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ZARA

Zara is the flagship chain store of Inditex Group owned by Spanish tycoon Amancio Ortega. The
first Zara store opened in 1975 at A Coruna, Spain. Its first store featured low-priced lookalike
products of popular, higher-end clothing fashions. The store proved to be a success, and Ortega
started opening more Zara stores in Spain.

During the 1980s, Ortega started changing the design, manufacturing and distribution
process to reduce lead times and react to new trends in a quicker way, in what he called "instant
fashions" or “fast fashion”. The company based its improvements in the use of information
technologies and using groups of designers instead of individuals.

In 1988, the company started its international expansion through Porto, Portugal. In 1989
they entered the United States and in 1990 France. This international expansion was increased in
the 1990s, with Mexico (1992), Greece (1993), Belgium and Sweden (1994), etc. until the
current presence in over 70 countries. Zara stores are company-owned, except where local
legislation forbids foreigner-owned businesses. In those cases, Zara franchises the stores.

Question 1
As completely as possible, sketch the supply chain for Zara from raw materials to
consumer purchase.

Design cuts fabric sewing ironing wrapping

selling transportation

Zara is a vertically integrated retailer. Unlike similar apparel retailers, Zara controls most of the
steps on the supply-chain: It designs, produces, and distributes itself.

Firstly, Zara designs the apparels itself, and sends the design draft to cut fabric in-house.
After that, they will be sent to the local co-operatives for sewing. When items return to Zara’s
facilities, they are ironed by an assembly line of workers. After complete ironing, they are
wrapped in plastic and transported on conveyor belts to a group of giant warehouses. Finally,
they would be sold at the stores.

Question 2
Discuss the concepts of horizontal and vertical conflict as they relate to Zara.
Horizontal conflicts referred to the conflict between competitors of the same marketing channel,
resulting in oversaturation of the target population area and extreme competition. In the case
study, Zara competes with other retailers like Sweden’s Hennes & Mauritz(H&M), Britain’s Top
Shop, Spain’s Mango and other big retailers to send the designs to the local co-operatives for
sewing. They are operating in the same marketing area that is local co-operatives that is only
available in hundreds. This will make the smaller competitors be at an extreme disadvantage.

Vertical conflicts means that the conflict occurring between two or more different hierarchical
members of a Channel of Distribution. For example, a retail distributor may refuse to carry a
manufacturer's product because of low sales, further decreasing the manufacturer's total sales.
Thus, Zara should maintain a good relationship with its distributors in order to expand its
business and increases the profit.

Question 3
Which type of vertical marketing system does Zara employ?. List all the benefits that Zara
receives by having adopted this system.

Zara makes use of Corporate Vertical Marketing System (VMS). A Corporate VMS is a vertical
marketing system that combines successive stages of production and distribution under single
ownership for which channel leadership is established through common ownership. Zara
successfully integrate design, production, distribution, and retailing and which has turned it into
the world’s fastest-growing fashion retailer.

The Corporate Vertical Marketing System provides the company with the effective channel
leadership. Hence, avoiding conflicts emerge from different channels. Amancio Ortega, the
founder of Zara’s clothing chain designed a system in which he could control every aspect of the
supply chain, from design, and production to distribution and retailing. Thus, the company
manages all design, warehousing, distribution, and logistics functions by itself instead of relying
to outside partners. This in turn, makes Zara to emerge as a unified system which the whole team
can work together responsively. Not only that the company has the control over the entire
distribution chain, they even outsource their own raw materials. Statistically, Zara makes 40
percent of its own fabrics and produces more than half of its own clothes rather than relying on
the slow-moving suppliers.

Vertical integration, a distinctive feature of Zara’s business model, has allowed the company to
react swiftly with the latest trend in the fashion industry. It means that Zara has the advantage to
be a fast-fashion leader. Fast at Zara means that it can take a product from concept through
design, manufacturing, and store shelf placement in as little as two weeks, much quicker than
any of its fast fashion competitors. Zara’s team consisted of more than 300 designers who deals
with the design process. The store managers and sales staff updated the headquarters every day
about the moving stock and provided inputs regarding the new lines, colors, styles and fabrics
that customers are demanding. For instance, if a customer is asking for a rounded neck on a vest
rather than a v neck, such an item can be in stores in seven to ten days. This process would take
traditional retailers months to meet customers demand.

