What went wrong with JC Penney’s strategy?

When J.C. Penny CEO Ron Johnson announced the new fair and square pricing strategy, the JCP stock was trading above $40. Today, the stock is dipped below $20. Store traffic was down compared to last year. Losses are piling up and shareholders are getting restless.

Wasn’t the fair and square pricing strategy supposed to bring in more consumers into the stores? Weren’t they supposed to pay what they believe was a fair price for goods they valued and walk away happy?

The idea behind the new pricing strategy is very simple – reduce the list price of all items and stop offering deep discounts. “The customer knows the right price for every product, so we are going to price things right from the start,” Johnson said back in January.

Sounds pretty straightforward, right? Who doesn’t want to pay fair prices that reflect a product’s true value? Well, turns out not a lot of consumers do.

JC Penny argued that due to high discounting, list prices were irrelevant. JC Penney were wrong in making that assumption that because less than 1% of its revenue comes from items bought at full price, its original prices are pretty much meaningless to consumers. Marketing folks should note that list prices are a key aspect of product positioning. List prices should be used to anchor customers on price levels and influence their willingness to pay. Consumers often use the regular price of an item to determine its “fair value.”

Another reason for the poor performance of their pricing strategy is that their pricing is not aligned with the rest of their go to market strategy and with the buying habits of its core customers, who have become accustomed to frequent sales. JCP’s products aren’t differentiated enough from competitors to create that “buzz” to get consumers in the door. They don’t have the products like an Apple, or the shopping experience like a Nordstrom. When they completely execute on their plan to open boutiques and town squares within their stores as planned, the fair and square strategy will see more success. If JCP wants to take the focus off of discounts and focus on the unique experience in the store, they need to deliver on that experience. Your pricing strategy needs to be in sync with the rest of your messaging and go to market approach for it to be effective.

Retailers have spent a lot of time and money trying to educate consumers to take advantage of discounts and it is not going to be easy to change that consumer behavior. JC Penney should be prudent about offering discounts on certain commodity products, while protecting their premium products. And once they fully execute on the boutiques and town squares, they will be in a position to go to market with their fair and square pricing strategy.

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