Is JC Penny’s New Pricing Strategy Doomed to Fail?
CEO Ron Johnson have revealed his plans to transform these store chains and dominate the retail space. His main strategy is to is to modify its pricing strategy to offer three prices: Every Day prices, Month Long Value, and Best Prices. Prices will now end in zero instead of .99 and price tags will only list one price. He also plans to create 100 highly branded boutiques within each JC Penny Location. The department stores will house a Martha Stewart Boutique and a town square that will offer promotions and complimentary services to customers. For the first time, I saw JC Penny’s newly released commercial. You can see it below.
Johnson used theses strategy when he was at Apple. However, critics wonder if it will work. With this pricing strategy, Johnson is telling customers why wait for bottom prices when you can get great prices every day. JC Penny already discounts retail items at 50% off the list price. However, their products do not really entice loyalty such as places like Macy’s and Nordstroms–or Apple for that matter. If the competitors drop their products even lower, JC Penny does not have the existing differentiation to make up for the lost sales. It might be tough for JC Penny to issue further discounts. Differentiation is a key to averting steep discounts, and it seems pre-mature to to offer lower prices when products are not that already differentiated.
Perhaps that is what Johnson is doing with the branded stores. They company will attempt to differentiate themselves among the competition. But this all seems premature. Consumer loyalty is not as high as other well known department stores. The barriers of exit is relatively low. Implementing the lower prices strategy at the same time doesn’t make much sense. Will the branded stores even work?
Also, Johnson is combating conventional wisdom of pricing which demonstrates that items ending in .00 convey a premium price; however those ending in .99 convey a discount. Lastly, they are removing the “previously sold at” terminology from price tags. This goes against the odds as customers will not have a reference point on which to base their potential purchase. Customers want to know that they are getting a deal, now they will not. Customers will leave if competitors use this wisdom against JC Penny by offering the same items for $34.99 vs $35. This might have some affect on keeping customers.
I believe this strategy is doomed to fail. JC Penny needs to work on increasing customer loyalty by first working on differentiation.
