Category winner:
Markdown Pricing Optimization at Bloomingdale’s

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This case won the Production and Operations Management category at The Case Centre Awards and Competitions 2019.
 
The case

Who – the protagonists

Bruce Berman, CFO of Bloomingdale’s.

What?

Bloomingdale’s is a famous American department store chain founded in 1872 by Lyman and Joseph Bloomingdale.

BloomingdalesWhy?

Bruce believed that a successful implementation of a pricing optimisation (PO) system could potentially help Bloomingdale’s improve its gross margins.

When?

It was 2004 when a trial began with around 4,000 markstyles from 40 departments as the ProfitLogic group and 11,000 markstyles from 90 departments as the control group. The two groups did not share markstyles.

Where?

As of 2005, Bloomingdale’s operated 36 stories in 12 states with 11,300 employees and a gross retail floor space of 8.132 million square feet.

Profit marginsKey quote

“Was the system producing improvements in gross margin? If so, how much of an improvement was it generating?” – Daniel Gabbay, a Bloomingdale’s analyst on the PO trial.

What next?

Bruce needed to know if the PO trial could be implemented across the whole company, but how exactly should the data be analysed?

 
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Markdown Pricing Optimization at Bloomingdale’s (A) and (B)
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The authors

Bloomingdale

Wei Ke, Constantinos Maglaras and Garrett van Ryzin

Wei talks about the longevity of this winning case and the benefits of writing shorter cases.

Standing the test of time

Standing the test of timeWei said: “This award win is a proud moment and it’s particularly gratifying that the case is still being actively used 14 years after the events took place.”

A shorter case

He continued: “The business problem we were trying to illustrate in the case was fairly straightforward and timely – did a professional markdown pricing system, which was introduced only a few years prior, actually work for a large department store like Bloomingdale’s? 

“The focus is on the approach to evaluate the effectiveness of the pricing system through the design of a natural experimentation and a statistical model.”

Case series

Wei added: “With a case series, we intended to get the students to first think about how to design an experiment to test the effectiveness of the markdown pricing system, and then apply a statistical model to quantify the said effectiveness.”

Key contacts

He explained: “We had a supportive executive sponsor Bruce Berman, then-CFO of Bloomingdale’s, who appreciated an independent audit of the multi-million dollar markdown pricing system they were buying.”

Brand powerBrand power

Wei concluded: “The Bloomingdale’s brand captures students’ imagination. It is also important to get the students to think about an important operational aspect of the business behind the brand i.e. markdown pricing management.”

About the authors

Wei Ke was a PhD candidate at Columbia Business School when the case was written. He received his PhD in 2009 and is now Adjunct Assistant Professor at the school and a managing partner at Simon-Kucher & Partners.
e wei.ke@simon-kucher.com

Costis Maglaras is the David and Lyn Silfen Professor of Business at Columbia Business School.
e c.maglaras@gsb.columbia.edu

Garrett van Ryzin, who was on the faculty at Columbia Business School when the case was written, retired from Columbia Business School as the Paul M. Montrone Professor Emeritus of Private Enterprise in the Faculty of Business in 2017 and is now the Charles H. Dyson Family Professor of Management at Cornell SC Johnson College of Business, Cornell University.
e gjv25@cornell.edu

 

View all the 2019 winners