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JCPenney Pricing Strategy Will Pressure Competitors To Change

02/16/2012

When JCPenney CEO Ron Johnson introduced the company’s new pricing strategy on January 25th it caused a range of reactions from consumers and competitors.

Most importantly JCPenney’s new pricing plan puts the pricing shenanigans of many competitors right out in the open for public consumption.

Johnson’s vision is for JCPenney to simplify pricing to be consistent with the way consumers want to shop. Johnson believes retailers have been “marking up to mark down” prices for too long. I couldn’t agree more!

Penney’s new strategy is to have a three-tiered pricing format which includes everyday pricing, month-long value pricing and “best price” (the last is in lieu of clearance but is designed to move out goods quickly).

Simpler pricing will receive enthusiastic response from consumers. Most retailers, with few exceptions like Nordstrom, have so many promotions it is difficult for consumers to know when is the best time to buy. Johnson noted that last year JCPenney had 590 unique promotional “events”. This year there will be 12.

Simpler pricing by JCPenney has the potential to turn the competition on its head. I predict this will be a big deal for discounters like Kohl’s, Joseph A. Banks and others who rely almost entirely on their promotional efforts (aka discounts, sales and markdowns) to drive their marketing and sales.

Consumers are not dumb. No one buys at full price unless circumstances such as replacement, an event requiring a gift or some other emergency demands it. Why buy full price when the next markdown is a few days away? We all do it. And  how do we feel when the item we purchased last Thursday at 50% off is seen at 70% off on Sunday? Like we’ve been had – for sure.

That’s not a good strategy for building loyalty based upon a relationship of trust and benefit.

Retail math can be a bit confusing, so let’s break it down. Markup is the difference between the cost of an item and the retail or selling price of the item.  Markup can be expressed in dollars and cents but is most commonly as a percentage.  This is the amount added to the cost of goods to arrive at a selling price.

To arrive at markup percent on the example above you divide the markup ($4.45) by the selling price ($9.95) which equals  .447 or 44.7%.

So when you see an ad like the Macy’s insert here below it helps to understand that many of the products being sold at “80% off” were initially marked up well over 100%…which allows this particular retail to make some profit – even at the seemingly great deal of 80% off.

I suspect (and hope) that Ron Johnson and JCPenney will be successful with this strategy. It might just be the first step in getting retail back on the right track.

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7 Comments leave one →
  1. 02/19/2012 10:17 pm

    I’d disagree. I’ve haven’t heard anything but negative responses from customers. Walking through their stores, I noticed that the new everyday pricing is the high end of what they used to price what they sell. Customers aren’t stupid in realizing this and will act accordingly.Sure, the reduced amount of deals and clearer pricing is a plus as people won’t spend time figuring out the best coupon, etc.

    • 02/20/2012 7:35 am

      Clearly JCP is not out of the woods yet. I gotten ho-hum reviews from others – so I may be overly optimistic.

      Time will tell, but one thing is for certain. JCP could not continue down the path it was on so change is imperative. What’s unknown is if this change is right or if it is enough.

      Thanks for weighing in on this.

  2. nancy kancler permalink
    03/07/2012 7:40 am

    iI still dont understand the pricing . At least with a sale you could spot it right away .Now everything looks the same. I went there on the first Friday of the month i didnt find any deal

    • 03/07/2012 7:49 am

      There’s no doubt JCP will need to educate us on the pricing tiers.

      This is off their website:
      everyday prices – Our regular prices, which are always great
      month-long values – Even better prices on things you needs now!
      best prices – Our lowest prices always happen on the 1st and 3rd Fridays of every month. While they last!

      In basic terms everyday price = regular price, month-long price = featured promotions, best prices = clearance.

      Hope that helps!

  3. akesseli permalink
    10/08/2012 12:08 pm

    Great article, Rick. I’m currently in graduate school at Boston University and for my Strategic Brand Solutions class, have been asked to diagnose and fix jcpenney’s new marketing strategy. I see that this article was written back in March, and I was wondering if you could weigh in on how jcpenney has handled these past 7 months, and if the outlook is still as bright.

    Thanks,

    Aaron Kesseli

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  1. JCPenney and Best Buy Are Retail Bellweathers « ThoughtTech – On The Horizon

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