successfully will help in achieving an elevated shopper experience. Suppliers and retailers can track the dates when the items reach the store, when they are moved to the sales floor and also analyse the cost effectiveness of promotions, ways to increase promotion sell-through, correct instore execution and lower the cost of promotion management. While trade promotions are a big and growing expense, running into the hundreds of millions of dollars for large retailers, many do not have a good handle on how these investments will drive new sales. The collaboration achieved through retail-centric supplier portal is an asset that the retailers can leverage to gain new insight into instore promotions and to understand how best funds can be allocated to get the highest sales lift possible.

Face-to-face negotiations have been the norm while trying to reach a harmony on margin and costs in trade agreements relating to discounts and rebates. Due to lack of time to analyse the proposals at length during such negotiations, decisions taken usually result in piling up of inventory. As retailers look out for alternative ways to solve the issue through collaborative efforts, a supplier portal proves to be the answer. A retail-centric collaborative supplier portal helps in analysing the sales pattern of proposed SKUs, incremental cost of holding the stocks against incremental margin earned, open-to-buy status, among other issues. This helps both retailers and suppliers make informed decisions through a collaborative effort. The retail industry has been experiencing an increased need to respond to market expectations of reduced shelf-level prices even as customer demands vary extensively on a week-to-week basis. Ranging from collection of information for the promotion plan to analysis to check if a deal is justifiable, the best way for retailers and suppliers to work together is through a supplier portal that entails collaboration.

Predictive analytics and simulated models are being used by retailers in many other intriguing ways to help align offerings more closely to target markets. For instance, Kraft has showcased a new in-store kiosk that predicts the products and recipes a shopper is likely to buy based on the shopper’s perceived age and gender based on face scanning and video analytics. The kiosk also uses smartphone-enabled barcode scanners to help customers plan shopping lists and saves recipe ideas for future reference. Predictive models are also helping retailers to match their promotion campaigns and offers to the right audience. Sainsbury’s performs advanced analytics to reams of customer data to predict in real-time the exact offers that will be attractive and are likely to be redeemed by customers at the retailer’s checkout. Their scheme ‘Coupon at Till’ offers loyalty card members coupons on their favourite products and most purchased items as they check out their purchases at the store. Effective predictive analytics is increasingly an essential tool for retailers to answer the question ‘What is likely to happen next?’ as compared to traditional models that dwelt on ‘what happened last season?’ Are you one of those retailers making merchandising decisions based on guesstimates? If yes, perhaps you should rely more on predictive analytics to chart your future course of action.