Augustin made strong assumptions about his strategy shift in the pricing model, but failed to develop prototypes or test his assumptions. Therefore, he was out of touch with his niche customer base, and failed to attract ‘younger’ crowd as well.
Testing hypothesis is very important before rolling out radical changes, to understand if the changes are appreciated by existing shoppers, mainly middle-aged and elder women. In fact, Augustin boasted that some young shoppers liked the renovated Emilia showrooms, but it failed to create any differentiating unique factor from their competitors and had very few recurring purchases from the new customer base. Emilia also failed to educate its customer base about the shift of strategy to avoid ‘mutual victimization’. If Augustin had tested and understood the contrast in perception of customers on the ‘hablar claro’ idea, and could have perhaps introduced a less ‘condescending’ value proposition. A few simple tests would also establish that the main selling point of Emilia was great deals, and as Shari Rudolph rightly commented, Emilia could use low-price value proposition to capitalize on shoppers’ love of bargains, instead of pointlessly resisting it.
Even though Augustin had a good rationale behind the change, he should not have forced such a drastic change on the market, wherein customers would be confused about Emilia’s perception altogether. He abruptly entered the four-year plan. He did not understand the importance of brand image or having some anchor products during changes (eg, three t-shirts for $45), and testing the flexibility of the customers to such changes. After thoroughly testing, he could have taken steps to educate the customers on the reason for change of rationale, without demonizing the concept of bargaining. If the customers reciprocated the feelings, he could have started reducing deals or moving to his original rationale. Instead of these, he alienated his customers and was ready to ‘take a few arrows in the back’ before having a shield.
If I was a consultant hired to advise Augustin (before he rolled out the changes, or after he took the board’s directions), I would advocate the following approach: Analyze surveys of customers about how they perceive Emilia and try to gauge if they will be onboard with possible changes in deals. It is already established that Emilia’s differentiating factor is deals and so it is important to avoid drastic changes to it, or else competitors will slash in and take over market shares during the change. Since Augustin wants to attract young shoppers, renovating and introducing fresh fashion at an affordable price point will be a good pivot. I strongly oppose the need to alienate a niche customer base in order to grab new eyes. After stable traffic from both age groups, he could then subtly educate the customers about some drawbacks of bargaining and deals (through surveys, open-ended questions in kiosks in change for store credits, pamphlets), and see their reaction to them. If a certain percentage of customers reciprocate the values, he could start a shift in pricings, by reducing the number of sales (eg: seasonal sales in place of weekend sales, getting store credits on a second purchase next time as opposed to flat 70% off, etc). However, he should not starve the deal-hunters and have staples and basics at reasonable price points most of the time. Lastly, I would also advise setting reasonable timelines for the 4-year plan, with a certain range of flexibility depending on the customer tests along the way.