Corporate VMS has also resulted in quick inventory turnover. Zara’s in-house production
purposely creates a rapid product turnover since they only produce items in smaller batches. This
would keep the inventory low and low cost of maintenance. Rapid turnover creates a climate of
scarcity and exclusivity in Zara’s retail stores. Regular customers know that new products are
introduced every two weeks and most likely would not be available tomorrow. No design stays
on the shop floor for more than four weeks which entice customers to check out the store stock
more often which lead to frequent patronage. An average high-street store in Spain expects
customers to visit three times a year. That goes up to 17 times for Zara. Therefore, Zara is able to
sell more items at full price. If a design does not sell well within a week, it is withdrawn from
shops, further orders are cancelled and a new design is pursued. And the company will only bear
a small amount of loss if any item is not selling.

Question 4
Does Zara experience disadvantages from its “fast fashion” distribution system? Are these
disadvantages offset by the advantages?

Zara do experience several disadvantages regarding to its “fast fashion” distribution system
practice. However, these advantages are offset by the advantages.

The disadvantages that would likely to occur is that Zara rely heavily on the high capital
intensive investment. The high tech information system that is claimed to be an advent-guard
could cost them high price in order to survive in the industry. To keep up with this high
technology plant Zara has to financially back the strategy within the organization.

It was also difficult for them to expand to far location as Zara’s warehouses are centralized in La
Coruna in Spain. As to date, Zara has successfully opened up 1 495 stores worldwide, but most
of them are located in European countries. Due to that, Zara delivers goods via cargo jet to stores
farther away. In order for them to keep up with the fast pace in the fashion industry it’s hard for
them to cope with the worldwide supplies and the increasing transportation costs.

Zara could also experience increasing cost in order to keep up with the latest trend in the fashion
industry. As Zara frequently updated the clothing line in stores they need to change the
techniques and equipment to design the garments accordingly. Changeover of production
techniques to create different apparel lines requires highly automated equipment specialized by
garment type.

Their “fast-fashion” distribution system has more advantages than not. Particular to its highly
capital intensive investments, they are able to lead the fast fashion industry. As top notch
technology that they are using enable them to produce and display garments in stores as little as
two weeks. It was paid off to be fast in fashion industry as fashions were keep on changing in
fast pace. The high tech information system is an essential that links the shop to designers and
finally to the distribution system. This in turn gives them advantage to lead the market in the
industry and emerge as fast fashion retailers.

A centralized warehouse brings out the best for Zara as it is easier for the company to have the
control over the distribution networks activities. They can concentrate more on the stores chain
expansion rather than facilities expansion. Zara utilize the most valuable concept that is crucial
for every retailer’s store; to be accessible for the customers to reach out their products. In that
sense Zara’s store is growing in number and for every 3 days a new Zara store would be opened
up for business. As Zara’s stores are expand rapidly, cutting down in advertising costs seems too
paid off as they receives indirect promotion by either the press or the people and focus on the
vertically integrated system that they pursued. Due to that, Zara is largely seen as a company that
emphasis on delivering customer value.

Since that Zara introduces new item for almost every week they have the advantages upon
maximum sales and revenues. Even if they have to incur higher costs in producing different
apparel lines they would try to reach up maximum revenues. As customers are driven to check
out new items in stores as they would not want to miss out the latest fad. In a typical year, Zara is
capable to launch for about 11 000 new items. Compare to the other rivals, like H&M and Gap
they only produces 2000 to 4000 items respectively. And it was proven as last year the revenues
increased over 15 percent which recorded $14.5 billion.

Question 5:
Warehousing

A large, highly automated warehouse designed to receive goods from various plants and
suppliers, take orders, fill the efficiently, and deliver goods to customers as quickly as possible.
We can add value by increase the availability of warehouse and swift and advance the
automotive are used. This can have more products in the market for the customers. This will
make the customers feel more satisfy. Zara warehouses are a vision of modern automation as
swift and efficient as any automotive or consumer electronics plant. Example, customized
machines patterned after the equipment used by overnight parcel service’s process up to 80000
items an hour. The computerized system sorts, packs, labels, and allocates clothing items to
every one of Zara’s stores.

