- Augustín, the president of the retailer Emilia, strongly believed in his strategy shift in pricing model. However, what did he NOT do beforehand to validate his idea (hint: it’s also discussed in “The Experts Respond” footnotes)? Why is that important? What could have gone differently (e.g., what findings could he have discovered earlier, before losing 211 million euros in revenue), and why?
Augustin should have conducted experiments to prove or confirm his assumptions before actually implementing his pricing strategy in order to ensure that the assumptions that led to his pricing strategy idea were actually right. By doing experiments beforehand, he could have discovered that customers viewed the everyday pricing strategy as “condescending” and then prodded more into why they felt that way. Finding out that customers think the pricing strategy is “condescending” and why they thought that would help Augustin alter his strategy to fit the customer’s needs and opinions more so that he may not have lost the 211 million euros in revenue. In addition, Augustin did not see what response his strategy elicited and didn’t adjust his strategy accordingly based on the response. He didn’t even know his strategy felt “condescending” to the customers. Lastly, he didn’t provide anything to make the brand stand out before trying to lead the customers toward everyday low pricing. Emilia has to combine everyday low pricing with some other product differentiator and make the customers aware of that before moving forward with this pricing strategy.
- Pretend that you were recently consulted to advise Augustín – what course of action would you recommend, and why? (“The Experts Respond” section might also help!)
I don’t think Augustin should completely abandon his pricing strategy. However, I do think that before Augustin moves full-force ahead with his pricing strategy, that he should conduct experiments with various pricing strategies and conduct customer research and interviews to see what customers’ reactions are to those various pricing strategies. This does not have to be fully implemented across the company — it could be that one store experiments with a certain pricing strategy (selling bundles of a clothing item for a discounted price) or that every store experiments with a certain pricing strategy for a week and then they interview customers and look at changes in customer behavior and sales over the course of the experiment. The main point of advice I would give Augustin is to test his assumptions before actually moving ahead with his pricing strategy. When he conducts those tests/experiments, he should then pay close attention to the “results” to see if his specific assumptions were validated or not and also to inform what assumptions he may want to test/experiment next. After conducting a few iterations of experiments and having validated/confirmed specific assumptions, then Augustin can go ahead and move forward with a pricing strategy that is in adherence with those validated assumptions he tested.
