Tuesday, June 23, 2009

Back to Basics: Giving Customers What They Want at the Right Price

I might also call this blog entry—Hangover, Part II—or How Egotism Overwhelms Business Sense.

Over the past 20 years as a multichannel retail consultant, I have seen egotists willfully drive their companies out of business, close down healthy businesses prematurely, and choose the wrong path, simply because it was it was they path they had chosen. It’s dumbfounding, but hardly surprising.

I tend to be much more forgiving when entrepreneurs act out their bad behaviors than when professional managers do. After all, it takes a healthy ego to envision and start a business, execute it single-mindedly, and will it into success. I also extend this kindly forbearance to designers, who seek to impose their vision onto the world. Artistic vision, unless it is truly divinely inspired, like Mozart’s or Paul Klee’s, is systemically ego-centric.

When Domenico Dolce and Stefano Gabbana announced this week that they were reducing the price of their products approximately 20% across the board, I was very encouraged. Here were two creative people recognizing that their vision is realized through the labors of over 3,000 other people, whose lives and livelihoods are an integral part of their art (see yesterday’s blog entry). They also stressed that fashion, life, whatever, has come somewhat unglued, that there needs to be a return to the more centered life that they found roughly 20 years ago when they entered the business.

Actually, their sense of when consumerism began to overtake rational commerce is a bit off, but that is irrelevant. Both designers and retailers were heavily entrenched into excess in the ‘80’s. The party had long been underway.

It should be no surprise, then, when companies, like Aeropostale, score a magnificent 19% increase in same store sales from May 2008 to May 2009. Many observers might say that it is the promotional policies of Aeropostale that have ensured its growth during these downtimes and that discounting is the root of all evil in retailing, a practice that has conditioned consumers to buy on sale and has ruined retailing in America. Partly true, but consumers were buying on sale precisely because everything was overpriced.

Why Aeropostale is racking up huge points is simply because Julian Geiger, CEO, and his team know how to execute the basics as professional managers. Look at these remarks from a 2004 interview in Business Week:
“We have a promotion going on all the time. We match supply and demand and demand and supply every day by seeing how many weeks of supply we have of an item. Under this umbrella we can fine-tune the elasticity of demand to know what the price should be. If something is selling too fast, we'll actually raise the price. Of course, it's still on sale.

Everyone else tries to dictate what they feel the customer should wear. We generally want to listen to our customer and give them what they want at the right price.”

BTW, are Supply and Demand and Basic Marketing still taught in business schools?

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