Last year, JC Penney initiated a bold pricing strategy when it completely removed all sales and implemented an everyday low pricing strategy.  The philosophy behind this move was to offer a consistent pricing strategy customers could count on rather than the discounts, coupons, and sales it offered over 600 times/ year.  This year, the floundering department store is adding back some of those sales in the hopes of luring back lost customers.

The announcement of the return of the sales came on the one year anniversary of the firm’s decision to rid itself of the sales that its shoppers loved so much.  The daring initiative to remove sales was closely watched by the retail industry, as many retailers offer deep discounts to draw shoppers.  Since the pricing initiative was launched, Penney’s stock has lost more than half its value and is now trading at $19/share and the company’s credit ratings are in junk status.

However, CEO Ron Johnson is not deviating from his course.  Johnson, a mastermind behind Apple’s retail stores and Target’s affordable fashion strategy, believes that the current direction is necessary to completely reinvent JC Penney.  In addition to the aggressive pricing changes, Johnson also plans to add new hip brands and replace clothing racks with shops-within-stores.

Now, rather than offer multiple sales throughout the year, the company is offering discounts that vary depending on the season.  For example, JC Penney will institute sales for Valentine’s Day and Back-to-School for certain items.  In addition, Johnson believes that customers need help with pricing and want a reference price.  The company is adding tags or signs that include the manufacturer’s suggested retail price as well as JC Penney’s everyday low price.  Analysts believe that this strategy will be helpful for shoppers and will clarify some of the confusion of JC Penney’s current pricing strategy.

Even though JC Penney lost $433 million in the first nine months of the last fiscal year and had a decrease in total sales of 23.1 percent, Johnson still believes that Penney will return to sales growth some time in 2013.  He advocates that his strategy is about educating customers on what products are worth and that this will eventually resonate with customers.  Penney’s underwent a major transformation this past year, and the company believes that it will learn from its growing pains and this upcoming year will be the year for JC Penney.

Discussion Questions:

1. Describe JCP’s pre-2012 pricing/promotion strategy.

2. How did JCP change its strategy in 2012?

3. What is its latest pricing/promotion strategy for 2013?

4. From JCP’s perspective, which pricing/promotion strategy do you believe is most effective?  Why?

5. How effective have these changes been in retaining old customers and attracting new ones?

 

SOURCE: Associated Press, January 28, 2013