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In the article, Jason Bloomberg discusses how American Eagle Outfitters, a retail industry, is focusing on developing a new mobile application for their consumers. Since more than 50% of consumers use their phones when they are shopping, the retail industry wanted to take advantage of this opportunity. American Eagle has included special features like the AEO Radio in order to reinforce the “in-store” experience. The store has also experimented with geolocation. In order to increase traffic in stores, the retail store send promotions to a customer who is in proximity to the store. In addition, American Eagle has introduced a new feature called “Reserve-Try-Buy” to allow customers the ability to reserve an item ahead of time in order to try it on. American Eagle is currently working on new upgrades on their loyalty program and new strategies to expand internationally in order to increase their revenue.
This situation represents the economic principle that everyone faces tradeoffs. The retail company had to face the decision of how to promote their company. For example, the company had to trade the expansion of the web apps to the expansion of native apps. The company realized that with the focus of native apps, their opportunity cost is appealing to a broader range of people since only the most loyal customers will bother to download the application. However, the benefit is greater than the opportunity cost since the application will increase the engagement of loyal customers with the brand. In addition, this situation represents the economic principle that the cost of something is what you give up to get it. By investing their money into mobile apps, American Eagle has the opportunity cost of appealing to an audience who isn’t tech savvy (i.e. most grandparents and some parents). However, since their main audience is people within the ages of 18-25, their audience is more likely to be connected to the mobile application. This shows how this benefit exceeds the cost since American Eagle has continued to further invest in their digital strategy. Finally, another economic principle that reflects this situation is that people respond to incentives. As an employee of this company, headquarters has reached to all employees of how to increase traffic within a store since most customers shop online today. By introducing the program “Reserve-Try-Buy”, customers have the incentive to visit the store. It could also push customers to buy more items within the store and, as a result, increase revenue. Another example is that since there is a higher demand for people to shop on their mobile devices, American Eagle is given the incentive to invest in their mobile application in order to increase revenue.
This article relates to the concepts that we have discussed in class. American Eagle is currently in a monopolistic competitive market. Therefore, the company must differentiate its product in order to appeal to customers and have market power. American Eagle does this by revamping its digital strategy by including the AEO Radio, “Reserve-Try-Buy” program, geolocation, etc. As a result, the company is able to gain market power by creating a closer connection to their customers and expanding the brand experience to mobile devices. In addition, we learned in class about how advertising affects the economy. We learned in class that companies try to differentiate themselves through style, quality, and location. The use of the mobile platform would push American Eagle’s advertising. Through geolocation, the company can advertise their location to their customers in order to increase traffic within the stores.
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