How to use data science for clearance management and sustainable retail

In the fast-paced world of retail, where trends shift rapidly, and customer preferences are ever-evolving, maintaining an ideal balance between stock levels and demand is a constant challenge. For retailers in fashion, electronics and seasonal goods, overstock can be particularly costly — but it also presents an opportunity. Like a magician’s wand, smart clearance management strategies can transform your excess inventory into a revenue driver that aligns with modern sustainability goals.

The enchantment of clearance sales

Clearance sales and markdowns are far more than simple discounts; they’re strategic price adjustments that reflect a product's perceived value based on timing, demand and context. How do you ensure enough stock in the right locations to cover the demand? And more importantly, how do you manage excess stock so you don’t have to return it to the supplier or, even worse, waste it altogether? As a retailer, reducing waste has become a top priority and it’s clear as a crystal ball that your customers value this commitment to sustainability.

4 different product categories require tailored markdown strategies:

1. Fresh Produce: Adjust prices to prevent loss is critical for perishable items.
2. Fashion Products: Time markdowns carefully with seasonal trends to move outdated styles.
3. Technology Products: Modify prices quickly to keep pace with rapid innovation and outdated models.
4. Holiday & Seasonal Products: Set required discounts that are tied closely to holiday or seasonal demand.

Clearance strategies also support business needs beyond inventory reduction, such as store renovations, closures or competitive adjustments.

Avoiding the dark arts of over-discounting

One can argue that a markdown/clearance is just a temporary discount until the inventory is cleared or reduced to a desired level, but we believe this is just not true. A markdown is a value adjustment as opposed to a price adjustment, to adjust the product's price to the new customer perceived value. 

When planning and executing a markdown, we’ve seen some retailers use a one-size-fits-all approach, such as reducing prices by 25-30% across products until stock is depleted or running week-long promotions and then discarding the leftovers. Though easy to implement, these strategies typically fail to consider customer behavior, seasonal demand and profitability goals.

The spell book of dynamic pricing

The right approach is to understand consumer behavior and the new perceived value of those products - and implement clearance strategies that maximize revenue, profit or stock-clearing speed, depending on your specific objectives. Additionally, the value adjustment, duration and assortment must be periodically reviewed to ensure the end goal is achieved. That’s, in fact, a lot of work.

There are methods and tools in the market designed to support this process, and like Abracadabra, an optimized price is applied. However, this oversimplifies the problem and reduces the effectiveness of the outcome. It fails to factor in that customers are anything but predictable. Campaigns might run too long or too short, and other promotions might cannibalize the markdown effort, etc. 

In today’s environment, where consumer behavior is unpredictable, successful clearance management must be flexible and data-driven. Enter Stochastic Dynamic Pricing (SDP), a cutting-edge approach we recommend to optimize clearance pricing in real-time by continuously evaluating market conditions, inventory levels and sales performance.

SDP integrates randomness and adaptability into pricing strategies. It combines Stochastic Models, which incorporate uncertainty and consider multiple market scenarios, with Dynamic Programming, which optimizes sequential pricing decisions for long-term outcomes. It allows you to adapt pricing dynamically while accounting for unpredictable consumer behavior. 

Dynamic markdown solutions conjure up 4 key benefits:

• Adaptability: The model allows you to tailor markdowns for various scenarios and sales goals.
• Automation: Minimizes the need for manual oversight, freeing up resources for other strategic activities.
• Profitability: Models maximize revenue by optimizing discount levels without eroding margins.
• Focus on Core Business: With an automated markdown system, teams can concentrate on core objectives, such as enhancing customer experience.

SDP’s unique methodology ensures flexible, data-driven decision-making, enabling you to set optimal prices that align with inventory levels and sales goals. By automating pricing adjustments and responding to real-time conditions, SDP enhances efficiency, profitability and sustainability in markdown campaigns.

Keep customers under your magical spell

Innovative markdown management can help retailers like you reduce waste through efficient inventory management and demonstrate a commitment to sustainable retail practices — a value increasingly crucial to today’s shoppers. Dynamic markdowns are the perfect charm to drive revenue and contribute to a positive brand image, connecting with your customers on a deeper level.