Transportation

In shipping goods to its warehouse, dealers, and customers, the company can choose among five
main transportation models: truck, rail, water, pipeline and air, along with an alternative mode
for digital products-the internet. Zara use intermodal transportation like truck and cargo jet. It
delivers within a 24-hour drive to every one of Zara’s 1495 stores. If the distribution is
efficiency, the satisfaction of customers can obtain.

Inventory Management

Balance the costs of carrying larger inventories against resulting sales and profits. Many
companies have greatly reduced their inventories and related costs through just-in-time logistics
systems. With such systems, producers and retailers carry only small inventories of parts or
merchandise, often only enough for a few days of operation. New stocks arrive exactly when
needed, rather than being stored in inventory until being used. Just-in-time systems require
accurate forecasting along with fast, frequent, and flexible delivery so that new supplies will be
available when needed. For example, Zara’s stores receive new merchandise 2 to 3 times a week.
It responds to fashion trends much quicker than any of its fast-fashion competitors.

Logistic Information Management

Channel partners often link up to share information and to make better joint logistics decisions.
From a logistic perspective, information flows such as customer transactions, billing, shipment
and inventory levels, and even customers data are closely linked to channel performance.
Information can be shared and managed through traditional or Internet-based electronic data
interchange (EDI), the computerized exchange of data between organizations. Zara’s information
system is absolutely Avanti-guard. It’s what links the shop to their designers and distribution
system. It’s Zara’s high-tech information system that has taken vertical integration in the
company to an unprecedented level.
PRIUS
QUESTION 1

What microenvironmental factors affected both the first generation and


second generation models of the Toyota Prius ? How well has Toyota
dealt with these factors?

The effect sale of the Toyota Prius in microenvironmental are company, customer,
marketing intermediaries and publics.

The company is very important in the sale of Toyota Prius. This is because
the company is more to designing marketing plan. In department such as top
management, there are finance, research and development (R&D), purchasing,
operation, and accounting department. This all related in internal environment.
They must work closely with other company in department. So, when work with
harmony in each other company department, it can be easy to create customer
value and relationship. Toyota motor company successfully introduce the first and
second generation Prius which combined petrol engine with electric motor. Whereas
the first Prius averaged an astounding 5.6liter per 100 kilometers and than its
successor did even better at 4.90 in second generation. Other than that there are
many reason of the success of the Prius starters, Toyota targeting strategy has
been spot-on from the beginning. First focus adopters and customer. This is
because, when they do work together it can be more opportunities and get more
idea to increase the company. Customer also fills satisfaction in the company at
work hard.

Customers are the most important factors in the company’s


microenvironment. The aim of the entire value delivery system is to serve target
customers and create strong relationship with them. The company might target any
or all of five types of customers market like customer market, business market,
reseller market, government market, and international market. In the Prius case,
the company target customer market and international market. The Prius first sold
in the United Stated in the 2001 model year. It was a small, cramped, slow compact
car with a dull design. Three years later, the second generation Prius benefits from
a modest power increase. Customer also like the improvement, so when Toyota
Prius create new technology it can be Customer more attracted that car. Example,
focused first on early adopters, techies who were attracted by the car advanced
technology. Such buyers not only bought the car but found ways modify it by
hacking into the Prius’s computer system.

Marketing intermediaries is the firm that help the company to promote,


sell and distribute its goods to final buyers. They include resellers, physical
distribution firm, marketing services agencies, and financial intermediaries.
Resellers are distribution channel firm that help the company find customers or
make sales to them. These include wholesalers and retailers who buy and resell
merchandise. The personal selling carried out by local dealers who in advance
should have trained to be are familiar with the Prius car and know how to overcome
objections. From the Prius case, Toyota dealers have done a great job in promotion
and selling Toyota Prius. They had no problem getting price premium of up to $5000
over sticker price for Prius.

Publics are any group that have on actual or potential interest in or


impact on an organization ability to achieve its objective. Publics also give impact in
company. Some eco-friendly companies such as Timberland, Google, and Hyperion
Solution also joined in the incentive game, giving employees as much as $5000
toward the purchase of hybrids. Publics give more opportunities to increase in
profits and facilities in the company to do some project.

