MK2530: Week 4 Four P’s of Marketing

MK2530: Week 4 Four P’s of Marketing: Product, Price, Place and PromotionAnalysis 4.1Payless ShoeSource: Paying Less for FashionWhen you think of New York’s Fifth Avenue, what retailers come to mind? Tiffany? Gucci? Armani? Onename that probably doesn’t come to mind is Payless. But for the past few years, Payless ShoeSource hasbeen operating one of its low-priced shoe stores on the famed avenue of luxury retailing. In fact, Payless isnow well on its way to placing stores in more than 100 higher-end malls around the country.Although the discount shoe peddler still focuses on selling in- expensive shoes to the masses, Payless ismoving upscale. It’s on a mission to “democratize fashion”—to make truly fashionable products moreaccessible by applying its cost-effective model to a product portfolio infused with well-known brand labelsand some of the hottest high-end designers in the business. Sound like a hair-brained scheme? You mightchange your mind after hearing the whole story.Founded in 1956 in Topeka, Kansas, Payless grew rapidly based on what was then a revolutionary idea:selling shoes in a self- service environment. Fifty years later, it had become the largest shoe retailer in theWestern Hemisphere, with over 4,500 stores in all 50 states and throughout the Americas. Targetingbudget- minded families, Payless was serving up more than 150 million pairs of shoes each year,approximately one in every ten pairs of shoes purchased in America.While all seemed rosy for the choose-it-yourself shoe store, by 2005, Payless was losing market share andclosing stores. The retail landscape had changed, and giant discount one-stop shops like Wal-Mart, Target,and Kohl’s had become the vendors of choice for budget conscious shopper’s buying shoes. Said oneindustry insider, “You can no longer produce the same boring shoes year after year and hope that pricealone will get customers to your door.” With thrift as its only positioning point, Payless had lost its edge.AN IMAGE OVERHAULTo reverse its sliding market share, Payless had to engineer a completely new strategy. To get things started,it hired a new CEO, Matt Rubel, who came with extensive experience with high-end brands like Cole Haanand J.Crew. Rubel knew that Payless would have to design shoes that Sex and the City’s Carrie Bradshawwould drool over but at prices that Roseanne could afford. It had to change its image from the dustydungeon of cheap footwear into the fun, hip merchant of fashion. “We have the ability to make shoes at themost affordable prices anywhere in the world, and we want to marry that with the greatest creativity,” said1MK2530: Week 4 Four P’s of Marketing: Product, Price, Place and PromotionAnalysis 4.1Payless ShoeSource: Paying Less for FashionRubel. The overall objective of Rubel’s strategy was to not only give the brand image a makeover but alsoposition Payless in such a way that a slight price increase would seem like a bargain.Rubel wasted no time in making big changes. The strategic plan that he drafted was based on four majorcomponents.Expanding the Brand Portfolio. Rubel implemented a “House of Brands” strategy, shifting the product linefrom one consisting 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,Cham- pion, Dexter, Dunkman (endorsed by Shaquille O’Neal), American Eagle, Hello Kitty, Star Wars, andvarious Disney brands. Rubel also acquired the Stride Rite chain and all its associated brands, including Keds,Sperry Top-Sider, Tommy Hilfiger, and Saucony. To organize the new corporate structure and keep track ofall the brands, Rubel created a holding company (Collective Brands) as an umbrella over Payless, Stride Rite,and all the licensing activities for the company’s brands.The Payless Design Team. To develop products that would resonate better with consumers, Payless steppedup its emphasis on fashion. The Payless Design Team, an in-house design group, dedicated itself todeveloping original footwear and accessory designs to keep new styles on target with changing fashiontrends. Top designers from Kenneth Cole and Michael Kors were hired as full- time employees to head thenew team.Designer Collections. In perhaps the biggest move to raise the caché of the brand, Rubel started what hecalled “Designer