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A Decision-Support System that Helps Retailers Decide Order Quantities and Markdowns for Fashion Goods

Author

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  • Murali K. Mantrala

    (ZS Associates, 1800 Sherman Avenue, Evanston, Illinois 60201)

  • Surya Rao

    (FI Sofex Ltd., 14 Eighth Main Road, Malleswaram, Bangalore, India 560003)

Abstract

We developed MARK, a stochastic dynamic-programming model-based decision-support system, specifically to help retail-store buyers of fashion goods decide on optimal merchandise order quantities and markdown prices. We implemented MARK as an interactive software program that runs on users' personal computers and can be integrated with the retailers' point-of-sale (POS) and other information systems. As we show in an actual-case illustration, MARK improved profitability and managers' understanding of the decision problems. MARK also provides valuable insights into the interplay between order-quantity and dynamic-pricing decisions. For example, higher markdown percentages do not necessarily mean lower profits.

Suggested Citation

  • Murali K. Mantrala & Surya Rao, 2001. "A Decision-Support System that Helps Retailers Decide Order Quantities and Markdowns for Fashion Goods," Interfaces, INFORMS, vol. 31(3_supplem), pages 146-165, June.
    • Handle: RePEc:inm:orinte:v:31:y:2001:i:3_supplement:p:s146-s165
    DOI: 10.1287/inte.31.3s.146.9682
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    2. Namin, Aidin & Ratchford, Brian T. & Soysal, Gonca P., 2017. "An empirical analysis of demand variations and markdown policies for fashion retailers," Journal of Retailing and Consumer Services, Elsevier, vol. 38(C), pages 126-136.
    3. Caulkins, Jonathan P. & Hartl, Richard F. & Kort, Peter M. & Feichtinger, Gustav, 2007. "Explaining fashion cycles: Imitators chasing innovators in product space," Journal of Economic Dynamics and Control, Elsevier, vol. 31(5), pages 1535-1556, May.
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    5. Bernardo Bertoldi & Chiara Giachino & Alberto Pastore, 2016. "Strategic pricing management in the omnichannel era," MERCATI & COMPETITIVIT?, FrancoAngeli Editore, vol. 2016(4), pages 131-152.
    6. Rice, Dan Hamilton & Fay, Scott A. & Xie, Jinhong, 2014. "Probabilistic selling vs. markdown selling: Price discrimination and management of demand uncertainty in retailing," International Journal of Research in Marketing, Elsevier, vol. 31(2), pages 147-155.
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    9. Mostard, Julien & Teunter, Ruud & de Koster, René, 2011. "Forecasting demand for single-period products: A case study in the apparel industry," European Journal of Operational Research, Elsevier, vol. 211(1), pages 139-147, May.
    10. Dasu, Sriram & Tong, Chunyang, 2010. "Dynamic pricing when consumers are strategic: Analysis of posted and contingent pricing schemes," European Journal of Operational Research, Elsevier, vol. 204(3), pages 662-671, August.
    11. Vincent C. Li & Yat-wah Wan & Chi-Leung Chu & Yi-Cheng Lin, 2020. "A Dynamic Programming-Based Heuristic for Markdown Pricing and Inventory Allocation of a Seasonal Product in a Retail Chain," Asia-Pacific Journal of Operational Research (APJOR), World Scientific Publishing Co. Pte. Ltd., vol. 37(01), pages 1-30, January.
    12. Jian Yang & Yusen Xia & Xiangtong Qi & Yifeng Liu, 2014. "A nonatomic‐game model for timing clearance sales under competition," Naval Research Logistics (NRL), John Wiley & Sons, vol. 61(5), pages 365-385, August.
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    14. Obeng, K. & Sakano, R., 2012. "Airline fare and seat management strategies with demand dependency," Journal of Air Transport Management, Elsevier, vol. 24(C), pages 42-48.
    15. Edward I. Brody, 2001. "Marketing Engineering at BBDO," Interfaces, INFORMS, vol. 31(3_supplem), pages 74-81, June.
    16. Gabriel Bitran & René Caldentey, 2003. "An Overview of Pricing Models for Revenue Management," Manufacturing & Service Operations Management, INFORMS, vol. 5(3), pages 203-229, August.
    17. Felipe Caro & Jérémie Gallien, 2012. "Clearance Pricing Optimization for a Fast-Fashion Retailer," Operations Research, INFORMS, vol. 60(6), pages 1404-1422, December.
    18. Zhen Zhang & Songtao Zhang & Mingshi Yue, 2021. "Joint pricing and replenishment policies for risk‐averse retailers under duopolistic competition," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(7), pages 1849-1864, October.
    19. Mantrala, Murali K. & Levy, Michael & Kahn, Barbara E. & Fox, Edward J. & Gaidarev, Peter & Dankworth, Bill & Shah, Denish, 2009. "Why is Assortment Planning so Difficult for Retailers? A Framework and Research Agenda," Journal of Retailing, Elsevier, vol. 85(1), pages 71-83.
    20. Yossi Aviv & Amit Pazgal, 2008. "Optimal Pricing of Seasonal Products in the Presence of Forward-Looking Consumers," Manufacturing & Service Operations Management, INFORMS, vol. 10(3), pages 339-359, December.
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    22. Geoffrey A. Chua & Yan Liu, 2019. "Sensitivity analysis on responsive pricing and production under imperfect demand updating," Naval Research Logistics (NRL), John Wiley & Sons, vol. 66(7), pages 529-546, October.

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