August 6, 2012
Six months after abandoning a decades-old strategy built around deep discounts and a barrage of weekly coupons in favor of an everyday low price model (think Wal Mart), J.C. Penny is tweaking their strategy yet again. The bold new approach they had once hoped would really shake things up and help attract more shoppers, instead resulted in an 18.9% drop in comparable store sales for the first quarter of 2012. Not good.
Any time you make a major shift from one pricing strategy to another (and this was definitely a major shift), it’s obviously going to take some time for your customers to fully understand those changes and start to modify their shopping behaviors. Unfortunately, J.C. Penney doesn’t have that luxury. They have to answer to anxious investors who are looking for a quick turnaround and confused customers who had come to expect massive discounts of 75% or more but instead were being asked to embrace an entirely new and overly complicated plan.
Penney tried using a combination of television, print, and in-store advertising to create buzz around their new brand and pricing changes but their problem was less about advertising and more about their underlying pricing model. By grouping items into three buckets: everyday low price, month-long promotions, and “best” prices which are available the first and third Friday of every month, they were asking their customers to learn and keep track of an entirely new process that was unlike those being used by their direct competitors. Instead of resonating with their shoppers, it actually had the opposite effect--in May, Macy’s CFO Karen Hoguet indicated sales were rising at her company’s stores that share malls with Penney stores. Really not good.
To combat the drop in revenues and customer traffic, Penney has decided to simplify their pricing strategy. As of August 1, they have eliminated month-long specials that cut prices of select items by 20% to 29% and instead permanently marked down a large amount of merchandise in stores by similar amounts. They also brought back the word “clearance” which was once taboo under the former approach and are tweaking their advertising to better communicate the pricing plan to customers. In addition to newspaper inserts and TV spots touting the changes, one campaign they’re really hoping will get customers in the door and give them a chance to promote their latest pricing strategy centers around free haircuts for students during the back-to-school shopping season.
What can small businesses learn from J.C. Penney’s sales woes?
Before you go live, you want to look for every opportunity to gather feedback and reactions from current and prospective customers (think: test, test, and retest). In this case, customers might just really love their coupons and the feeling that they are getting a "value" at the register. Without good data, that's something you might not be able to predict. Once you've gathered your insights and arrive at your new pricing model, you’ve also got to make sure you have a cohesive advertising campaign in place to effectively communicate the changes and help educate your customers on the benefits of your new approach. From there, you just need a little patience. Any time you make changes to your pricing strategy, it’s going to take some time for your customers to come onboard.
By: Shawn Graham
[Image: Flickr user Nicholas Eckhart]
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