QUESTION 2

Outline the major macro environmental factors – demographic, economic,


natural, technological, political, and cultural – that have affected the
introduction and sale of the Toyota Prius. How has Toyota dealt with each
these factors?

Macro environmental factors consist of broader forces such as demographic,


economic, natural, technological, political and cultural forces that shape
opportunities and pose threats to the company.

Demographic environment is the study of human population in terms of size,


density, location, age, gender, race, occupation, others statistics. The demographic
environment is of major interest to marketers because it involves people, and
people make up markets. The world population is growing at an explosive rate. As in
United States, the single most important demographic trend is the changing age
structure of the population. Baby boomers are the major market in the United
States and they have reached the stage where the kids are grown and gone. This
means that they can pay more for cars (can overcoming the higher price). They
have always been known for an interest in quality and willing to try the new—both
factors that might incline them toward purchase of a Prius. Younger generations
may be more environmentally concerned and want a Prius, but few may be able to
afford one.

The economic environment consists of factors that affect consumer purchasing


power and spending patterns. Marketers must pay close attention to major trends
and consumer spending patterns both across and within their world markets.
Because it does cost more, Toyota has sought tax deductions to help with the
“sticker shock.” The price of the car, however, is in line with what Americans are
paying for cars. This is not priced as a luxury car. To be one of the first to own such
a car may be worth the higher initial price. Success of selling the car should lead to
an increase in supply, which would result in a lower price, and is the essences of
basic economics. With the increase in gas prices, the Prius offers even greater
savings and in the summer, some consumers shifted to smaller cars and demand
for the Prius grew. Although increased gas prices alone cannot account for the
increase in demand, they certainly didn’t hurt Prius sales.

Natural environment involves the natural resources that are needed as inputs by
marketers or that are affected by marketing activities. Environmental concerns
have grown steadily during the past three decades. Marketers should be aware of
several trends in the natural environment. The Prius use gasoline in a small quantity
compared to another hybrid car. It use a tagline “A car that sometimes runs on gas
power and sometimes runs on electric power, from a company that always runs on
brain power”. These ads helped to position Toyota as an “environmentally
concerned” company and more subtly stressed the technology aspect of the car.

For technological environment, technology is the Prius’ primary strength. Toyota


has played this up in their marketing and aimed the car at the “techie” part of the
market. This supports the Japanese cars in their claim to be technologically
advanced. As the case indicates, the introduction of the car is likely to lead to other
technological advances (such as the batteries). The second general vehicle adds
more features such as the six-disc CD player and cruise control—options that the
first generation, stripped-down car did not offer.

In political environment, marketing decisions are strongly affected by


developments in the political and legal environment. This environment is composed
of laws, government agencies, and pressure groups that influence and limit various
organizations and individuals. The US government give hybrid- auto buyers a tax
break anyway because in emissions regulations, environmental concerns, and
politics. Recognizing that some senators may adopt a tougher stance toward gas
emissions and mileage standards, they would be favorably inclined toward the car.
Some detail on tax incentives is given in the case.

The cultural environmental is made up of institution and other forces that affect
a society’s basic values, perceptions, preferences, and behaviours. The cultural
characteristics can affect marketing decision making. Cultural factors are
Americans’ love of automobiles, our willingness to adopt technology and progress,
our claim to care about the environment, and our rebellion against gasoline price
increases. These are given in the first paragraph of the case and these are all
factors that will favour introduction of the vehicle.

QUESTION 3

Evaluate Toyota’s marketing strategy so far. What has Toyota done well?
How might it improve its strategy?

In 2007, Toyota sold 181,000 Prius in the US alone, a 70% increase over 2006 sales.
In May 2008, Toyota announced that it has sold a total of 1,028,000 Prius cars since
it was first introduced in Japan in 1997. It means Toyota marketing strategy has
done very well in attracting customer.

Toyota marketing strategy is marketing logic by which the business unit hopes to
achieve its marketing objective. Toyota marketing strategy also is mainly customer-
centered.

