Faulty Pricing Strategy Cost JC Penney Billions
Former JC Penney CEO, Ron Johnson, implemented massive changes at JC Penney since taking over the helm in November 2011. But the change that led loyal customers to abandon JC Penney in droves was Johnson's decision to take away the coupons, the sales, and the discounting in favor of his “Fair and Square” everyday low price (EDLP) model. According to the NY Times, since launching the new strategy in the last year, “the company has lost $4.28 billion in sales and its stock is down about 55%.”
Research has shown that while consumers may state a preference for the simpler EDLP, in practice they continue to shop around and look for discounts. JC Penney competitors Macy's and Kohl's follow a high-low pricing strategy using high list prices that are discounted through frequent sales and coupons. In practice, customers preferred getting sporadic discounts off higher priced items at Kohls to paying the new undiscounted every day low price at JC Penney.
Shoppers in the middle market served by Macy's, Kohl's, and JC Penney expect discounts. To paraphrase one analyst, “If customers want cheap at an every day low price, they know where to get it: Walmart. That's not the market that JC Penney serves.”
Customers need a reason to shop at a store. Unlike the Apple retail stores that Ron Johnson created, JC Penney doesn't have any magic products to get customers to flock into their stores. The market JC Penney served wanted decent products and they wanted to feel like they got a special deal. Johnson took the deals away, and the customers left as well.