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clipped from www.fastcompany.com
Some organizations have evolved stories to simplify strategy. For instance, Costco (NASDAQ:COST) employees know the "Calvin Klein jeans story," as reported in Evelyn Clark's book Around the Corporate Campfire. In 1996, Costco was selling out of Calvin Klein jeans at $29.99 a pair. Then, the chain's buyers struck a deal to get about 4 million pairs at a discounted price; with Costco's usual 14% markup, the jeans would sell for just $22.99. The buyers knew that Costco could easily sell out the full order at $29.99. Where do you set the price? The decision: $22.99. Jim Sinegal, CEO, said, "I use that as an example because it would be so tempting for a buyer to go with the higher price for a very quick $28 million in additional profits, but ours didn't. That's an example of how we keep faith with the customer." These situations could be paralyzing: Should you maximize profit or stick with a rule that keeps prices at bargain levels? The Calvin Klein story resolves the tension.
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