Collections.” Aim in g for the highest levels of haute couture, Payless has forgedrelationships with three top New York-based designers—Lela Rose, Stacey Bendet, and Christian Siriano.The three are designing everything from pumps to boots to handbags under the brands Lela Rose, alice +olivia, and Christian Siriano. A fourth designer, Isabel Toledo, will soon have products on Payless shelves.Toledo was an underground designer until Michelle Obama chose to wear some of her creations on the dayher husband was inaugurated president of the United States.After signing its first designer, Payless did something very out of character for a discount brand. It took itsdesigns to the runway of New York’s Fashion Week, the invitation-only event where designers debut fall2MK2530: Week 4 Four P’s of Marketing: Product, Price, Place and PromotionAnalysis 4.1Payless ShoeSource: Paying Less for Fashionfashions for the industry. In another first, Payless began running full-page ads in Elle, Vogue, and W,featuring the tagline, “Look Again.”The benefits of such alliances are plentiful. The designers get tremendous exposure, a large customer base,and the power and budget of a mass retailer. Payless gets brand caché, almost certain to transform itsoutdated image. And consumers get runway styles they can afford.Fun Inspiring Store Formats. To reflect the new image and communicate change to consumers, Paylessredesigned its logo for the first time in 20 years. It then launched new “Fashion Lab” and “Hot Zone” storeformats. Both were a drastic improvement, making the stores more open, light, and airy, with a moresatisfying consumer experience built around style and design rather than price. Of the new storeatmosphere, Rubel said, “It makes the $12 shoe look like a $20 shoe.” Rubel hopes that the new formats willnot only attract more customers but also entice customers to pay a little bit more than they have in thepast. All the new stores now have one of the two new formats, and old stores are being progressivelyremodeled.STROKE OF GENIUS? OR DESTINED FOR FAILURE?Can the “luxury-meets-low-price” strategy work? Or will this go down as a disaster of two drasticallydifferent worlds that collided, crashed, and burned? “There’s nothing cool about shopping at Payless,” saysskeptic Marian Salzman, a trends forecaster at a major ad firm. “It gets the cash-strapped working girl.” ButRubel refutes this view, quickly pointing out that its shoppers have median household incomes that arehigher than those of both Wal-Mart and Target. “All we’ve done is bring Payless into the 21st century. We’re. . . speaking with greater clarity to who our customer already is.”Maxine Clark, former president of Payless and now chief executive officer of Build-A-Bear Workshop, alsorecognizes the potential of the new strategy. “The customer who wants to buy Prada will not come toPayless. But this will energize the old customers who they lost and attract new ones.” Mardi Larson, head ofpublic relations, claims that the trendy new image is perfect for existing customers. “We target the 24-yearold demographic, because women in their 40s who shop for their family are nostalgic about that time intheir lives, while *at the same time+ teenagers aspire to that age group.”3MK2530: Week 4 Four P’s of Marketing: Product, Price, Place and PromotionAnalysis 4.1Payless ShoeSource: Paying Less for FashionBut what about that potential new customer? Does this risky venture into high-fashion stand a chance ofappealing to those who have never crossed the threshold of a Payless store? Rubel admits going after newcustomers. The “cheap chic” approach is attempting to lure 20-to-30-year-old wom
