JC Penney

JC Penney

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J.C. Penney

Introduction

J.C Penney is an American consumer goods retailer. The company was founded by James Cash Penney in Wyoming. In 1902, the enterprise opened its first store. Since then, the company has expanded to over 1,000 retail locations. The JCPenney brand is committed to providing its customers with items of style and quality. The company’s retailing was initially carried out through a catalogue business. However, J.C. Penney transitioned to mid-range department stores, with the growth of suburban America. Many of these stores are located in downtown areas and suburban shopping malls. With the advent of the internet, the company has attempted online retailing, with some success.

1. J.C. Penney’s New Pricing Strategy

The U.S Department Store Industry consists of around 20 companies, with annual revenues of $60 billion. Collectively, the industry consists of over 3,500 stores. JCPenney’s competitors include Kohl’s, Macy’s and Dillard’s. However, the internet’s rise has disadvantaged the Department Store industry. Fewer consumers are visiting retail locations, in favor of online shopping platforms such as EBay and Amazon. To remain competitive, many retailers have tried to undercut the competition’s prices by offering sales to consumers.

Since early 2012, JCPenney has instituted a new pricing strategy known as ‘Fair and Square’. It features marked down prices on all of its products by at least 40% (D’Innocenzio, 2012). The strategy is offered in three tiers, arranged in order of low, lower and lowest discounts. First is the ‘Every Day’ low pricing. Second is the ‘Monthly Value’ strategy that discounts selected goods on a monthly basis. Finally, select goods will be sold during the first and third Friday of each month with the ‘Best Price’ strategy.

There are various reasons for JCPenney employing such a risky strategy. First, it aims to institute sale prices as the chain’s daily prices. This increases the predictability of prices for consumers, as they do not have to wait for rock bottom prices during sales. JCPenney hopes to make pricing easy for consumers to understand. In that light, it has set three types of tags. Red tags represent ‘Every Day’ prices, white ones for ‘Monthly Value’ and blue ones for ‘Best Price’. Similarly, JCPenney will employ whole numbers in its prices.

2. The New Pricing Strategy’s Long-term success

It is my opinion that JCPenney’s pricing strategy will neither work as a short-term nor long-term strategy. It is clear that the retailer is not attempting to undercut competition’s prices, as is the case with Wal-Mart’s ‘everyday low prices’. For JCPenney’s pricing strategy to work, the brand needs to have acquired some differentiation in the market. However, JCPenney lacks such a competitive advantage. Its goods are considered of lower quality as compared to Macy’s. Industry experts have described JCPenney’s stores as ‘boring’. Product differentiation acts as a shield from competitors that may attempt to undercut prices. In my opinion, the only way JCPenney can compete with Kohl’s and Macy’s is by offering discounts. The new pricing strategies limit the company’s ability to respond to competitors as they drop pricing on similar goods.

JCPenney’s core market mainly consists of middle-class Americans. A weakened economy has hit the middle-class hardest. Their expenditure on consumer goods has therefore, been lowered. The new pricing strategy is relatively inappropriate for the aforementioned middle-class market. Pricing that ends with .99 indicates product value to customers. However, JCPenney has gone ahead with pricing goods with 0 at the end. Prices ending with 0 are associated with premium goods. This may be an undoing for JCPenney’s sales considering its target market. The weak economy is partially responsible for changing consumer behavior. Consequently, consumers seek lower prices for their goods. Competitors such as Macy’s and Kohl’s may hinder the pricing strategy’s effectiveness. This is attributable to their higher impression scores, which indicate customer satisfaction levels.

3. How Pricing strategy complements merchandising and promotional strategies

JCPenney positions itself as a provider of quality and fashionable goods to its customers. The company’s target customers are young families. JCPenney segments its market into ‘Modern Spenders’ and ‘Starting outs’. Following the ‘Fair and Square’ pricing strategy, JCPenney has developed a new product promotion strategy. First, it has developed a new logo. It features the colors red, blue and white, alongside its title on the top left corner. The squares on the new logo correlate to the brand’s ‘Fair and Square’ pricing strategy. The new logo complements the ‘Fair and Square’ pricing. The colors represent the various tags implemented with the pricing strategy.

Alongside the ‘Fair and Square’ strategy, JCPenney has reduced the number of labels that it sells. The pricing strategy complements the merchandising strategy in various ways. First, the use of simplified tags assists customers in locating what they want. The three tier pricing system also complements the merchandising strategy used in the stores. Products are grouped according to what pricing tier they belong. This serves to aid customers in identifying their required goods. As part of its merchandising strategy, the company bought a stake in Martha Stewart Living Omnimedia Inc (Dallas News, 2011). This will allow JCPenney to sell Martha Stewart’s products through small stores within the department stores. This will allow the company to compete once again in the home products category. The ‘Fair and Square’ strategy will give consumers greater choice alongside the merchandising strategy.