Toyota have done marketing segmentation by which they are divided their target
customer into two group which are :

i -Techies.
These are the people who love technology and willing to experiment. Toyota
introduced to market a so-called hybrid electric vehicle using both gasoline and
electric batteries. Techies not only bought the car but found ways to modify it by
hacking into Prius’s computer systems. They boast such modification as using the
dashboard display screen to play video games.

ii - Pro environmentalists.
The car has been readily accepted in consumers mind and mostly consumers see
cars as an environmentally friendly and efficient car. Toyota are applying more than
95% recoverable and more than 85% recyclable materials. For example, Toyota
using recyclable plastics which they are recycling as many part of Prius as possible.
They are also using recyclable materials and ecological plastics. Pro-environmental
can play part in taking care of environment by drive solely on electric power, so no
fuel consumption or emission.

Toyota had implements the strategy of targeting the right group at the right time.
They make a lot of improvement to the cars as time is moving on. For example, the
Prius Gen 3 are now more larger, more powerful and more fuel-efficient. The new
body is more aerodynamic.

There are also some various external incentives that help the Toyota’s marketing
strategy. Some states issued permits for hybrid to drive in HOV (High Occupancy
Vehicle). Some cities provide free parking. Some government and province gives
tax breaks amounting to thousands of dollars and some eco friendly company gives
their employee as much as $5,000 towards the purchase of hybrid car.

Toyota could improve their strategy by providing official forums to discuss about
Prius computer system and how to install new software that are compatible with the
existing operating system. Toyota also can build a website which they can interact
with their customer in order to understand better about their customer. They also
could provide professional in order to help solving their customer problems via the
forum itself. And Toyota can do more promotion to educate customers about their
cars advantages.
QUESTION 4

GM’s marketing director for new ventures, Ken Stewart, says, “if you want
to get a lot of hybrids on the road you put them in vehicles that people are
buying now.” This seems to summarize the U.S. auto makers’ approach to
hybrids. Would you agree with Mr. Stewart? Why or why not?

I would agree with Mr. Stewart, as hybrid cars carry with them a bundle of
advantages.

First of all, hybrid car is able to effectively conserve fuel consumption. It is


environment friendly compared with conventional cars, causes less pollution and
releases less carbon dioxide into the atmosphere.

Many countries are now standing in the line with the global concern of the
environment issues. Let’s take Malaysia as an example. Prime minister had
announced the import and excise duty exemptions for hybrid cars as well as
incentives provided in the 2011 Budget. The exemption will definitely encourage
more consumers to own hybrid cars, and eventually boost up the car’s sales.

In this way, we can see that hybrid cars are not only help to protect our
environment, but also help to create new business opportunity in the market. This is
because some of the car’s owners prefer to install hybrid engine into their existing
cars rather than buying a new hybrid car and it is responding to the environmental
awareness indirectly. Therefore, we are strongly agree with Mr. Steward.

PRIUS: LEADING A WAVE OF HYBRIDS

SUMMARY

This case recounts the introduction of the Toyota Prius and compares it with
the strategy that Honda has followed. Additionally, the competitive response by
various other car makers is highlighted. This gives students an opportunity to
compare the two strategies and debate which one seems more appropriate for the
American market. The Prius was originally introduced in 2000 with very targeted
marketing aimed at techies (innovators). The second version of the Prius came out
in 2004 and was a sporty, more fashionable car aimed at a wider market (early
adopters). The case provides an excellent opportunity to compare Toyota’s
marketing of the introductory and follow-up models—very different campaigns, well
thought out and implemented. At introduction, Toyota used the Internet very
heavily, but by 2004, they were using more mass market media. Both are quite
different from the strategy that GM and other companies are using and plan to use.
This should stimulate good discussion in class about how automotive companies
might move away from reliance on gasoline powered engines.
PAYLESS SHOE SOURCE

Question 1

Which of the different product mix pricing strategies discussed in


the text applies best to Payless’s new strategy? Discuss this in
detail.

The strategy for setting a product’s price often has to be changed when the
product is part of a product mix. Companies usually develop product lines
rather than single product. Product mix means in the same companies have
many type product with they are brands it sold. Product mix pricing
strategies consist of five elements which is product line pricing, product
bundle pricing, by-product pricing, captive product pricing and optional-
product pricing.

