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?