Clearing a stalled jacket program without a sitewide discount
An outdoor gear retailer carries 1,400 SKUs and is 10 weeks into an 18-week fall season. In its flagship insulated jacket program, 8,600 units were bought at a landed cost of $48 and list at $129; 38% have sold at full price and 5,332 units remain. Full-price contribution per unit, after fulfilment and payment costs, is $69. The category must reach 85% sell-through by week 18, and there are no returns to the vendor. The merchandising team proposes a sitewide 20% off promotion for two weeks to clear inventory and drive traffic; at 20% off, jacket contribution per unit falls to $43.20. A planner argues instead for 15% off in week 12 and 35% off in week 16 on remaining units. The site carries 900 other SKUs, most selling at or above plan.
1. Compare the expected contribution of the sitewide 20% promotion against the planner's stepped markdowns, and state what the decision actually hinges on.
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Baseline run-rate. 3,268 units in 10 weeks = ~327 units/week at full price. 5,332 remain with 8 weeks left; 85% sell-through on 8,600 units requires ~7,310 units shipped, so essentially all remaining stock must move.
Option A - sitewide 20% off, weeks 11–12
- Unit contribution $43.20.
- At elasticity ~1.6x, sell-through ≈ 523/week × 2 = 1,046 units, leaving 4,286 units and only 6 weeks - the promotion discounts units that would have sold anyway and forces a deeper cut later.
- Scope is the bigger cost: 900 other SKUs take a 20-point margin hit for no inventory benefit. If those SKUs do ~$180k of revenue in two weeks at ~40% contribution, roughly $36k of margin is given away to solve a jacket problem.
Option B - 15% at week 12, 35% at week 16
- 15% off → $49.65 contribution; 35% off → $23.85.
- Weeks 11–12 full price: ~654 × $69 = $45,126
- Weeks 13–16 at 15%, 1.25x lift: ~409/week × 4 = 1,636 × $49.65 = $81,227
- Weeks 17–18 at 35% on ~3,042 units = $72,552 (requires ~1,521/week, so probably needs outlet or marketplace support)
- Total ≈ $198,900, against Option A's best case of $230,342 that assumes all 5,332 units sell at 20% - which the elasticity math says they will not.
What it hinges on: the true elasticity of this jacket (unmeasured), the carryover cost of leftovers (storage, next-season markdown, brand dilution), and whether a liquidation channel can absorb the tail at a known price. Without the elasticity number the team is comparing two guesses - which argues for testing rather than committing either plan.
2. How would you measure price elasticity on this program without damaging price integrity across the site?
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Test design
- Matched-pair SKU test: 40–60 jackets of similar price and velocity, half randomised to 15% off and half held at full price for 14 days. Compare units and contribution dollars per SKU-week, not conversion rate.
- Price ladder, not one point: 10% / 20% / 30% across three cells gives a slope, which is what you need to place the week-16 markdown depth.
- Geo split as a cross-check where SKU-level randomisation risks the same customer seeing two prices for the same item.
- Pre-register the decision: choose the depth that maximises contribution subject to hitting 85% sell-through by week 18. With ~20 SKUs per cell you can only detect large effects - say so up front.
Guardrails
- Margin dollars, not revenue
- Return rate (deep discounts often pull forward returns)
- Full-price sell-through of adjacent SKUs - check for cannibalisation and halo
- Traffic quality: discount-led traffic converts worse later
3. What non-price levers should be exhausted before cutting the jacket, and which pricing-integrity rules should hold?
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Cheap levers first
- Diagnose the stall: is it PDP content (fit, sizing, reviews), search ranking (buried on page 2), or a residual colour/size mix nobody wants? Discounting a badly merchandised SKU just buys a loss.
- Bundle with a full-price item (jacket plus base layer) to protect the jacket's reference price.
- Push a defined portion to outlet or a marketplace at a fixed wholesale price - this converts unknown elasticity into a known number.
- Target offers to email/SMS segments and cart abandoners instead of a storefront-wide banner.
Rules worth holding
- No sitewide discount on SKUs selling at or above plan.
- Depth capped by weeks remaining; 35% off leaves $23.85 contribution, under half of full price, so it should be time-boxed and restricted to units that genuinely will not sell otherwise.
- Publish the ladder internally in advance so the week-16 cut is planned, not panicked.
- Check MAP obligations: a public 35% cut on a SKU also sold through wholesale partners can trigger partner complaints and permanently reset the price customers anchor to.