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:
Let me know what you think