Saturday, April 7, 2012

Nice plan, but...

         JC Penney's new pricing policy sounds terrific: 40% off every day. Then why Penney's is already warning people that it may not work?

         The new c.e.o. Ron Johnson is the one who killed the previous strategy of three sales a week and replaced it with this one. They've already got Ellen DeGeneres promoting the no-coupons, no-sales "square deal" plan on television. JCP even has a new square logo.

         The Penney's annual report is much more conservative. The new pricing policy "could result in a prolonged decline in sales", it noted.

         On the website "Time Moneyland", Brad Tuttle speculates that "Maybe shoppers don't want 'fair and square' prices after all." Maybe shoppers enjoy the fun and games of shopping for the best price. The thrill of the hunt, the joy of winning, even the agony of defeat.

         There are reports that some Penney's shoppers already miss the coupons. Others aren't sure when they're getting the best price. Or even a decent price.

          Seems like there's a lot of psychology going on. Sale prices help us rationalize the purchase: "I would never buy this if it were at the regular price!" One expert says the new Penney's plan "underestimates what a sport discount hunting is."

         The Harvard Business Review says, "Quite simply, JC Penney lacks the differentiation to make this pricing strategy successful...When selling an undifferentiated product, the only lever to generate sales is discounts. Even worse, if competitors drop prices on comparable products, Penney's hands are tied --- it's a sitting duck that can't respond."

         In basic marketing terms, setting the price is the only place that allows the company to make money. Everything else costs money.

         In his last incarnation, as Apple's head of stores, Johnson gave us the Genius Bar. Apple products are, for the most part, unique. Penney's biggest problem is that most of their products aren't.

         If this plan works, he's the genius.

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