When it comes to bold moves, it does get much bolder. On February 1, 2012, J.C. Penney officially ditched their decades-long sales strategy comprised of hundreds of special promotions throughout the year for an “everyday low price model” (ala Wal Mart or Target). But instead of making a huge splash, comparable store sales for the first quarter of 2012 dropped 18.9%. Then on June 18, 2012, Michael Francis, Penney’s president and former Target executive who was brought in to help reshape the company’s brand, abruptly resigned.
I’m going to go out on a limb and say that’s probably not what CEO Ron Johnson had in mind when he made the shift. So what went wrong? Was their pricing strategy fundamentally flawed? Was it the marketing? A little bit of both?
First things first, it’s always hard for customers to make a change in the way they think about pricing and perceived value—especially after they’ve been used to seeing deep discounts of as much as 70-85% off over an extended period of time.
When I was growing up, we would plan a lot of our purchases from J.C. Penney around those sales. And we were always overly ecstatic when we were able to get a great deal. It didn’t really matter if they were only able to offer those HUGE discounts because they were playing with some really high margins or because they were losing their shirts trying to get customers in the door—when they ran a sale, there was a pretty good chance you’d find us there.
But markets, consumers, and competitors change. And, whether you’re a small business owner or a 110+ year-old retailer such as J.C. Penney, sometimes that means you need to take some drastic measures in order to survive.
I remember the first time I saw the new J.C. Penney circular. Everything about it was different—the size, the shape, and even the logo. But looks aside, I still found myself having a hard time understanding their new pricing strategy.
They decided to group items into three buckets: “everyday” (or everyday low price), month-long promotions (as part of the new strategy they were trying to avoid using the word “sale” but for all intents and purposes they’re month-long sales), and “best” prices which are available the first and third Friday of every month. If you’re confused, you’re not alone. So what’s to blame for their pricing woes? The marketing? The pricing strategy? Both?
Any time you have to provide a key to explain your pricing, you’re probably already in trouble. I’m sure some ineffective marketing has also played a hand, but when you’re asking your customers to triangulate their shopping trips around second and third Fridays of the month you’re definitely asking them to burn a lot of calories just to save a couple of bucks before they even walk in your front door. I know I would probably have enough trouble keeping track of which Friday falls on which week and that’s only one head of their three-headed pricing monster.
So what can small business owners take away from J.C. Penney’s recent struggles? Customers have A LOT of choices. When you decide to compete on price, your underlying strategy must be incredibly easy to understand and remember. You can market until the cows come home, but if you’re underlying pricing strategy is flawed there’s a pretty good chance your customers will take their business elsewhere.
Was J.C. Penney’s pricing strategy fundamentally flawed?
Or do you think they could have done a much better job marketing the new strategy to their customers? Share your thoughts in the comments below
By: Shawn Graham
[Image: Flickr user Gary Stevens]