Augustín, the president of the retailer Emilia, was a strong believer in a large strategy shift in the pricing model. He intended for the strategy to make Emilia more appealing to younger customers and to become more transparent with prices. Instead of relying on discounts, sales, and promotions, Emilia would shift towards “everyday low prices”.
However, Augustín failed to experiment beforehand to validate his idea. His strategy was “based on a lot of assumptions that were not prototyped and tested”. As a result, this cost Emilia a €211 million loss with revenue down by 19% and customer traffic reduced by 10%. It is important to validate ideas through prototyping and testing because this ensures that the company sees what response it gets which allows it to adjust its strategy accordingly. It is not sufficient to only rely on data, because “data reflects only the past”. If Augustín had done more experimentation, he could have discovered that his idea was too ambitious. He would have realized that the change would drive away price-conscious customers and appear condescending to his customers. With more experimentation he could have prevented a large loss in revenue because he would have a better idea of establishing a brand differentiator.
If I were recently consulted to advise Augustín, I would recommend that he carry out various experiments before making any drastic choices like described in the case study. I would take a similar approach to Nico who suggested to go back to using discounts as a tool for customers. Like Nico, I would emphasize Augustín’s intent of catering to younger customers and being more transparent with pricing, but also emphasize the danger of alienating existing customers. I would also encourage Augustín to perform experiments that would help the company establish a clear brand differentiator. For example, the case mentions an idea of offering opening price points on key items, like “three T-shirts for $15”. I would encourage Augustín to try out ideas and keep track of performance metrics like customer retention and revenue to test out effectiveness. Overall, I would advise Augustín to pursue more experimentation and smaller modular changes in order to achieve better results in meeting the long term vision for Emilia.
