Tuesday, January 31, 2012

Is JC Penney Making a Mistake?

JC Penney announced a brand new pricing strategy. They are getting away from the over-inflated regular prices with everything on some kind of a sale all the time including scattershot coupons and deals.

They have already implemented it in my local JCP.

And my wife is not happy.

She went shopping there recently and was more confused by their pricing than ever. More importantly, she walked out without making a purchase. She asked me about it at lunch today, and I told that while I am a huge fan of not using sales and gimmicks (the old JCP model), I think they have a hard road ahead for three reasons.


THEY TRAINED THEIR CUSTOMERS

The first problem is that JCP trained their customers to expect a sale, to expect a discount, to wait for the coupon. For the next few months there will be some pain as customers try to adjust to this new program.

My wife was looking at a sweater. The new price tag said $25.00. It used to be priced at $50 in the old scheme. Then with a 40% off in-store sale and a 15% off coupon, it sold for $25.50. But without those "sales", my wife ended up putting it back. It did not feel like a bargain any more.

You cannot get rid of that sale mentality overnight. We all know stories of customers who buy things on "sale" at other stores even when the "sale" price is higher than our price.


PRICING HAS PERCEPTION

I have been saying this all along. The numbers you use in your price give off a perception to the customer. JCP has changed all their prices to end in .00 instead of .99 as most retailers use.

The only problem is that .00 looks like "full price" while .99 looks like a discounted price. My wife, a full blood Transactional Shopper, mentioned this first. The price just looked too high. She even went so far as to say that she would have given it a second look at $25.99 instead of $25.00. So JCP, by their new pricing strategy is making everything look perceptually more expensive.

(For a full explanation of the way prices are perceived, download my free eBook Pricing for Profit.)


CAN THEY RELATE TO THEIR CUSTOMER?

Let's face reality. JCP, Kohl's, Macy's, Elder Beerman, and all the other department stores like them are relatively interchangeable. They all carry similar goods at similar prices. And they all go after that Transactional Customer, the one who shops solely on price.

But with this shift, JCP is hoping to get away from that price-shopping mentality. Does this mean they are now going to go after the Relational Customer, the customer looking for an expert she can trust? I don't believe they have the staff and the training to accomplish that. They certainly are not going to compete with Nordstrom's any time soon.

So while they alienate their Transactional Customers in the short term, they are going to have to find new ways to attract those customers (who have been their base for so many years) back to the store with some really sharp pricing on those every-day-low-prices. JCP is right that not everyone is duped by the mark-it-up-to-mark-it-down policy so many department stores use. But not everyone is good at math, either.

We'll see if JCP has the guts to stick it out. Personally, I'm hoping they do. (But please change those prices back to .99)

-Phil Wrzesinski
www.PhilsForum.com

PS If you have not yet seen my Pricing for Profit presentation, I am doing a revised version at the ASTRA Marketplace in Baltimore this coming June. According to those who have seen it, it might be the single most profitable hour you might ever spend.

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