Much more than a market hype

Part 3: The Holy Grail

28 May 2024

Oded Omer

Hello again. In our March issue we presented the basics of multi-period markdowns. We used some simple examples to demonstrate the potential. Then, in April we discussed the challenges of this approach. Our approach. At this point, before we proceed, it is important for us to re-iterate that not always a markdown should be applied from the first place, and, many times, with the right markdown at the exact time – a single period markdown will be possible.

So what is the holy grail? We call it “Wasteless time horizon” and simply put, it is the ability to know beforehand what is the correct sequence of markdowns in size (Amplitude) and timing (Periods), that will move the shelves faster and will keep them fresher.

Knowing that to maximize profits and minimize waste is of a different order of complexity!

Determining pricing policy within the “Wasteless time horizon” involves predicting how “known unknowns” may affect consumer demand, within the incredibly complex, constantly changing retail environment. As consumer demand is influenced by dozens of factors continuously affecting each other,

Setting a pricing strategy over time involves continuously deciding whether to sacrifice

immediate profits to accumulate higher profits later or take profits now the expense of smaller profits in the future. Dynamic pricing is done on a per assortment level, requiring constant analysis of products that are complementary or competing and deciding if, when, and by how much to apply a markdown - at any given moment.

To be clear, the salvation of “time horizon” network is not a type of “one and done” We must be able fine-tune our continuous calculations based on data to fit the reality in the stores.

Achieving all these involves highly sophisticated environment modelling and massive

computational effort and until quantum computing will be available, well… that’s a tough FinOps problem to solve.