Case Study of Lululemon: Analysis of Pricing Strategy

Case Summary:

Lululemon a well-known athletic apparel company, founded by Chip Wilson, who initially embarked in the surf, skate, and snowboard apparel business for more than 20 years, when in the mid of 90s was introduced to Yoga for the first time, he got hooked and moved into the yoga trend at just the right time.

In 1998 in Vancouver, Canada Lululemon was developed and defined as a yoga-inspired, technical athletic apparel company for women and men. The first designs that brought the company name into the market were made for women to wear during yoga.

Lululemon uses vertical integration model. All Lululemon products are made only in Lululemon-approved factories. Additionally, Lululemon products are only available at Lululemon retail stores, or online at their Lululemon website. The company has a no discount strategy, and for all products that are old stock the company sells them in a very modest discount either in special selected stores or online.

The main differentiation offered by the brand is the offering of their first unique fabric, their own signature 'Luon'. With their new approach to athleticwear, Lululemon paved the way for offering high-quality and performance athletic apparel, available to customers at a very premium price, priced higher than most of the competition setting the brand at a higher position than the rest. Lululemon's strategy was clear when the founder was able to highlight a gap in the fitness-fashion industry that Wilson successfully seized the opportunity to control a considerable portion of.

Initially, the brand started by an objective to focus on a specific segment of the market the yogis. As the brand started growing it continued to adopt a focused differentiation strategy based on its brand identity, however with the extended line of apparel athletic wear, its market segment started growing to target a wider range of user.

The success of the brand was not only for yoga practitioners and yogis but also other athletes and customers looking for fashionable and functional apparel even for their daily use, setting the brand to influence a new dimension of a product that represents a lifestyle with core values of promoting a healthy, active socially responsible brand.

There are many reasons as to why consumers buy Lululemon products.

• the high quality of all products. Products from the company are meant to last for a long time and not show wear and tear through the times.
• Lululemon product is comfort. The design of all Lululemon products includes the key concept of comfort. All customers feel comfortable while wearing or using Lululemon products. They feel free to move as they wish.
• Lululemon products are stylish and innovative and always up to date.
• Lululemon products are constantly changing but always ensuring to keep the basic collection which is the most favorite of their consumers.
• Products for athletic consumers have to be comfortable and have to perform well, and lululemon products due to the material used offer both.
• Lululemon products are considered order winners as they stand out from their competitors due to their high quality, style, and innovation.

Q1- Relative to customer value, explain customers’ willingness to pay premium prices for Lululemon’s products.

Since Lululemon uses competitive pricing strategy with a premium pricing approach versus its competition, it is also part of customer value-based pricing strategy, where the brand clearly has something more to offer than the competition, and accordingly sets a higher value perception to its customers, and the willingness of the consumers to pay a full price based on their set perception of the brand and the value it represents.

There is no secret formula for Lululemon's pricing strategy, its basically the product benefit and its offering as a functional garments at a high but consistent price point, the continuous set strategy of no or minimal discounting, even in peak sale periods, give a clear understanding to customers willingness to have to pay full price.

The brand entered the market with a skimming pricing strategy targeting a certain segment, as the segment grew to become a trend and a lifestyle the brand was able to grow, moreover, the startup of the brand was using all the yogi trainers who are role models to their teams, so this furthermore helped the brand attract more of its customers (the yogis and athletes) who are ready to accept their price and willing to pay for the value not only but as a product but a lifestyle.

Consumers buy fancy-branded luxury goods because it makes them look and feel good, the same applies for Lululemon target audience who believe Lululemon products are a statement, a lifestyle and a mean to live by

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Q2- Based on principles from the chapter, explain how price affects customer perceptions of the Lululemon brand.

Lululemon has used customer value perception model in its pricing, the prices for their basic products have been set higher than the competition but not too high, so it stays at the range of price celling, where no demand will be available above this level of price, this value is set purely by the mindset of the consumer and the perception he has for the value offered.

Since the pricing is made on the buyers’ perception value rather than the sellers’ cost, Lululemon created special products, with special features to meet a niche market segment by creating a new demand which never existed before.

At Lululemon offers an extremely high-quality product for a high-price that matches the value of the product. When looking at the major pricing strategies, Lululemon definitely engages in customer-based value pricing. This means the company prices products based on the benefits and value it brings to customers.

Lululemon’s products want to be perceived as innovative and cutting edge in the athletic apparel industry.

Q3- Could Lululemon have achieved the same level of success had it executed an alternative pricing strategy?

In my personal opinion, Lululemon did the exact right pricing when it introduced the brand, by simply pricing it higher than its competition and immediately positioning it at a higher level. It is a proven fact that companies have more success with premium pricing when they concentrate on creating value that makes their products worth the higher prices.

Lululemon used a premium pricing strategy and thus they charge higher prices than their competitors for their products. They have set a goal to create the perception that their products must have a higher value than competing products because they offer something the competition lacks and thus their prices are higher. Lululemon used the premium pricing strategy to establish its product as a high-quality product in the minds of consumers.

Since the premium pricing was introduced based on the following situations for lululemon, I think having a different pricing wouldn’t have led the brand to reach the same level of success, from its start the brand had all it takes to be priced higher than the market and the competition

• From its early introduction Lululemon introduced Premium pricing which is the most effective way if established when a product is first introduced to the market.
• Lululemon products are unique. Small businesses that have unique products can differentiate their merchandise with higher prices and a quality image.
• Lululemon Consumers perceive that the product high-value value luxury product and has exceptionally high quality and provides comfort with an exclusive design.
• Simply by setting the higher point of pricing Lululemon created a strong barrier to entry
• Lululemon created a product patent only for the brand, that gave the brand special feature and set its unique selling proposition and thus the higher justified price then competitors

Q4- Can Lululemon continue to succeed by employing the same premium-pricing strategy? Explain.

I believe in today's world though a consumer would always want to get the best prices but offering your brand at a discount can undermine profits and threaten viability.

I believe Lululemon should exploit more strategies to keep on designing and creating a difference in its brand vision, product and innovation, so it always gives its consumers a justified reason to spend more by buying lululemon products.

Lululemon has done an enormous achievement by identifying the right audience and understanding their needs and demands and creating products to meet with those demands, then they have gone further by understanding their competition what is more based on this they have built a unique product that has a unique characteristics , and finally they have built a brand with a meaningful difference, always ensuring to set the mindset of their consumers to perceive the brand as premium and worth a higher price.

Changing their pricing strategy and moving from premium pricing would jeopardize the brands image and will drastically affect its position.

This consistency is key to brand success, this is different from premium brand pricing where the product is freely available to those willing to pay the price. In premium consistent pricing strategy the brand aims to display the quality and experience associated with a product, setting it on a different dimension from its competition, any change to this method of pricing will result in loss of trust in the brand and accordingly loyal consumers to the brand will start shifting from the brand.

Reference:

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