Markdown pricing is done mainly to influence the buying decisions of the customers who bargain. The prices of some of the products which are not performing as good as expected in the market, are lowered so that they move fast out of the stores.
Suppose you go to a store and you do not buy a product because the price was too high. If you come the next day and the price is reduced, you will now definitely be tempted to buy the product. Thus retailers do markdown pricing on some products when those products are not generating enough responses.
There are two types of markdown pricing: early markdown and late markdown
Early markdown policy is followed by those stores where the customers come regularly. If you own a store and there are some loyal customers who come frequently or regularly to do their weekly or monthly shopping and there are some products in your store which are not doing well, here early markdown policy can be put to use. For example, those products which are not getting sold can be marked down by 20% after 4 weeks since introduction, then 50% after 7 weeks and then 80% after 10 weeks. This will give enough time to the people to see that the prices are getting decreased gradually and before the products get stocked out, they may buy those products. This policy is applied when the products in the stores have to be moved out as fast as possible.