In this case, the product mix pricing strategy Payless use is product line
pricing. Product line pricing is setting the price steps between various
products in the product line based on cost differences between the products,
customer evaluations of different features and competitor’s prices.

Payless have strategy product line, from one comprised almost entirely of
store brands to one dominated by well-known national brands. Payless now
sells shoes under numerous brand names that it either owns or licenses,
including Airwalk, Champion, Spalding, Dexter, Shaquille O’Neal-endorsed
Dunkman, and various Disney brands. Customer can buy many types of
products with different prices by looking at size, width, color and design. For
example, for boys’ shoes, they have many shapes, size, color, design, and
numerous brands which they can get with difference price from $ 12.99 until
$26.99. For girls, there are shoes in differences brand like Fioni, Amerian,
Eagle, Dexter, Lela Rose, and Smartfit from $14.99 until $24.99. Most
products Payless offers are under $50.

Other than that, Payless have relationship with top New-York based
designers Laura Poretzky, Lela Rose, Stacey Bendet and Patricia Field. The
four are designing everything from pumps to boots to handbags for Payless.
Payless sets most of the stores product line below $15. The company’s CEO,
Matt Rubel also has suggested that in many cases, price increases may be as
little as 50 cent per pair of shoes. But the expansion of its brand portfolio to
include famous labels will certainly give payless greater pricing flexibility.
Question 2

How do concepts such as psychological pricing and reference pricing


apply to the Payless strategy? In what ways does Payless’s strategy
deviate from these concepts?

By definition, psychological pricing is a pricing approach that considers


the psychology of prices and not simply the economics. The price is used to
say something about the product. Psychological pricing occurs when sellers
consider the psychology of prices and not simply the economics. In the other
hand, reference pricing is prices that buyers carry in their minds and refer
to when they look at a given product.

Consumers usually perceive higher-priced products as having higher quality.


But what happen in Payless is, they did not increase the price of their
product to gain higher quality product perception, but changed the image
from dusty dungeon of cheap footwear into the fun, hip, merchant of fashion.

In addition, Payless even re-designed their logo for the first time in 20 years.
They then launched new “Fashion Lab and “Hot Zone” store format. It was a
drastic improvement. As the result, Payless store now have more open, light,
and airy thus create a more satisfying consumer experience. Payless is now
looking forward into style and design rather than price. This is where
Payless’s strategy deviate from psychological pricing concept.

Payless focus more towards style and design of their product rather than
price. They even upgrade their store environment into more comfortable
places which then create customer satisfaction. With the new store
environment, it makes the $12 shoe looks like a $20 shoe.

Here, we can see that high price does not play its main role to increase the
quality of the shoe they sell. But the store’s environment itself creates a
quality satisfaction towards Payless’s product. Like what Matt Rubel said in a
statement reflecting the company’s new strategy; “We have the ability to
make the shoes at the most affordable prices anywhere in the world, and we
want to marry that with the greatest creativity”.

In the other hand, according to reference pricing, consumers usually carry


prices in their minds and refer to when looking at a given product. The
reference price might be formed by noting current prices, remembering past
prices or assessing the buying situation. Sellers can influence or use these
consumers’ reference prices when setting price.

However, Payless’s manipulate the reference pricing by implement a drastic


improvement in their store. They launched a new “Fashion Lab” and “Hot
Zone” store format to create more open, light, and airy with a more
satisfying consumer experience built around style and design rather than
price. With their new store atmosphere, it makes the $12 shoe looks like $20
shoe. Prices increases may be as little as 50 cents per pair of shoes, but the
expansion of its brand portfolio to include famous labels will certainly give
Payless greater pricing flexibility.

The new format not only attracts more customers, but they even make the
customer willing to pay a little bit more than they have in the past. All new
Payless stores now have one of the two new formats and old stores are being
progressively remodeled.

Question 3

Discuss the benefits and risks of the new Payless strategy for both
Payless and the designers. Which of these two stands to lose the
most?

With the new strategy implemented by Payless, they have the ability to
produce shoes at the most affordable price. Even though the price is slightly
increased, customers are still willing to pay more. Compared to competitors,
the price offered by Payless is still affordable by customers.

