In the Harvard Business Review case study “Second Thoughts About a Strategy Shift,” Augustín Rey, the president of a century-old retailer Emilia, strongly believed in his pricing model’s merchandising strategy shift. He thought that a no-discounts strategy could bring in success, and indeed, initial results in the first operating quarter were promising.
However, as Augustín latched onto his vision for what he wanted Emilia to be–a “store for the whole family” (126)–he failed to adequately consider several key counterpoints that his friend María brought up. For example, he dismissed the salience of the fact that Emilia had a different customer base than a fast-fashion chain that Augustín had previously led as head of retailing, and brushed off the reality that the modern younger generation is much more inclined to leverage online shopping as opposed to focusing on physical stores. Even as losses continued to worsen in the quarters following the first, he insisted that the strategy simply required time “for customers to understand our pricing strategy” (127).
At the heart of the issue was Augustín’s failure to properly validate his idea, particularly as he neglected to prototype and test the many underlying assumptions of his strategy before rolling it out. His decision was backed by data reflective of past trends, but the problem was that such data may not be reflective of present conditions and future projections given a changing market and world. Thus, it would have been important to also conduct experiments, because doing so would be more reflective of the current reality and could provide a more accurate signal of whether his assumptions held.
In addition, experiments should be led with an impartial lens. In other words, Augustín should be careful not to forcibly try and prove his ideas, but rather should seek to objectively evaluate the experimental methodology and results to understand the received response and adjust his strategy based on those findings. Had he followed these steps, he might have been able to prevent the loss of 211 million euros in revenue, because he would have been able to pivot and recognize what the customers really wanted instead of declaring that the customers just “need to be educated” (127).
If I were recently consulted to advise Augustín, I would recommend that he strive to introduce more open-minded flexibility in his strategy development process. He should also take incremental steps–for example, rather than eliminating all discounts, he might start by testing out how consumers react if the company got rid of discounts for a particular product. However, it is also important to acknowledge that many people love a good deal–and low-price offers can be a means of attracting and marketing for potential customers. It could be worthwhile to explore methods that are not so radical as to completely eliminate discounting, but rather leverage a combination of price deals with other positive brand value associations in order to avoid extreme negative discounting spirals that had previously affected Emilia.
