The Simple Reason JC Penney’s Pricing Gimmick Failed

It took only 17 months for Ron Johnson be outsted as the CEO of JC Penney. Quite honestly, I’m surprised that it took that long!

When I first heard about the proposed change in the item pricing strategy, I was skeptical.  For those who might have missed the whole thing, Johnson effectively wiped out sales and coupons, two mainstays of JC Penney’s pricing model, and replaced it with ‘fair pricing’ that would lower the everyday prices of all items.  So, instead of a t-shirt being $15, getting marked down 20%, and then being sold for another 20% off with a coupon available in the Sunday insert (making for a total of $9.60 if my math is right), they would price the item at, say, $9.

On the surface it sounded great.  In theory the prices were lower than the everyday prices at other stores, and according to their information, many prices (like the example above) often worked out to a lower price than customers could get at other stores, all without having to do the legwork of searching for the deal, waiting for the right week, clipping out coupons, and everything else.

That concept sounded great on paper, but I immediately didn’t like it for one reason, and I think it’s the ultimate reason it failed:

Customers want to think they are getting a better deal than other customers.

Plain and simple, customers who shop at JC Penney or Kohl’s are there in hunt of bargains.  Look at a recent trip to Kohl’s.  We bought a bunch of items that had regular prices, but were marked down.  We had a 30% off coupon that we got in the mail.  We also had some Kohl’s cash that we had been given after spending money at the store in prior trips.

All told, there were three different ways that we felt we were getting a better deal, each better than the last.  Taking a markdown felt good.  Taking 30% off of that felt better.  Taking a bottom line total off that was the icing on the cake.

Could JC Penney’s fair pricing have given us a better price?  I don’t know.  Maybe.  Maybe not.

Could JC Penney’s fair pricing model give us the great feeling of seeing all that money come off the total?

Nope.

And that’s where they went completely off the rails.

See, customers who shop regularly at stores like Kohl’s, Marshall’s, TJ Maxx, Sears, and JC Penney enjoy finding deals, or at least thinking that they found deals.  Over the years, the markdowns and coupons and promotions and everything else that goes along with it have conditioned their customers into believing that getting a deal is just as important (or more so) than the actual product that they’re getting the deal for.

Getting a deal motivates people, and JC Penney severely underestimated the importance that shoppers place on that.

They felt it could be replaced by customers saving time by going to one store, by saving more time saved by avoiding coupons.  They thought by doing so they could entice customers to make JC Penney their first choice.  Scratch that, make that the only choice, where customers would want to go.  They felt all these advantages would convince customers to give up their coupons, give up their deal searching, and give up their quest for the best price.

They were wrong.

I guess the next question is whether JC Penney will reverse course, and the more important question is whether it’s too late.  Will customers return to the store if the deals return, or have they sent their customers to other stores in search of deals only to be forgotten about from here on out?

It took only 17 months for the CEO to get fired, but I think the next 17 months will be more interesting, because you’ll probably know 17 months from now whether this iconic store was merely damaged or forever ruined.

Readers, what did you think about the pricing strategy at JC Penney?  Did you buy anything there?  Will you go back if the deals come back? 

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33 thoughts on “The Simple Reason JC Penney’s Pricing Gimmick Failed

  1. JC Penny was in an ugly, awkward place. They were in malls, so they had a HIGH overhead, and so they couldn’t compete with Kohl’s for price. At the same time, they weren’t competing with Macy’s for quality. Most low-end mall clothing stores have met gruesome fates since the early 90s, and JC Penny looked to be on that path. They had to do something–so they tried to turn into a sort of upscale Target or Old Navy, but in the mall, with their quirky pricing scheme. Obviously, it didn’t work. But neither was their old model. It was just failing more slowly, squeezed on one end by TJ Maxx and on the other by Macy’s. JC Penny simply didn’t have a good draw, by any measure.
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    • I always remember JC Penney as one of the mainstays from when I was a kid. They’re still there, but a lot lower on the list of places I would ‘think of’ for going somewhere to shop.

  2. I liked JC Penny. They had reasonably good mens clothes at reasonably good prices. Nothing super trendy, but I’m not a trendy person.

    I really thought Penny’s new pricing model would be ground breaking. Finally, I could know how much something costs without having to go through needlessly complex mental math. But I was wrong. People are stupid. They prefer hunting for fake bargains rather than being able to know in an instant if they are getting a real bargain.
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    • As I said, I think people want to think that they have the ability to get a ‘better’ deal than others, and Penney’s takes that away.

  3. It’s things like this that make me realize that people don’t think. THINK! Look at what the final price is. Always look at the final price and ask yourself if it’s worth it. It doesn’t matter if you have a hand full of coupons or not, just look at the FINAL price! Guess people can’t do that because it didn’t work with the ol’ JC. Sucks for them.
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    • Let’s hope they can turn it around. It’d be a shame to see such an iconic brand fall by the wayside.

