Background and challenge
A leading outdoor apparel and equipment retailer had gradually intensified and filled its promotional calendar, which had contributed to customer perception that its merchandise was “always” on sale and had discouraged purchasing outside of major sale periods. The company enlisted L.E.K. Consulting to undertake a strategic review of its pricing and promotional strategy, with the primary goal of margin restoration, and a related enabling goal of simplifying the pricing architecture and calendar.
Approach and recommendations
We conducted a thorough diagnostic review to identify the key issues impacting the client’s pricing strategy. Within the first few weeks, the team established priority areas for early intervention and discrete improvement initiatives to address them, including:
- Product segmentation: using an elasticity-based product framework that clarified product promotional roles, instead of treating all products largely the same
- Price and discount architecture: developing pricing and discount recommendations to increase gross profit dollars based on product roles as defined by the product segmentation
- Promotions calendar: establishing a new approach focused on aligning campaign activity more closely to customer behaviors
- Urgency: reintroducing urgency to the offer to drive sales earlier in the cycle at higher gross profit dollar levels
- Promotional toolkit: broadening the toolkit, adding variety beyond percentage-off discounts and strengthening the call to action
- Member loyalty program: refreshing the membership offer to create a more engaging proposition aligned to other proposed changes
Additionally, we developed an implementation plan that included discrete initiatives, owners, timelines, milestones and project governance for the company to execute.
L.E.K.’s comprehensive recommendation identified 300-400 basis point improvement on gross margin in steady state, and radically simplified the company’s pricing structure and calendar.