en who are looking forsomething trendy. Given that such fashion-conscious females buy 50 percent more shoes than most currentcustomers, going after new customers make sense.Perhaps Lela Rose’s Fashion Week experience best illustrates why Payless might just succeed in attractingthis previously out-of- reach customer:When actresses Sophia Bush (One Tree Hill) and Brittany Snow (Hairspray) landed backstage in Lela Rose’sshowroom at New York Fashion Week, they swooned over the designer’s new shoe collection that wasabout to debut on the runway. Rose, best known for $1,500 frocks, happily handed pairs of navy peep-toepumps and polka-dot round-toe pumps over to the young celebs, who would soon be flaunting them on theside-lines of the catwalk. “Did they know they were Payless shoes?” says Rose, who’s now designing herfifth exclusive line for the discounter. “Absolutely. They didn’t care. They looked cute to them and that’s allthat mattered.”Additionally, Payless is not the first to try this new direction. In fact, co-branded designer lines for discountretailers date back decades. But in recent years, the trend is proliferating. Karl Lagerfield has designed forBritain’s H&M, Vera Wang has teamed up with Kohl’s, Ralph Lauren has put store brands on JC Penney’sshelves, and Todd Oldham has stepped out with Old Navy, to name just a few.Although many ventures such as these have failed miserably, some have been wildly successful. Lela Roseclaims that she would never have considered her arrangement with Payless if it hadn’t been for the successof Target’s alliance with Isaac Mizrahi. Mizrahi’s couture career was pretty much on the rocks. Then hestarted designing preppy cashmere sweaters, cheerful jersey dresses, and trendy trench coats for Target, allpriced at under $40. With the low-rent strategy, Mizrahi became more popular and famous than ever. Afterthat, he once again had high-end retailers knocking on his door. Since Mizrahi’s successful entry to themainstream, more than two dozen designers have cobranded with mass retailers.4MK2530: Week 4 Four P’s of Marketing: Product, Price, Place and PromotionAnalysis 4.1Payless ShoeSource: Paying Less for FashionPAYING LESS OR PAYING MORE?There’s more in it for Payless than just making the brand more attractive to both old and new customers.The company is looking to move its average price point up a notch or two. Whereas “higher price” is arelative term when most of a store’s product line is priced below $15, higher margins are higher margins.Rubel has suggested that, in many cases, price increases may be as little as $0.50 per pair of shoes. But theexpansion of its brand portfolio to include famous labels will certainly give Payless greater pricing flexibility.And the designer collections will allow for some of the highest priced products that have ever graced itsshelves—think $25 for pumps and up to $45 for boots. Whereas that is a substantial price increase fromaverage, it’s a bargain for fashion-conscious consumers.Yet just as Rubel’s strategy began to gain steam, so did the worst global recession since the GreatDepression. Like retailers everywhere, Payless took a hit. But while many retailers suffered catastrophiclosses, existing store sales at Payless fared much better. And after profits sunk briefly to a loss of $60 millionin 2008, Payless posted a net profit of $88 million for 2009. Payless recently opened its first stores in theEastern Hemisphere in Saudi Arabia, Kuwait, and the United Arab Emirates. Russia is next on its agenda.With the expansion, wholesaling, and licensing activities of Rubel’s plan, Payless is poised to return to agrowth trajectory. Low production costs continue to provide a competitive advantage that will boost profits.And in good times as well as bad, Payless has struck a formula for value that customers love. It remainsconfident that its strategy to democratize fashion will produce great results, regardless of future economicconditions.Sources as Cited In:Kotler, P., & Armstrong, G. (2012). Pricing strategies. Principles of marketing (pp. 335-337) (14th ed.).Upper-Saddle River, NJ: Prentice Hall.Sigal Ratner-Arias, “ Payless Snags Top Designer,” The Spectator, April 13, 2010, p. G9; Jonathan Birchall,“Payless Moves into Russia,” Financial Times, September 2, 2009, p. 19; Gene Marcial, “ The Shine onCollective’s Shoes,” BusinessWeek, April 13, 2009, p. 61 ; Danielle Sacks, “The Fast 50 Companies,” FastCompany, March, 2008, p. 112; Maria Puente, “Top Designers Go Down-Market,” USA Today, September 26,2007, p. 11B; Bruce Horovitz, “Payless Is Determined to Put a Fashionably Shod Foot Forward,” USA Today,5MK2530: Week 4 Four P’s of Marketing: Product, Price, Place and PromotionAnalysis 4.1Payless ShoeSource: Paying Less for FashionJuly 28, 2006, p. 1B; Nicole Zerillo, “Payless Launches ‘I Love Shoes,’” PR Week, March 10, 2008, p. 3;www.payless .com, accessed July 2010.6