Running pricing architecture: Amplify, Attack or Fortify, and the $100 to $160 Kill Zone

What it is

North America performance running was contracting. The market read of October 2016 put it at $2.8B, down from $3.1B two years earlier. adidas was growing at the top of the ladder. In running shoes priced above $80, its average selling price rose from $104.46 to $152.74 in a year, driven by Ultra Boost at $180 and NMD at $120.

Nike held the dominant share and was losing ground in the upper price bands. Between $160 and $179 the market had more than doubled. Nike's share of that band was 32% and adidas held 64%. In the spring 2018 plan the number of models was falling from 83 to 69, and the entry and core price bands were losing the most styles.

Khounlavong joined the category in September 2016 as North America Footwear Merchandising Director for Men's Running.

What Khounlavong did

• Built the market share and competitive analysis of October 2016 that framed the problem, and refreshed the read in April and July 2017.
• Set the priorities for a pricing architecture: the right breadth and depth at each price level, a strong execution of the global pricing strategy with minimal exceptions, and alignment across functions and categories on the fields of play. The deck was first dated December 7, 2016 and reached version 5 on January 24, 2017.
• Recommended the spring 2018 line by price band. The season had offered 83 models in spring 2017 and stood at 69. He recommended 85, then split the recommendation by platform, by channel and by key account.
• Wrote the athletic specialty and sporting goods pricing focus of February 2017, a deck that carries his initials. It opened: "We want to win." Then: "We lost. While the market fell 10%, Nike revenue declined by 12% and our market share dropped 2%."
• Gave every price band one instruction: Amplify, Attack or Fortify. The $160 to $179 band, where Ultra Boost had taken 64%, was marked Attack. The lowest band was marked Fortify, to hold share without leaning on discounts from higher price points.
• Set the rule for assorting by channel. In his spring 2017 data, 90% of the athletic specialty business sat above $100 and 92% of the sporting goods business sat below $140. His note read: "Different wallets & purses shop in different places."
• Defined the Kill Zone for Running, the band where a large part of the business sat. His April 2017 read-out set it at $100 to $150. From the analytics deck of April 25, 2017 onward it was $100 to $160. He proposed duplicate price points to separate the channels inside it.
• Flagged four pricing risks in the spring 2018 line: a gap in athletic specialty between $120 and $190, with more than $60M at risk, no clear home for Epic React, a lack of new models from $80 to $119, and the vacating of the price point above $200.
• Turned the frame into a fall 2018 pricing framework in July 2017. It counted products by price band and platform, moving from 254 to 248, and added depth at $160 to $199.
• Worked the analysis with a Nike colleague. His fiscal 2017 review records that together they analyzed, developed and socialized the optimal pricing construct for North America men's footwear. The deck's stated next step was to present it to the global team.

Results

• The pricing architecture became the opening section of his seasonal product read-outs, in April 2017 for summer 2018 and in July 2017 for fall 2018.
• The holiday 2017 plan of November 2016 lists two flow moves under pricing architecture. The Downshifter introduction was pushed out of the season to protect a 12 month lifecycle. The Revolution 3 was pulled forward to November 1 to improve sell-through at a key price.
• The April 4, 2017 business review lists the addition of the Zoom All Out Low 2 to spring 2018. His pricing read of the same month called the $140 to $159 band potentially the largest battle zone, and said Nike needed to win there with that model.
• No document records the market share result. In his review of June 2017 the two year market decline stood at 4.6%, and Nike's share was down 1.3 points on the prior year.

At a glance