Footwear Icons Monetize Consumer Brand Strength With Value-Based Pricing - Case Study

Industry: Consumer Goods, Fashion

Area: Pricing Strategy, Research & Execution

In collaboration with EBITDA Catalyst, Revology's strategic partner for driving value creation for mid-market Private Equity.

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SITUATION

Private Equity Involvement

• One of the world’s leading private equity firms acquired a major stake in Client co.

• The firm was eager to contribute best practices in areas like pricing.

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Pandemic-Driven Demand Surge

• Client experienced booming demand in its direct-to- consumer (D2C) channel during the COVID pandemic.

• The Retail channel also saw widespread sell-outs and substantial growth during this period.

Regional Performance Disparities

• Client co operates in major geographic regions such as the Americas, Europe, and APAC.

• One region, "Region A," was outperforming the others significantly and was responsible for the majority of growth, revenue and operating profit.

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  Pricing and Industry Trends

  • Client's iconic styles were concentrated around key psychological price points (e.g., $199, $999).

  • Major competitors like Nike and Adidas had recently announced price increases and reported strong financial results.

ACTION

Client’s leadership team asked Revology and EBITDA Catalyst to undergo a Pricing Power Clarity assessment and recommend segmented, portfolio-wide pricing actions

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Validated / assessed previously identified potential actions with a value-based pricing lens

• Client's previously identified pricing actions were well supported by analysis but fell short of fully harvesting value or covering inflation-driven cost increases.

• Client’s strategy of tightly managed supply, preserving scarcity and desirability, created an unusual demand curve, which strongly influenced the value-based pricing analysis and willingness to pay (WTP).

• Client had been conservative with past pricing actions, using strict MAP enforcement and rarely discounting, which gave the company a high credibility platform for pricing change
  

Reviewed the rest of the product portfolio for additional pricing strategy insights and price action opportunities

• Client’s product portfolio architecture offered advantages for mitigating price elasticity concerns, with “icon” styles having multiple price point options across a small “price ladder.”

• Client’s relationships with Retail partners were strong, allowing the Sales leadership to explore multiple “what if” scenarios and validate further proposed price actions.

• Additional competitive analysis was conducted using multiple price monitoring tools

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  Quantified impact to “size the prize” against other financial considerations

  • Despite its premium brand image, Client had very low margins in the Retail channel, driven by generous wholesale pricing and channel economics split with Retail partners.

  • Client's pricing actions were insufficient to fully address cost hits from inflation, requiring further quantification of potential impact to financial targets
    
    Establish likely price elasticity & demand responses, including in portfolio migration to other purchase choices

  • The relative price differentials of good-better-best style ladders were calibrated to optimize profitability of "downshifting" by consumers.

  • The margins of error were thoroughly examined through modeling and sensitivity tables with a view towards understanding the confidence intervals around profit and revenue impacts.

  Bring tools and frameworks to the best-performing Region A, that would be then available to standardize globally in future project phases

  • The leadership team of Region A became strong advocates for pricing excellence, and the lessons learned were shared with the global CLT and Board members.

  • Tools and frameworks were developed for Region A and set the stage for future global standardization.

  Facilitate pricing strategy consensus between leadership team and private equity firm, as well as educate the leaders on both strategy & frameworks for execution

  • Region A’s leadership, including the CEO, CFO, and CPO, became vocal advocates for pricing action, ensuring alignment with both leadership and the private equity firm.

  • The disciplined approach to pricing, including MAP enforcement and strategic scarcity, facilitated consensus on pricing strategy across the leadership team.

OBSTACLES

Cost Increases and Manufacturing Challenges

• Client faced significant cost increases due to its manufacturing being concentrated in a high-labor-cost advanced economy.

• These cost increases were higher than some competitors, reflecting the rising "price of quality."

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Product Portfolio and Innovation

Client had introduced many product innovations, yet its portfolio was anchored and heavily concentrated in its handful of “icons” styles.

Unit Economics and Channel Strategy

Client's unit economics were much better in the D2C channel, which raised questions about the pricing implications for the D2C channel compared to Retail.

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  Pricing Decisions and Analytical Gaps

  Client had identified some potential price actions, based primarily on product and industry knowledge but with insufficient empirical evidence or analysis.

RESULTS
The highly engaged partnership with relevant SME’s from Region A resulted insignificant lift in insights, and ultimately results:

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• 8-digit $ gross margin improvement, double-digit % gain in $ gross margin (above and beyond previously contemplated actions).

• Client resolved in a focused consensus meeting to cross the “psychological frontier” and raise several of its long-standing “psychological” prices ($199, etc.) based on empirical evidence from both sales channels and competitive analysis.

• SKU-level $GM economics were developed and implemented throughout the analysis, combining multiple previously disparate data sources across client.
  

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  • Client learned several key considerations for developing additional product portfolio offerings, including the importance of price ladder coverage in each product family.

  • Client was able to compare side by side impact of various price actions scenarios, vs inflation costs, price elasticity assumptions, and unit economics.

  • Client’s Region A leadership strongly recommended follow-on projects to the remaining global regions, conducting joint debriefing calls with global leadership and private equity investor / board members