Thursday, February 28, 2013

JC Penney CEO Admits Mistake for Pricing Strategy

CNBC reported yesterday that Ron Johnson, CEO, JC Penney has admitted that the retailer "made some big mistakes."  In fact, the company spent a billion dollars during the past year to educate consumers about their new pricing strategy, which was to take away discounts and settle for "everyday low prices."

I've watched the evolution of this strategy and blogged about it last June ("JC Penney's pricing strategy - will it succeed?") and August ("It's no surprise that JC Penney has tweaked their pricing strategy again").  JC Penney reported they had a much larger loss than expected ($428 million for the fourth quarter and $985 million total loss for 2012) and total revenues of $3.88 billion rather than $4.05 billion expected by analysts. This is a major drop from $5.43 billion total revenues for 2011.  According to Johnson, "the consumer has voted and they voted for discounts."  The company admits they are doing a 180 and returning to the discount offers, calling them "gifts."  As I mentioned nearly a year ago, it is important to understand who your customers are and what value you are providing them. For 100 years, consumers have expected great deals at JC Penney.  A billion dollar experiment to convince their customer base there's a whole new way to define value, was a complete waste of time and unfortunately had quite an impact on the company's bottom line.

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