  4. You’re spot on about the bargain hunter mindset. People enjoy sales and deals. That’s a huge factor in JCP’s downhill run. But the other part is that the new “low” prices weren’t low enough. I’ve shopped at JCP quite a few times and prices now come out much higher than buying on sale, with a percent off coupon. It’s just not worth the money, IMO
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    • I did see a few items and while they were lower regular prices than other stores, I still had the first impression that I could probably do better in the end.

  5. My brother used to own furniture stores. He explained his pricing strategy to me once which was mark it up to mark it down. Everything was always on sale. It immediately gave you the feeling of value. I think that is what you are describing too. BTW, his stores were pretty successful!
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    • Sounds like for the new pricing scheme, you were their ideal customer. Unfortunately, there just weren’t enough like you to make it work.

  6. When I think of JC Penney, I am immediately thrown back to 3rd grade, when I wore brown tennis shoes with white stripes on the sides. The back heel of the shoe had a JCP on it. (I was not a snappy dresser back then, either.)

    I haven’t shopped at JCP in years. The hubs worked at Sears Corporate for a long time so we shop there when we need to. Kohl’s offers more coupons and is closer. They have a sale every week, and offer percentage-off coupons almost every day. It just seems like a better deal.
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  7. I’m a big couponer and used to shop there OFTEN. I’ve been there ONCE since they changed their price scheme, and that was to return a gift! If I don’t feel like I’m getting a deal, I don’t bother.

  8. I’m glad I stopped by, else I wouldn’t have heard about this potentially lethal development for JCP. I’ve standardized on Stafford dress shirts, JCP’s store brand (which took more than a few years through trial-and-error). Since I buy in bulk, I haven’t gone to the store in a couple years. I may have to make a run and stock up just in case they go under.
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  9. A year ago I was going to buy JCP stock and sell an option. The prices were great and tempting. Something told me it’s not worth it that there is more downside. I am glad I listened to instinct.

  10. I haven’t been to JCPenney in years and very rarely go to indoor malls in general, so I can’t say if it would have affected my impression of them or not. I have to admit, I am a sucker for the 30% coupons that Kohl’s sends out. That said, I still head straight to the clearance racks with those coupons and try to stick to what I need.

    I will say, however, that when they hand you the receipt and say you saved $x today and it is based off of the “retail” price, I find that off-putting. Bottom line, what will it cost me and do I find enough value in the product to pay that price? If yes, I’ll but it, if no, I won’t. I don’t need reassurance from the receipt trying to convince me of what a savvy shopper I am.
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  11. I’ve been a “Jacques Penet” fan for decades. So, over the years, I’ve built up a fair idea of what to expect with their prices. When they made the change, they SAID the prices would be the same, but it didn’t quite turn out that way. Their prices went up, at least on the type of stuff I buy (shirts, pants, basic stuff). So they left no doubt in my mind that this was a thinly veiled attempt to increase their prices. I stopped going there when I saw that, so they lost a bread and butter customer.

    Yes, there is the bargain mentality, but I believe most people see through that and figure out where they can get the best price/quality mix for their taste. JCP IMHO tried to move up a step without offering anything in return, and they lost a big chunk of their clientele.
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    • Interesting take. I hadn’t heard that perspective but that’s even more of a turn-off than just killing the feeling of a deal. Yikes!

    • My wife and I were just talking, and she pointed out one location that is a stand-alone store (or at least not attached to a mall) that she likes going to that is relatively new, laid out well, and has a good selection. Unfortunately, I think those are the outliers.

  12. The sad truth is that consumers know more and more how much different industries mark their items up. So when you see a price tag without any type of discount you automatically think you paying over value. It is too bad that JC Penny’s strategy didn’t work out, maybe it could have with a whole lot more marketing… but then being the least expensive store out there is not the most attractive to the consumer… providing the best value and enabling loyal customers to get an extra value is what is truly sought after!
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    • I think they needed to test it out more thoroughly before rolling it out company wide.

  13. I think a lot of JCP downfall also has to do with their abandonment of traditional family values. Whatever your beliefs, there are a whole bunch of people who STILL believe in traditional marriage. JCP deployed a LGBT agenda in a very public way, and found out that it was NOT as welcomed as expected. Stock took a dive, people showed disagreement with the “gay parent” advertising by buying elsewhere. I agree the pricing change was a factor too, but this issue did not help their cause.

    • Interesting take. I never even noticed this element of their advertising. I think sometimes people look for things to be all worked up about.

  14. I dislike clothes shopping to begin with, so my focus is finding a department store that has business-appropriate attire that I would actually wear, in my size, in stock, at an affordable price. Traditionally, this was JCP. I prefer not to have to deal with sales that are only for a few hours and grabbing the coupon on the way out of the house, as the nearest JCP is a half hour away. The prices of what I buy don’t seem much different to me as compared to the coupon days.
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  15. I didn’t like the Johnson way of advertising or pricing. To me the prices were too high, and it looked like the quality was a bit thin. I’m not out to get a deal, I just want some nice clothes for my family to wear THAT I CAN AFFORD TO BUY. I felt like Johnson was not honest.

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