Market Driven Pricing

A May 9, 2012 Bloomberg Businessweek article, Macy’s 1Q profit jumps 38 percent, attributes the company’s success to its ability to tailor its fashions to local markets.  This kind of insight often elicits a “duh” response, yet I can’t help but wonder how many of you are actually employing this strategy?  If you did, what difference would it make for your business?

Old Macy’s Model

Let’s take a look at Macy’s old business model to see what is likely to have happened.  The company decides which fashions to highlight for the coming season.  The customers in markets where these fashions resonated were quite willing to pay Macy’s prices to get them.

It’s a much different story in those markets where those fashions held little, if any, appeal.  Many of those customers weren’t going to buy no matter how low the price went.  Those who judged the fashions to be uninspiring, yet acceptable, required heavy discounts to buy.

The result in the uninspired markets would be:

  • Slower inventory turns
  • Higher discounts
  • Lower margins
  • Lower overall profitability
  • Dissatisfied customers

That’s a lot of pain!  Let’s contrast that with the new business model.

New Macy’s Model

By tailoring the fashions to the specific markets served Macy’s gets:

  • Higher customer interest
  • More frequent customer visits
  • Higher prices
  • Higher levels of customer satisfaction
  • Greater customer loyalty
  • Higher inventory turn rates

Now that’s a dramatic difference!

Then why is it that more of us don’t tailor our offerings to local markets?  Possible explanations range from ‘we don’t have time’ to ‘it costs too much.‘   When we sift through all the ‘reasons’ what we have is a basic laziness on our part.  We’re not analyzing our results in ways that allow us to see which markets value what we have to offer and which don’t.

This simple analysis will give us the insights we need to tailor our offerings to reap all of the benefits of the new Macy’s business model.  The choice is simple, the question is “Do you care enough about your customers to pull it off?”

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