Payless has made decision to redesign their logo and launched a new store
format, ‘Fashion Lab’ and ‘Hot Zone’. Payless are now transform and
introduce their new image as more trendy and more modern. This strategy
will change the image of Payless from the dusty dungeon of cheap footwear
into the fun, hip merchant of fashion

Payless now are making the store more open, light, and airy. This strategy
can attract more customers and this will result to more satisfying consumer
experience built around style and design rather than price.

According to Head of Public relations, Mardi Larson, Payless is now target the
24 years-old demographic, because women in their 40s who shop for their
family are nostalgic about that time in their lives, while teenagers are aspire
to that age group. This strategy widens the age range of the customers from
teenagers to adult women. This will result to increase in the number of sales.
By implementing the new strategy, Payless have to face a few risk if they
failed to handle the situations. In order to ‘democratize fashion’, Payless
spend a lot of money to launched a new store formats. They are also re-
designed their logo. Payless have to face a risk which is they have to make
sure that the new image they bring should can capture their customers
attention whether old customers or new customers. If they failed to do so,
they will lose their customer.

Payless also hired top designers as full-time employees to head the new
team and they also began running full-page ads in magazine such as Elle,
Vogue and W, featuring the tagline, “Look Again”. This efforts cost a lot of
money to the company.

Payless is producing shoes that are designed by these top designers at a


lower price than their competitors. By setting a low price to a luxury products
can cause their customer feel hesitates about the products quality.

Top designers from Michael Kors and Kenneth Cole are hired as full-time
employees to head the new team. They also forged relationships with 4 top
New York designers to designing high quality of shoes. Payless are helping
the designers by took the designs to the runway of New York’s fashion week.
They are also doing an ads in magazine and this allow their designers
collection been recognized by many people.

The designers get tremendous exposure, a large customer base, and the
power and budget of a mass retailer. The newest design that is designed by
the designers now named under the Payless. When the designers design the
new shoes, their previous followers are failed to follow their designer’s new
design. And this will cause the designers hard to get the new followers.

Another risk for the designer is that they will lose their job if Payless cannot
survive in this field. As they becoming the full-time employees at Payless,
they are being tied with Payless contract and it is hard for them to find
another opportunity to show their talent.

By comparing the benefits and risks, Payless stand to lose the most. If the
new strategy that they are implementing is failed, Payless will face big
problems - in terms of financial problem and their reputations will go down.
Their old customers will lose their confident to this company and Payless will
face bankruptcy if their strategy is failed.

Question 4
Consider the scale on which Payless operates. How much of a price
increase does Payless need to achieve in order to make this venture
worthwhile?

In my opinion, the price changes for Payless should depend on several


factors which are company expenses, competitor and cost inflation.

To make the stores more open, light, and airy, Payless had spent a lot of
money to launch the new “Fashion Lab” and “Hot Zone” store formats in its
new stores and old stores are being progressively remodeled. It also recruits
a few top designers from New York as full-time employees. Besides that,
Payless also regularly advertise on television, radio, on-line and magazines.
All of these attribute to higher cost for the company. Thus, Payless need to
increase the price to cover the expenses.

Secondly, Payless should adjust the price based upon prices of the similar
competitor products. It must first consider the price range of their products,
then set its own products at a lower price. This is not only help to attract
more customers, but also help to remain its low pricing policy.

In addition, Payless can provide discount during season clearance. Some of


the products can be set at a lower price and sometimes even below cost to
act as a loss leader to stimulate other profitable sales. Voucher and mystery
gift can be given off to the customers who purchased more than a specific
amount. This will increase the sales of the products. Payless can also come
out with a series of limited edition products which are slightly higher in price
in order to gain more profits.

Lastly, cost inflation. Recent years, the economic downturn causes the costs
for producing and distributing products increase. Because of this, Payless
have to increase their price to protect the profit of the company. Payless can
use consumers’ reference prices to set the price. For example, it can place
its stores in some higher-end malls in the country. Many consumers use price
to judge the quality. They usually perceive higher-priced products as having
higher quality. Hence, they are willing to pay more.

In conclusion, a successful price increase can greatly improve profit.


Therefore, Payless should plan its pricing strategies properly.