Markdowns That Protect Margin: A Strategic Guide for Merchandisers

In retail, markdowns are often seen as an unavoidable part of doing business: a last-ditch effort to move unsold products and free up capital. But when executed without an informed, data-driven strategy, markdowns can significantly cut into profitability and diminish the long-term value of a brand.

The traditional, calendar-based markdown model is broken. For decades, retailers have relied on these rigid, seasonal calendars—discounting strategies designed months in advance around traditional key retail moments like back-to-school or post-holiday clearance.

This static approach isn’t equipped to handle the pressures of e-commerce, supply chain volatility, and fast-moving trends. Merchandisers are often left guessing why products are moving (or not moving), forcing them to apply broad discounts to entire categories. This leaves them stuck between two costly extremes: applying markdowns too early on products that might have sold at full price, or waiting too long and being forced to use even deeper discounts to move unsold merchandise. Without knowing the why, they risk applying markdowns to the wrong products, unnecessarily sacrificing margin on attributes customers actually love.

As consumers and retailers navigate an unpredictable economy, rethinking the old way of doing things is more important than ever. According to McKinsey, three-quarters of US consumers said they "traded down" in the first quarter of 2025 by adjusting quantities—either buying smaller packs to spend less or larger bulk packs for better value, switching to lower-priced brands, or delaying purchases. It’s time to move from a reactive posture to a proactive one. For fashion brands, this means it's essential to align your strategy with these value-conscious customer behaviors to ensure you're meeting them at the right price.

Markdowns vs. Discounts: Know the Difference

A markdown is an unconditional price reduction that's available to all customers, no strings attached. It can be temporary or permanent and is meant to help sell items that aren’t moving well or to clear out old stock. An example of a markdown would be something like an end-of-year clearance event.

A discount, on the other hand, is a conditional price reduction a customer receives only after meeting specific criteria. Discounts are designed to influence shopper behavior. Examples of discounts include BOGO offers, coupon codes, or special pricing for loyalty members.

An effective markdown strategy strategically combines both unconditional markdowns and conditional discounts to achieve optimal results.

How to Create an Effective Markdown Strategy That Converts 

Winning brands build their pricing strategy on a foundation of real-time data and a granular understanding of product performance. Here's how to create one for your brand.

Offer Strategic Discounts

Instead of defaulting to a blanket percentage-off markdown, use conditional discounts to move inventory while encouraging specific customer actions.

• Buy more, save more: Promotions like "Purchase any two silk blouses and receive 25% off the second" are effective at increasing the number of units per transaction and boosting average order values (AOV).

• Tiered quantity promotions: Encourage larger purchases by offering escalating discounts. For example, you could offer "15% off any three knitwear pieces, and 20% off any five."

• Targeted customer offers: Use segmentation to provide discounts to specific groups, like a private offer for Gold-tier loyalty members on last season's outerwear. This allows you to move specific products without advertising a public sale.

Use Pricing Psychology

How you present an unconditional markdown is just as important as the discount itself. Shoppers are motivated by perceived value and urgency—use this to your advantage.

• Use “strikethrough pricing”: Show customers how much they’re saving by displaying the original price next to the sale price so it feels like a win for them.

• Create urgency: Use language like "limited time" to create a sense of urgency that encourages customers to buy now instead of putting it off.

Optimize with Product-Level Granularity

Instead of just knowing that a category or product is underperforming, you need to understand why. Is a specific print, sleeve length, or fabric responsible for slow sales?

An intelligent platform can analyze your product images and link them to sales data. It identifies the visual features that impact sales. For example, your data might show that a specific midi dress didn’t sell well. A closer look might reveal that while the "fit-and-flare silhouette" was popular with customers, the "paisley print" caused the dress to underperform. This information helps you decide to discount the paisley dress and focus on the successful silhouette for your next collection.

Build Your Next Collection with Confidence

By leveraging AI to understand the "why" behind your sales, you can move from reactive discounting to a proactive strategy that protects margins, preserves brand value, and informs future buys.

Prévoir is the intelligent planning system built for how fashion merchandisers think. Our platform uses computer vision to connect your sales data to the visual attributes driving performance. Our AI insights then save you from lengthy analysis, putting the exact data you need at your fingertips to make the right decisions. This gives you the clarity to build high-impact collections with precision. Stop guessing and start designing with data-driven confidence.