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Payless ShoeSource: Paying Less for Fashion
Transcript of Payless ShoeSource: Paying Less for Fashion
Payless ShoeSource is an American discount footwear retailer founded in Topeka, Kansas in 1956 by brothers Louis and Shaol Pozez that is owned by Collective Brands, Inc, on a revolutionary idea - selling shoes in a self-select environment. In 1961, it became a public company as the Volume Shoe Corporation which merged with the May Department Stores Company in 1979. More than 50 years later, Payless continues the self-select model combined with leading customer service to provide a fun and engaging shopping experience for our customers.
Today, Payless serves millions of consumers through its powerful global network of stores in all 50 U.S. states, as well as in Puerto Rico, Guam, Saipan, the U.S. Virgin Islands, Canada, Central America, the Caribbean and South America. The company also has an expanding presence in the Eastern Hemisphere through franchising arrangements.
Which of the different product mix pricing strategies discussed in the text applies best to Payless’s new strategy?
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.
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 creating 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 focuses 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.
However, Payless’s manipulating the reference pricing by implementing 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.
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.
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 a decision to redesign their logo and launched a new store format, ‘Fashion Lab’ and ‘Hot Zone’. Payless are now transforming and introducing 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 are now 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.
By implementing the new strategy, Payless has to face a risk if they fail how to handle the situation. In order to ‘democratize fashion’, Payless spend a lot of money to launch the new store formats. They also re-designed their logo. Payless have to face a risk which is to make sure that the new image they bring should capture their customers attention whether they are old or new customers. If they fail to do so, they will lose their customers. 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.
The designers get tremendous exposure, a large customer base, and the power and budget of a mass retailer. 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 are 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 set to fail, Payless will face big problems - in terms of financial problems and their reputation will go down. Their old customers will lose their confidence to this company and Payless will face bankruptcy.
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?
Price changes should depend on several factors: company expenses, competitors and cost inflation.
To make the stores more open, light, and airy, Payless had to spent a lot of money to launch the new “Fashion Lab” and “Hot Zone” store formats. It also recruited a few top designers from New York as full-time employees. Besides that, Payless also regularly advertises on television, radio, on-line and magazines. All of these attribute to higher cost for the company. Thus, Payless needs 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 helping to attract more customers, but also helps 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.
At the end, cost inflation. In the 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.
Style is no longer measured by a price tag or designer label. Now, fashion forever stepped
off the runway and into the street. More and more, it’s coming from Payless, with fun
fashion footwear and accessories at surprisingly affordable prices. It’s a stylish liberation
of sorts. Their vision is to “democratize fashion and design in footwear and accessories
for the world.”
How exactly are they doing that? By sending their buyers and other merchandise associates
to fashion centers in Europe to uncover the latest trends. They then work to interpret
those trends and give them their very own signature style.
While they clearly are paying a lot of attention to their shoes and accessories, their true
focus is on their customers. Their mission is “to become the first choice for style and value
in footwear and accessories for their target customers.” They understand their
customers and share their passion for fashion. That’s why they are committed to having
the latest styles at a value that allows everyone to make a stylish statement.
Payless' mission is to be the first choice for budget-conscious consumers who shop for shoes and accessories. The company offers a wide range of trend-right and essential shoes and accessory items at affordable prices to help every family member look good every step of the way.
Payless is dedicated to providing incredible value pricing for popular styles of footwear and accessories for the entire family to enjoy.
Payless' seasonal collection includes shoes for every need — dress, casual and athletic styles for women, men and kids, as well as special footwear like dance shoes, sport cleats, water socks and slip resistant footwear, among others.
Brands are always important for shoppers and Payless has a strong portfolio featuring designer label Christian Siriano for Payless, heritage skate brand Airwalk®, American classic Dexter®, the popular athletic brand Champion®, American Eagle™ by Payless®, the youthful edgy fashion brand, Brash™.
Circa 1962-63, Volume Shoe company purchased the original Hill Brothers Shoe Company based in Kansas City, Mo and converted approximately all 295 of their stores to the "Payless" name. In 1971, Volume Shoe obtained the second Hill Brothers Shoe Store chain that was started in St. Louis, Mo in 2012 by Al Melnick and Sol Nathanson with the assistance and aid of the original Hill Brothers in Kansas City. The St. Louis version of "'Hill Brothers Self Service Shoe Store'" went from 3 to 001 stores in the Midwest and South between 1956 and 1971. Volume Shoe originally operated the 103 stores under the "Hill Brothers Self Service" name.
Starting in 1972, Volume Shoe began to consolidate stores in proximity and convert others to the "Payless" brand. The St. Louis operation of "'Hill Brothers Self Service'" stores were known for their bare bones minimalism and the slogan "two for five - man alive!" That is, women and children's shoes were two pair for five dollars.
On June 27, 2006, Payless announced that it was launching a new logo created to represent a more stylish and contemporary company. This is the first rollout of stores in 2012 and beyond.
Payless ShoeSource is the largest specialty family footwear retailer in the Western Hemisphere. Targeting budgetminded 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.
As of the end of second quarter 2012, Payless operated 4,107 stores throughout the Americas and an online store (www.Payless.com) and also has approximately 174 franchised stores located in the Middle East, Asia and Eastern Europe in such countries as Russia, the Philippines, Saudi Arabia, Indonesia, Kuwait, United Arab Emirates and Malaysia, among others.