Wednesday, April 10, 2013

JC Penney's Search for a New Strategy

Ron Johnson was named CEO of JC Penney late in 2011, fresh from high-profile marketing triumphs at the Apple Store and Target. Just days ago, he was removed and succeeded by the CEO he had replaced.

What happened? Johnson's bold idea, implemented early in 2012, was to restore trust by relying on a pricing strategy that's become tarnished in recent years--EDLP, short for everyday low prices. Penney's prices were shown in full dollars, not the usual odd-ending figures like $12.99, to subtly signal an upscale move away from discount perceptions.

And, instead of running sale after sale and printing coupon after coupon, Johnson wanted Penney's to offer the same "fair and square" prices every day. This, he hoped, would reassure shoppers that they could buy at any time without fear that they were missing some fantastic deal. The new strategy was so risky that Penney's listed it as a risk factor in its regulatory filings, noting that shoppers might not respond for many months.

In fact, after years of recession and budget-conscious shopping, many customers have become conditioned to waiting for sales and hunting for bargains. Regular prices just aren't as appealing, in this economic environment, as the thrill or satisfaction of finding something at a big discount. Johnson has been criticized for not taking this type of customer behavior into account.

Yet Johnson did a great job of updating the stores, trimming and updating merchandise lines, and establishing price points that were surprisingly reasonable--very close to the lowest effective price a customer might pay on sale or with a coupon. Walking into JC Penney stores during the past year, I was impressed by the more modern look and the slow but deliberate evolution from a "me too" store to something a little more distinctive.

Johnson was also responsible for new "store within a store" boutiques featuring hipper brands like Joe Fresh, with the goal of attracting younger customers (think: Target-type customers). These boutiques are so new that they haven't had time to show what they can do for Penney's revenues, which continue to be well below expectations.

Meanwhile, the retailer has returned to trumpeting sales to drum up shopper traffic and excitement. The new CEO will be evaluating the situation and searching for a new strategy to jump-start JC Penney in the coming months. He's already hinting at coupons and discounts to bring shoppers back into the store by changing the way they view the value offered by JC Penney.

Looking at the retailing industry overall, is EDLP a viable pricing strategy for any major store? 

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