The Secret to Everlane’s Pricing Strategy
Marketed as the ‘most radically transparent’ apparel brand in the industry, Everlane’s mission was about bringing full accountability to the table and revealing the true cost behind each product.
Choosing the direct-to-consumer approach, Everlane was able to cut the middleman and adopt a unique pricing strategy that enabled them to produce high-end essentials at a lower price point.
“A basic, high-end T-shirt costs about $7.50 to make, but sells for about $50… there’s a real discrepancy there,” Micheal Preysman told Business of Fashion.
Preysman, who founded the brand in 2011, came from a background in private equity and had zero knowledge about fashion or retail but recognised the unique opportunity to build an entire brand proposition around cost.
This strategy quickly developed a massive cult following online. In the early days of the brand, nearly every new product was sold out near launch. Waiting lists were backlogged with thousands upon thousands of customers.
Born just before the sustainability boom, Everlane was one of the very few brands offering ethically-sourced clothing without leaning into the “natural” or “organic” clichés. By and large, Everlane’s direct competitors were still mainstream apparel brands such as J.Crew and Gap. However, its take on sourcing and pricing certainly gave Everlane the upper hand amongst conscious consumers.
As Everlane grew, reports of the brand’s failure to live up to its ethical reputation started to emerge. From rumours of a toxic work environment to unreliable sourcing information, Everlane’s ethical facade was cracking. The brand has responded to these accusations and is reportedly investigating on the matter.
Transparent Pricing and The Power of 8
One of the biggest differentiators of Everlane’s pricing strategy is its ‘Transparent Pricing’ infographic, which can be seen on each product page. The simple diagram breaks down the cost of materials, labour, tax, shipping, and markup involved in producing each product, effectively removing the hidden cost veil that so many brands cower behind.
As seen in the image above, the true cost of the product is calculated with a markup of roughly x3 to achieve its final price of $28. The product page also details information regarding the factory that produces this product, along with the origins of the materials used.
Unlike traditional brands that rely on the ‘Power of 9’ pricing strategy, Everlane chose to price their products ending with the number 8. For example, the brand’s organic cotton t-shirts are priced at $18, the jeans are $78, the sneakers are $58 and so forth.
This is a departure from the usual ‘charm pricing’ tactic which benefits on the left-digit effect in price cognition. Most people perceive prices ending with the number nine to be more of value because our brain processes $2.99 as more attractive than $3.00 due to the cost ‘saved’ – even though it’s only a cent. Everlane’s deliberate use of 8 applies the same approach but with a higher perceived cost saved.
Pricing for Each Product Tier
Beyond the brand’s price setting methods, Everlane’s assortment also clearly follows the ‘good-better-best’ pricing ladder which maps each product tier to its accurate perceived value. Each tier is defined by factors such as the quality of materials, collection or capsule and product attributes that can affect the final price of a product.
The chart below demonstrates Everlane’s ‘good-better-best’ pricing ladder for women’s t-shirts.
Omnilytics data found t-shirts in the ‘better’ tier were the most popular, as products in the $30-40 had the highest sell-out contribution of 36% – a testament to the effectiveness of Everlane’s pricing strategy even with basic products such as a simple t-shirt.
When compared against Cos and Arket’s pricing distribution for the same category, it revealed that Everlane has an opportunity to strengthen its $40-60 range even further by increasing the number of SKUs, as Everlane’s products achieved a stronger sell-out performance than the other two brands.
While Everlane typically shies away from markdowns, the pandemic saw the brand offering blanket discounts to drive product sell-through.
Before this, the brand was well-known for its ‘choose what you pay’ sales which allowed customers to pay with any of the three lowered prices for off-season items. But this year saw Everlane introducing various types of discount mechanics throughout the pandemic.
In March, the brand launched its first site-wide discount of 25%. Later in May, it launched another 20% to 50% off sale for staples and newer products that had never been on discount before. A month after, Everlane created limited-time summer bundles which lifted the brand’s sell-out rates twice its weekly average.
Everlane ended the season with a large scale ‘Summer Sale’ which included price slashes up to 50%. The sale, which was held on 20 July 2020, garnered a 4% sell-out during the first week – 13% higher than the weekly average for the month.
The chart above indicates peak in sell-out rates overlap with Everlane’s markdowns. Omnilytics data shows 37% of the brand’s total products had gone on sale throughout the first half of the year.
Lessons Learnt from Everlane’s Pricing Strategy
The key takeaways from Everlane’s pricing strategy are,
- Developing a brand ethos rooted in pricing is highly effective as consumers grow increasingly value-driven. Exploring outside of the retail pricing norms can be a profitable risk if approached in a consumer-first way as demonstrated by Everlane’s ‘Transparent Pricing’ charts.
- The ‘good-better-best’ pricing ladder can be useful for product and pricing optimisation. It also helps to avoid overpricing or underpricing a product while aligning it to market expectations.
- Markdowns should be deployed tactically with the right products and at the right time. Everlane’s combination of limited-time promotions, plus alternating shallow and deep discounts during the pandemic, offered small wins to continuously push sell-out rates.
To gain more insights on Everlane’s pricing strategies before and after the pandemic, read our Everlane’s Successful Essentials with Right Pricing report.
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