14 Nov 2012

JC Penney’s experiments with pricing and holiday season discounting

Raj Bhatt

Around a year ago, JC Penney’s CEO Ron Johnson announced their ‘Fair and Square ‘ pricing policy, to wean customers off discounts and move towards a three-tiered pricing strategy that focused on ‘Everyday Low’, ‘Monthly’ and ‘Best’ price levels. This was supposed to reduce the number of annual promotions from 590 to 12, thereby simplifying the shopping experience (and allowing customers to ‘shop anytime on their terms’). In August, they moved completely to an Everyday Low pricing scheme.

The strategy seems to have failed…last week JCP announced that their sales have dropped 26% year on year for Q3 and have dropped 23% year on year for the first nine months. Even the online business seems to have shrunk significantly (37% year on year in Q3!). It is burning through its cash reserves and may need to raise capital soon.

In the backdrop of these bad numbers, JCP announced that they will not be using holiday season discounting this year, choosing instead to hand-out 8 Million buttons that allow customers to get freebies. Shoppers can redeem the buttons online for a chance to win one of 20 million gifts by entering a unique code located on the back of the button at jcp.com/Christmas. On Black Friday, 100 vacations to U.S. destinations will be awarded, including trips to Los Angeles to see a taping of JCPenney spokesperson Ellen DeGeneres’ show. One additional trip will be awarded each day through Christmas Eve, along with gift cards, holiday certificates and merchandise.

However Ron Johnson also announced that they will offer the company’s lowest prices on Black Friday and Cyber Monday.

All this begs the question: Is JCP doing the right thing on the pricing strategy front? What else can it do before it exhausts its cash reserves?

1)  While Everyday Low pricing may be a great idea in grocery and household purchases, it may not be such a great idea in apparel because customers have different price perceptions for different brands. If most customers prior to January 2011 were drawn to stores by the discount sales on the jcp brand, they are unlikely to change their behavior abruptly. JCP needs to conduct focus groups and surveys to understand the pricing preferences of their customers (since their current understanding of their customers’ preferences seems to be flawed). While modeling apparel sales using price data, we always model the ‘price effect’ (the effect of the effective discounted price) and the ‘sticker effect’ (the effect of the X% off sticker). An item marked at everyday $15 price may have lower sales than if marked at 25% off from a $20 price.

2) JCP needs to aggressively continue the store-in-store concept which seems to be working well for them.

3) They need to sign up good designers to design exclusively for them (like Target does).

4) The JCP website needs a major overhaul:

  • The landing page has fewer merchandize displayed than most other apparel websites. While the uncluttered look may suit Apple stores well (with its limited range of products), it does not suit an apparel website very well. 
  • The quality of in-image zooming is much inferior to the out-of-image zooming in other apparel websites. 
  • Finally, the checkout page does not have recommendations for ‘People who bought X also bought Y” which is usually very useful while purchasing clothes

Let me know what you think

discounting, everyday low pricing, JC Penney, pricing, recommendation engine

1

One thought on “JC Penney’s experiments with pricing and holiday season discounting

  1. raj… this is a very good article as i too am in the textiles business. what you are saying is very much to the point as now people are attracted by the discount tag more than the price and product , and are aware when the sale periods come by.what jcp tried as a concept was my thought for quite sometime as a fabric costing say 100 (including our margin ) is sold as a garment from 500-1500 depending on the label but after reading this article i think it will take time for people to accept low and fair price concept as we have been slowly and steadily made to believe that costlier is better and a discounted product is a cheaper better product … the input cost with overhead is basically the same for everyone barring the big brands who have a huge ad budget , but they compensate by higher sales.amit narsana

  2. Anonymous on November 21st, 2012 at 7:25 am

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>