Wednesday, June 20, 2012

J.C. Penney’s pricing strategy - will it succeed?


Last January, J.C. Penney announced the roll out of its “Fair and Square Everyday Low Pricing Strategy.”  Six months later, the company president, Michael Francis, exits the company  after taking over the helm last October.  Francis was a former Target Corp. executive. 

I spent some time in the investor relations section of the J.C. Penney website to see if I could identify early warning signs for why the strategy may have gone astray.  I reviewed their SEC filings, annual report and sales presentation from Q1. I could hear an optimistic rally cry that 2012 was going to be the year J.C. Penney rejuvenated it’s 110-year old brand.

It’s almost as if the company used a retailer checklist to tackle their rebrand and fresh new approach…
  • New, hipper brand identity to replace the original stuffy one:            Check!
  • Change store layout and design, create a modern concept:                   Check!
  • Add new recognizable brand names to the product mix:                          Check!
  • Expand home accents and furnishings:                                                         Check!
  • Convince customers that coupons and discounts are tedious:                            Ooops! 

Although I appreciate they landed Ellen Degeneres to promote the new pricing strategy, J.C. Penney didn’t anticipate that her "Main Street America" appeal, wasn’t enough to convince consumers that the everyday low prices were truly going to save them money and provide the best deal.

Our society has been conditioned to look for the best deal possible.  "Paying retail?  Be sure to load up with coupons, cash in rewards, pre-pay, or find a promo code to use online."
  • TV shows such as “Extreme Couponing” are educating America that you don’t have to pay more than a couple of dollars (if any at all) to get $1,500 worth of groceries, simply by clipping coupons from newspapers and mail flyers. 
  • Rewards points are cashed in for free coffee from Starbucks, free airline tickets, hotel rooms and car rentals, and other goods and services.
  • Groupon and LivingSocial have shown us that we can get a great meal, vacation, shopping spree, or just about anything, for less than half the cost if we purchase it in advance.
  • Websites such as Retailmenot.com and promotionalcodes.com provide us with promo codes to shop online and get free shipping or a percentage off your entire shopping cart.
  • Retailers such as Bed, Bath and Beyond allow you to bring in a fistful of coupons to use 1 per item purchased, even if the coupon has expired. 
  •  Finally, grocery stores show us how saving 25-35% off your entire grocery bill is easy, simply by swiping your rewards card or entering the phone number associated with your account.  On top of that, your dollars spent contribute to additional discounts.  If you buy gift cards, you can earn 4x the points for fuel discounts at the pump.
Everywhere we turn, we are inundated with messages to save money and get the best deal.  We don’t actually believe that the price on the tag is necessarily the final price we’ll pay at the register.  We want to see the savings appear at the cash register screen and then print out on the receipt.  This psychological approach can actually release endorphins, giving us “buyer’s delight” rather than buyer’s remorse.  

So when J.C. Penney decided to do away with what society has come to love and embrace - using coupons, rebates, rewards, pre-paid gift certificates, promo codes, etc. – they are interfering with that “feel good” sensation. 

According to today’s Wall Street Journal, J.C. Penney will tweak their messaging, not their strategy.   How long will it take for them to drop the strategy completely?  Everyday low prices may work for Walmart; they serve different market segments.  Time will tell if message “tweaks” were effective.  I don’t think the decline in 2012 sales is tied to J.C. Penney’s messaging.  I believe it’s tied to the pricing strategy.   Convincing their target audience that what they see, is the best deal they can get, is going to be a challenge that they may not be able to overcome.  Perhaps J.C. Penney is going to target different or new market segments with this new messaging.  Perhaps these segments will be convinced.  I believe it is unlikely that the majority of their customer base will buy it.

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