Introduction
The J.C. Penney departmental store was founded in 1902. So far, it has over 1000 branches spread across the United States. It is a well-known brand in the US. For some time now, J.C. Penney’s pricing strategy has been based on sales, discounts, and promotions. The chain has indeed struggled with a pricing strategy for a relatively long period. The department stores operated by J.C. Penney are managed centrally. Some of the retail goods sold in the stores include housewares and apparel. Besides, there are several leased departments under the stores operated by J.C. Penney, such as 8jewelry repair, photo studios, and optical centers.
Johnson’s pricing strategy
Ron Johnson sought to reduce the number of promotional sales of retail goods in all the J.C Penney’s stores. The ‘everyday’ price was turned into a sale price for J.C. Penney’s merchandise. This meant that prices were no longer being jerked up. When the frequencies of promotions are reduced, customers are able to anticipate for sales events and also actively engage in buying during the promotion period. In the case of Ron Johnson’s strategy, prices for goods were marked down using the previous year’s sales. Markdown is a primary strategy for cutting down prices in order to increase the volume of goods sold.
Second, Johnson opted to use an easy pricing model for the merchandise at JC Penney. Instead of using decimal figures like $25.99, Ron Johnson adopted whole figures (such as $25 or $30) when pricing the retail goods (Lublin & Mattioli, 2013). Such a model makes it easy for targeted customers to vividly distinguish various pricing categories set by a seller.
Johnson also made changes in the price tags. They were made easy to decipher by customers. For example, the ‘best price’ was shown by the blue tag, a month-long value was displayed using a white tag, while an ‘everyday’ price was depicted by a red tag.
The number of promotional sales was reduced substantially. For instance, a tag with an ‘everyday’ price remained to be so for the given time. The white tag for the month-long value displayed the product on sale for the whole four-week period. For items marked with the ‘best price’ tag, it implied that they did not sell as first as other merchandise. Hence, they were put on sale in the first and third Fridays of every trading month. It is vital to mention that setting specific sale dates prepares customers both psychologically and financially.
Johnson also changed the design of the company’s logo. Any change in design reinforces the visibility of a brand, especially in a highly competitive market. Most probably, Johnson’s idea was to improve the physical visibility of J.C. Penney, especially to new customers (Reingold, Jones & Kramer, 2014).
Reasons for Johnson’s failure
One of the changes initiated by Johnson was to cut down the number of promotions. This led to a negative impact on the volume of sales made on J.C. Penney’s merchandise. It is pertinent to mention that the change was effected even on competitor stores (Mattioli 2012, January 26). Obviously, some consumers must have opted to divert their loyalties to immediate competitor stores in order to reap the low price benefits associated with promotions. Consequently, the market share of J.C. Penney was significantly affected. The effective price that consumers pay for goods and services is usually raised in the absence of coupons and other forms of promotions.
The operation of J.C. Penney is within a competitive environment. A business landscape that is highly competitive demands a number of attractive pricing strategies on a regular basis. When Ron Johnson decided to do away with promotions and even reduce the number of sales events, the company was definitely affected owing to the stiff competition from similar departmental stores selling substitute products. When there are more attractive offers next door, the budget-constrained and price-sensitive consumers cannot stick with a costly retailer.
Consumers were already financially constrained during the time when Johnson introduced the changes at J.C. Penney. However, a low purchasing ability had already been aggravated by the weak recovering economy of the United States. The nation was gradually in the economic recovery phase after the global economic turmoil that began way back in 2007. Therefore, it would have only been necessary to run promotions and discounts at J.C. Penney’s stores until the economy recovers. (D’Innocenzio, 2012).
Some economic analysts also argued that Johnson implemented the new changes too fast. The number of sales events was reduced. Promotions were also minimized. Johnson also eliminated most discounts and coupons from the pricing strategy. In order for new changes to gain ground in a competitive market like the retail industry, Johnson should have introduced and implemented the new pricing strategies gradually.
Strategic options for Ron Johnson
Ron Johnson was supposed to engage small-scale tests in order to establish the viability of the new pricing strategies. Owing to the natural conservative nature of consumer behavior, the drastic changes failed to yield the expected results. In addition, a different approach should have been used in the execution, positioning, and planning of the pricing strategies. A manager can only understand the tastes and preferences of consumers through continual iteration.
Ron Johnson should not have destroyed the old business model when he was putting in place the new pricing strategy. An old model is always worthy as a critical point of reference whenever new strategies are being implemented.
Irrespective of the pricing strategies adopted by Ron Johnson, the latter was supposed to consider the importance of core customers of J.C Penney. Loyal customers of a particular brand should never be alienated whenever new changes are being executed. The shopping experience for old customers is a crucial factor in maintaining a revenue stream for a company. When Johnson ignored this segment of the market, it led to a gross reduction in the volume of sales and the subsequent drop in income.
Brand recognition is one of the most powerful marketing tools for any public organization that needs to attract and retain customers. When Johnson changed the logo design for J.C. Penney, several customers felt like the company was no longer the same.
JC Penney’s and Johnson’s pricing strategies
J.C. Penney resolved to use the past pricing strategies such as numerous sales, coupons, and promotions in order to attract and retain both new and old customers. However, Johnson reduced the number of sales, discounts and promotions during his short tenure at J.C.Penney (Mattioli 2012, January 25). He wanted to be more sincere and honest with customers when he introduced the use of whole figures instead of decimals on price tags. Currently, J.C. Penney jerks up its prices on a regular basis contrary to the ‘everyday’ prices that were put in place by Johnson (Reingold, 2012). The latter is aimed to running a continuous sales process. This form of pricing strategy is an effective marketing tool since it enlightens customers on a continuous basis.
In five years time, J.C. Penney might still find itself struggling with its departmental stores mainly due to competition and the changing market segmentation. New pricing and operational strategies must be embraced and adopted by the company after careful planning so that the departmental store can remain afloat, competitive and profitable. Marketing efforts such as the use of celebrities and changing the current merchandise are instrumental in the growth and performance of J.C. Penney.
References
D’Innocenzio, A. (2012). J.C. Penney slashing prices on all merchandise. USA Today. Web.
Glazer, E., Lublin, J. S., & Mattioli, D. (2013). Penney backfires on Ackman. Wall Street Journal (Online). Web.
Mattioli, D. (2012). How J.C. Penney was minted. Wall Street Journal. Web.
Mattioli, D. (2012). J.C. Penney chief thinks different. Wall Street Journal. Web.
Lublin, J. S. & Mattioli, D. (2013). Penney CEO out, old boss back in. Wall Street Journal (Online). Web.
Reingold, J. (2012). Retail’s new radical. Web.
Reingold, J., Jones, M. & Kramer, S. (2014). How to fail in business while really, really trying. Fortune, 169 (5), 80.