by: david lamore, andrew salamida, galal cancer aem 4160 – strategic pricing april 23, 2015...
Post on 16-Dec-2015
217 Views
Preview:
TRANSCRIPT
By: David LaMore, Andrew Salamida, Galal Cancer
AEM 4160 – Strategic PricingApril 23, 2015
Pricing Strategy
Company Profile● Based in San Francisco,
California● Started in 1969 by Don & Doris
Fisher● Five brands, with almost 3,700
stores and more than 150,000 employees
● Core principles:o Creativityo Delivering resultso Doing what’s righto Always thinking of our
customer first
Gap Inc.’s Portfolio of Brands
Three Brands of Focus
● These three brands essentially sell the same product, yet are highly differentiated and sell at different price points
Don’t Forget About The Factory Stores!
Industry Structure
Background of the Family Store Industry
● Although Gap Inc. fits under multiple industries within apparel, we will focus in on the “Family Stores in the U.S.” industry defined by IBISWorld.
Revenue & Employment Growth
What’s the Industry looking like?
Major Companies
● The TJX Companies Inc.
● Gap Inc.● Ross Stores Inc.● All other family
companies
Competition
• HHI=(.107^2+.139^2+.142^2+0.038
^2)*10,000=523.78• CR4=10.7+13.9+14.2+3.8=42.6
From Concept to Customer
● At a broad level, the typical organization of product life cycle in a typical apparel company:o Millso Manufacturingo Distributiono Retailo Consumer
Typical Life Cycle of Many Goods
● As the average line in apparel begins its life cycle 18 months in advance, fast fashion companies have managed to shorten this life cycle into just a few months!
Cost Structure of Industry
The TJX Companies Inc.
Gap Inc.
Ross Stores Inc.
Industry Performance
Pricing Strategies
Versioning
● Essentially the same product
● Appeal to different consumers at different income levels
● Consumers’ tastes and preferences helps choose the brand which meets their needs best
Versioning at it’s finest...
● “Must haves” at low price point
● Clothing for everyone in the family
● American fashion essentials
● Casual attire at an affordable price
● Classic and modern clothing style for everyone
● Embraces freedom to express personal style
● Refined apparel with highest price point of brands
● Fresh twist on classic apparel for men and women
● “True Outfitters of Modern American Style”
Old Navy
Shirt- $29.94Jeans- $29.94Shoes: $24.94
Shirt- $24.94Jeans- $29.50Shoes: $19.94
$86 $81
Gap
Shirt- $49.95Jeans- $59.95Shoes: $59.95
Shirt- $49.95Jeans- $69.95Shoes: $39.95
$170 $160
Banana Republic
Shirt: $69.50Jean: $89.50Shoes: $118.00
Shirt: $79.50Jean: $98.00Shoes: $79.00
$277 $257
Retail vs. Factory Stores
● Gap and Banana Republic ● Differentiated brands in order to reach
more price sensitive/low income consumers
● Factory brands are developed completely different
● Capture lower willingness to pay consumers
● Anchoring\
Gap Factory Pique Polo vs. Gap Pique Polo
Gap Factory
Shirt: $49.99 -> $34.99Jean: $49.99 -> $24.99Shoes: $36.99 -> $14.99
Shirt: $44.99 -> $17.99Jean: $59.99 -> $41.99Shoes: $34.99 -> $20.99
$86 $81
Banana Republic Factory
Shirt: $54.99 -> $19.99Jean: $89.99 -> $53.99Shoes: $69.99 -> $41.99
Shirt: $54.99 -> $37.99Jean: $69.99 -> $41.99Shoes: $74.99 -> $62.99
$116 $143
Men vs. Women Pricing Across Brands
Men’s Results138%
98%-32%
1.35%
Women’s Results79%
97%-11%
9%
Margins between Brands
Versioning$277
$85
$86
$170
$116
$257
$74
$81
$160
$143
Heavy Discounting● Gap’s brands are known
for heavy discounts due to a number of driving factorso Consumer’s addiction
to saleso Getting rid of last
season’s pieceso Items that do not sell
well o Seasonal events that
encourage shopping (ex. Back to School, Holidays)
Driving Factors for Sales
In 2013 Annual Report:• Trends• Competition• Current economic conditions• Timing of merchandise releases• Promotional events• Change in merchandising mix• Success of
marketing/advertising• Weather• Currency fluctuation
Popularity of Gap Inc. Brands by Search
Popularity of Gap Inc. Brands by Search
Discounting Summer Items at the end of June
Popularity of Gap Inc. Brands by Search
Back to School promotions drive traffic more for Old Navy
Popularity of Gap Inc. Brands by Search
Black Friday Promotional Event
Popularity of Gap Inc. Brands by Search
Last minute holiday shopping
How does Gap discount so heavily?
● The cost of producing clothing per item is VERY low for Gap due to:o Economies of scaleo Technologyo Experienceo Cost of labor
● As Gap marks up their items a certain percentage (industry average is 40%), they can afford to markdown their clothes extensively
● Apparel companies will sometimes even sell an item near or below its cost in order to get rid of prior seasons’ items and reduce storage costs
Recommendations
Risk Factors• Must anticipate and respond to changing
apparel trends and customer demands• Customer traffic both in stores and online• Competitively pricing products and
achieving customer perception of value• Must maintain favorable brand
recognition and effectively marketing products to customers in diverse market segments as well as multiple geographic locations
• Developing innovative, high-quality products in sizes, colors, and styles that appeal to customers of varying age groups and tastes
• Will have to source merchandise efficiently
Key Strategic Initiatives• Designed to optimize inventory levels
and increase the efficiency and responsiveness of the supply chain
1) Seamless Inventory• timely matching of product supply and
demand across markets and channels to reduce stranded inventory
2) Responsive Supply Chain• more vendor fabric platforming, product
demand testing, and in-season rapid response to demand
3) Omnichannel Retailing• Providing the customer with the same
experience no matter which channel they are shopping from (social media, e-commerce, brick & mortar)
Total Return to Stockholders
Pricing Strategy: What should Gap do?
• Make best line of clothing more distinct→ creates higher value for consumer and differentiates that specific product line
• Establish lower prices and enhance the value of their products. (Everyday Low Pricing)
• Deep value retailers has shown that this can be successful
• Ex. H&M, Forever 21, Uniqlo, Zara
Questions?
• Thank you for listening to our presentation!
Referenceshttp://www.gap.com/browse/home.do?ssiteID=BRhttp://clients1.ibisworld.com.proxy.library.cornell.edu/reports/us/industry/default.aspx?entid=1069http://www.marketwatch.com/story/gap-abercrombie-need-a-pricing-strategy-shift-2015-02-13https://www.google.com/trends/explore#q=%2Fm%2F0263lp%2C%20%2Fm%2F01yfp7%2C%20%2Fm%2F025pbv&geo=US&date=1%2F2014%2012m&cmpt=q&tz=
top related