Five Lessons from JC Penny Pricing Strategy Failure

US is a highly customer sensitive market. Radical experiments can work, but when backfire, retrieval is generally almost impossible.

Undoubtedly pricing strategy is the key to bring customers in stores. US customers are known to drive miles to avail small coupon offers. Price war is tough. In this situation why did JC Penny showed bravery in changing its pricing strategy and stopped issuing coupons to its customers who were used to of getting deals from the store via coupon based promotions. That resulted in a significant decline in customer visits, resulted in sharp decline in sales which had fallen 26.1 per cent against an estimated decrease of 17.9 per cent.

Before the start of Christmas session, JC Penny needs to bring its customers back. Stores are now focusing on putting manufacturer’s prices together with Penney’s deal prices. They are hoping that these two price tags are expected to attract customers. Stores are also starting seasonal vendor promotion technique which means partnering with vendors that are already putting their products on sales.

These are struggling time for a store which was branded as one of the top place for excellent deals on a variety of products. CEO Ron Johnson assumes that his vision will transform JC Penny from a “sales-heavy promotional departmental store to an everyday low price specialty department store.”

There are five key lessons from JC Penney case:

Never hire a CEO who Did departmental store retail sales a decade ago:

Before joining JC Penny Ron Johnson worked 11 years at Apple where he opened 300 stores. Prior to this, he was with Target Corp for 15 years. Between Apple and Target, there is a gap of 11 years. Customers he was focusing at Apple are more sophisticated as compared to a wide variety of customers JC Penney has! Perhaps his understanding of customer behavior needed some brushing-up.

Do not annoy customers with Radical Change in Pricing Strategy:

Winning customer loyalty takes time and efforts. There is no doubt that retaining customers is less costly as compared to making new customers. Once they are comfortable  with a certain pricing mechanism, it will be extremely difficult to convince them that a radically changed price strategy is in their benefit.

Do not fail to ask your customer’s opinion:

If you wish to change your pricing strategy, ask your customers first. This will help in creating a smooth transition or at least you will know what customers feel about the change, will it be accepted or otherwise.

Learn to work with your vendors:

Your vendors are your key partners. After all they are using your space to sell their products. Instead of a radical change in pricing strategy, could JC Penney not have negotiated a price deal with its vendors by asking them to offer better margins to its stores?

Customer is the King:

In today’s highly competitive world, customers have many choices and less time. It is not advisable to ruin your reputation by doing things that are unacceptable by your customer. Highly challenging to bring your customer back in the stores!

After joining JC Penny Ron Johnson said “I didn’t come here to improve. I came here to transform. Every single leader in America who works to improve their business year after year…can create gradual results, but the only question is, how fast did you improve compared to someone else? You don’t fundamentally change your position in the marketplace.”

But Mr Johnson, at times wrong Fast Actions put business into the ditch!

About the author

Hammad Siddiqui Passionate Trainer, Blogger and social media strategist - Qualified from US Chamber of Commerce’s Institute for Organization Management, I have been engaged in Private Sector Development for over 22 years. Love reading, traveling, mentoring. Professionally, I am working as Deputy Country Director at Center for International Private Enterprise (Pakistan Office) - My blogposts cover topics related to Entrepreneurship, Management, Career and Social Media. You can join me at Google+ or Facebook.

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1 comments
Neelofar Hameed
Neelofar Hameed

Great article. The sudden knee jerk reaction of customers due to change in pricing strategy is likely to be like this.

Trackbacks

  1. […] Everything must go. Johnson’s unorthodox moves and the resulting plummet in retail sales have led many to question his strategy. One blogger suggests there are at least five lessons other entrepreneurs can take from what some already call a “pricing strategy failure.” From the beginning, Johnson has admitted his approach is unusual but insists he still believes it will pay off. The question remains whether changes instituted to reverse declining sales will do irrevocable damage to the chain instead. Hammad Siddiqui Blog […]

  2. […] Everything must go. Johnson’s unorthodox moves and the resulting plummet in retail sales have led many to question his strategy. One blogger suggests there are at least five lessons other entrepreneurs can take from what some already call a “pricing strategy failure.” From the beginning, Johnson has admitted his approach is unusual but insists he still believes it will pay off. The question remains whether changes instituted to reverse declining sales will do irrevocable damage to the chain instead. Hammad Siddiqui Blog […]