Augustin based much of his strategy on his own assumptions without actually testing a prototype. Without the testing of different prototypes, he may very well have relied on faulty risky assumptions that were destined to impede the success of the renovation plan. In order to validate his idea, he should have conducted experiments that would have tested these risky assumptions. Then, if those experiments failed, he could have pivoted much earlier on before wasting money on renovations and potentially losing customers to the pricing shift.
One finding that he likely would have discovered earlier was that loyal shoppers frequented Emilia’s because they liked discounts and bargain shopping. Even if people were getting better deals under the shifted strategy, they did not feel this because they were now paying the full listed retail price. Unlike from the company perspective, it is not apparent to the consumer what the margins are for products. Rather, consumers feel like they are saving more money when they can see that the price they are paying is much lower than the retail price of the product even if that margin of profit for the company is actually larger.
We can think of a simple experiment that would have tested whether users preferred a higher retail price with a sale or a lower retail price with no sale. Choose two stores with similar customer bases and sales. In one store, sell the items for the lower retail prices with no sale (hablar claro). In the other store, sell the items for a higher price, but on sale (still slightly more expensive than the hablar claro prices). See the results. If people choose the sale with higher prices, this shows that a key underlying assumption for Augustin’s plan was invalid.
If I was consulted to advise Augustin, I would recommend that he abandons the no-discount strategy for now. It is important to do far more research and experimentation in order to see if this plan is viable before it is implemented. Much of the Emilia brand and many of the Emilia customers see this to be central to the experience of shopping at Emilias. Taking away these discounts could very well deter these loyal customers without a guarantee that it will attract new customers. I would reckon with Augustin that he should think beyond the current structure used for sales at Emilia and considers alternative, more sustainable ways to implement sales.
I also would suggest that during these sales, the customer should know how much money they are saving. They should see the list price and they should see what they paid. It may even be helpful at the bottom of the receipt to add total savings. The problem of people holding off on buying and waiting for a sale can be addressed by offering these sales sporadically throughout the year, instead of on a schedule.