The promotional strategy at JCPenney is mainly aimed at creating selective demand, therefore, bringing in extra customers. This is highlighted by a commercial featuring a young playful girl. The ‘Fair and Square’ pricing scheme is communicated through JCPenney’s promotional strategy. In another advert, the copy highlights JCPenney’s permanent great prices. The promotional strategy also seeks to inform consumers on JCPenney’s range of products. The pricing strategy provides the promotional strategy with a new outlook on the brand’s products as categorized by their pricing. Finally, JCPenney’s promotional strategy aims at differentiating the brand from its competition, thereby achieving the needed market positioning.

4. Lessons from J.C. Penney

There are numerous lessons to be learnt from JCPenney and its pricing strategy. The ‘Fair and Square’ pricing strategy phased out the retailer’s markdowns and coupon discount programs. Most of JCPenney’s customers are unfamiliar with the concept of permanent ‘everyday’ value pricing. They are used to sales events advertised on the media. The adopted pricing strategy also goes against the JCPenney brand’s retail tradition. In the short term, the ‘Fair and Square’ pricing strategy will hurt the retailer’s sales volumes.

From that, it is learnt that consumers treat everyday pricing as more of a markup than sales. This is especially true for markets that are used to having sales promotions. This prompts them to try to stay away until they get a sale. Otherwise, they switch to other retailers that provide them with sales promotions. In the long term, the new pricing strategy may be rewarding for JCPenney. For success with the strategy, more promotional activity should be used in educating the consumers on benefits of everyday low prices, as opposed to sales.

From the case of JCPenney, it is learnt that unique merchandising or market positioning are necessary for an everyday pricing strategy to work. The everyday pricing concept was borrowed from Apple. However, everyday pricing works well with high-end brands that have unique products, such as Apple. Moreover, Apple stores are a monopoly in selling Apple products. They are, therefore, able to operate with fewer sales and promotions. However, JCPenney is a retailer that sells numerous products that are not unique to it. For instance, it shares the Martha Stewart product line with Macy’s. Similarly, the Levi’s 501 jeans line is shared with Kohl’s among other retailers. Brand loyalty is essential for an everyday pricing strategy. However, JCPenney lacks the brand loyalty and service quality, as compared to retailers like Nordstrom (Isaacson, 2013).

From the JCPenney case, the importance of reference prices for consumers is learnt. Before implementation of the ‘Fair and Square’ pricing, product tags contained the recommended pricing. As a result, consumers could judge whether they were receiving good deals from the stores. However, the new pricing policy got rid of reference prices on the tags. In the short term, the stores sales volumes declined. This is attributable to customers’ difficulty in judging the product value. This is coupled by the fact that JCPenney’s merchandise is undifferentiated from the market. In the long term, JCPenney’s market share would have fallen due to that policy.

Conclusion

Consumers develop their shopping habits alongside a retailer’s strategy. JCPenney has continuously offered sales to consumers for the most part of its existence. As a result, shoppers have come to expect sales events at the stores. The decision to switch to everyday low prices went against the company’s tradition. Similarly, it took away a reason for bargain-hunters, and loyal customers, to shop there. In the long term, the strategy would bring in a new generation of consumers, who are less inclined towards promotional activities. With reference to JCPenney, everyday low prices do not necessarily lead to lower prices. This resulted in an exodus of customers from the retailer’s stores. Indeed, everyday low pricing strategies cannot be carried out successfully. For JCPenney, it maintained the prices even over holiday seasons such as Christmas and Hanukkah. As a result, shoppers went to stores that allowed them great savings.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

References

Dallas News. (2011). J.C. Penney buys stake in Martha Stewart’s company | Dallasnews.com – News for Dallas, Texas – The Dallas Morning News. Retrieved from http://www.dallasnews.com/business/retail/20111207-j.c.-penney-buys-stake-in-martha-stewarts-company.ece

D’Innocenzio, A. (2012). USA Today. Retrieved from www.usatoday.com/money/industries/retail/story/2012-01-25/penneys-price-overhaul/52787388/1

Isaacson, B. (2013). Lessons in Pricing Strategy from JCPenney « MMR Strategy Group « Research-based Consulting. Retrieved from http://mmrstrategy.com/think-tank/lessons-in-pricing-strategy-from-jcpenney/