smartyrants
By: Intern May 31, 2012
Why JCP’s New Strategy Will Take Time

Imagine for a second you are shopping for a blue polo shirt. You find two department stores with a seemingly identical selection. One store lists the suggested price of their blue polo at $29.99, but is offering it on sale for $21.99 this week. The other store does not offer discounts, but has their blue polo listed at an everyday price of $20. Which polo would you choose to purchase?

The logical consumer would choose the store selling the shirt at $20, knowing he or she is saving $1.99 over purchasing the polo from the other department store. However, this is not the way many of us are wired. When many consumers are presented with sales, they feel added satisfaction knowing they paid less for a product than they normally would have. In this consumer’s mind, the $21.99 polo would be chosen over the $20 polo. Even though both shirts look pretty similar, the one on sale is normally priced almost $10 above the polo from the less expensive store. The consumer is led to believe this polo must be better, and for only $1.99 more than the “average” polo, it’s worth the premium.

It’s easy to rationalize this thinking to yourself and it’s even easier to bite on a deal. However, many consumers don’t realize that suggested retail prices are almost always inflated above what the item is actually worth. This allows retailers to offer numerous sales on many different items, giving customers the perception that the items are cheaper.

Enter JC Penney. The big-box retail giant announced plans to eliminate many of their famed sales and coupons in favor of a more unified pricing scheme. How drastic is the change? A department store that used to have 590 promotions a year now only has twelve. When a store’s retail base is comprised of customers coddled to covet coupons like crack, switching to more stable pricing seems like brand suicide.

But is it? JC Penney’s top management admits the conversion to flat pricing will take time. CEO Ron Johnson says their transformation won’t be complete until 2015. JC Penney hasn’t completely eliminated price tiers; they’ve just removed the coupons and seemingly endless promotions from the equation. There are now three tiers: everyday prices, month-long values and best prices. Best prices, released on the first and third Friday of every month, are simply items that have moved to clearance.

JC Penney’s toughest task is convincing consumers to bite on their everyday pricing. Their new “Do The Math” campaign is focused on showing how the new pricing saves customers money, even over the price of the same item after coupons and discounts last year. For example, a dress that would have been $39.99 after both discounts and a coupon is still more expensive then the new $35 everyday price of the dress. It’s safe to assume that overall, new retail prices at JC Penney will be much lower then the suggested retail price of old. While consumers may be wary, the new prices will almost certainly help more JC Penney customers save money.

I can’t blame consumers for being skeptical. We’ve all been taught to believe that “suggested retail prices” are dogma and that department store coupons and discounts are our buffer against the draconian, profit-hungry corporations that stock their shelves. However, if JC Penney can effectively convey their idea of rational pricing to the everyday consumer, this thinking can be changed. It will take some time, but I truly believe JC Penney’s can re-wire the irrational thinking behind consumer shopping decisions.

 

 Kearney Erhard attends Syracuse University and interns at Travers Collins.

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