I recently came across a post on the Harvard Business Review Blog Network on JC Penney’s failed marking strategy back in 2012.
JC Penney came up with a strategy to get rid of all discounts and sales, and to only have prices that reflected the true value of its products and merchandise year-round .While it all sounds very attractive at first, the numbers showed that this strategy failed miserably with more than a 20% decline in sales.
Author Alexander Chernev, also a professor of the Kellogg School of Management at Northwestern University, suggests a number of interesting reasons behind JC Penney’s failure.
The reason I agree with most is that JC Penney failed to meet the expectations of its customers with its new marketing strategy. JC Penney had a reputation for having amazing sales with great discounts. Many of its customers were accustomed to this. Furthermore, Chernev argues that sales events often creates additional value for many customers. Some will be able to identify with the feelings of excitement one might get from purchasing an item for 50% off. Somehow purchasing the same item for the same price without the discount is just less satisfying. Getting rid of sales and discounts at JC Penney effectively lowered the value of shopping at JC Penney for customers.
An article by The Huffington Post touches on the same issue, reporting that ex-CEO Ron Johnson severely overlooked how much customers valued and enjoyed sales and using discount coupons.
Clearly, Johnson didn’t understand his customers enough and failed to realise that sometimes, customers are human and do not always display the most logical behaviour. Although, technically, the new strategy offered fairer and lower pricing. Customers did not take the bait.
Something Chernev didn’t touch on which I thought some customers of JC Penney would feel was perhaps a sense of being cheated. If I were a long-time customer of JC Penney who has consistently patronized the store for years and they suddenly enacted this strategy, slashing prices by 40% across the board to reflect the “true value” and price of merchandise… wouldn’t this mean that I had been overpaying for all my merchandise from JC Penney over the past years? I would certainly feel quite upset that I had been effectively “overcharged” throughout the years and would seriously reconsider shopping there again.
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