Imagine a costume store a week before Halloween. A few months prior, the store bought a large stock of costumes of all kinds and sizes. Sales have been good, but there’s still a lot of stock left. In a week, these costumes will become obsolete. The store owners must do what they can to sell the remaining stock. The key to their success is effective marketing – and effective pricing.
Pricing Inventory with an Expiration Date
Costume stores are not the only ones with expiration-date inventories and seasonal considerations. Clothing stores are always juggling between summer and winter clothes. Airlines try to maximize flights to attractive summer and winter locations, before the seasons end.
When it comes to inventories with expiration dates, pricing can be tricky. Let’s go back to the costume store. The owners purchased a massive amount of costumes, knowing that they would in great demand. Naturally, they were aware that their competitors – both online and offline – were doing the same. To sell well and make a profit, they must purchase large varieties, invest in marketing and create brand differentiation. They also must price effectively.
As Halloween draws near, the store’s owners have had plenty of time to analyze their sell-through rates. They were supposed to adjust their pricing based on their weekly/daily findings. This is where dynamic pricing comes into play.
A Strategy for a Rollercoaster Environment
When it comes to seasonal inventory, pricing adjustments are crucial for maximizing profit. There are many reasons for this. First of all, there’s a deadline that gets closer by the minute. Retailers must sell as many items as possible before the deadline hits. Obviously, they will try to sell as many items for the maximum price. How is this price determined? Mostly by analyzing market trends (the season’s most popular costumes sell for a higher price) and competitor trends. This, together with the distance from the deadline, form a basis for a sustainable pricing strategy.
Second, there’s the sell-through rate, which fluctuates on a daily basis. On Monday, the cash register could be working overtime. Then, on Tuesday, sales could drop and things could be looking grim. Then, on Wednesday, sales could go up again. The business environment is very dynamic. It’s a rollercoaster. In such an environment, prices simply cannot stay the same. Yet changing them without insightful methodology isn’t recommended, either.
Dynamic Pricing for Seasonal Inventory
Dynamic pricing helps retailers create optimal prices for all sale scenarios. How do store owners price items when sales go up by 15% and the deadline nears? Or when sales go down, yet there is still plenty of time left before the season ends? Do prices change for costume purchases for the entire family? Can pricing be used to encourage cluster purchases? Dynamic pricing addresses these scenarios, and more – on an ongoing basis.
An effective dynamic pricing platform often works wonders for seasonal businesses. These businesses are aware that they must make fast pricing decisions on a daily (and sometimes hourly) basis. Smart dynamic pricing helps them make the right decisions – in real-time – based on their current inventory status, consumer trends, competitor trends and distance-to-deadline. With dynamic pricing, retailers can strive not only to maximize profit from every item sold, but also to clear their inventory prior to season’s end.