By now you surely know that JCPenney changed their pricing strategy. In February they went from having 560 annual sales events to everyday low pricing (EDLP) with prices 40% lower than before combined with infrequent sales.
At the time, I wrote they would succeed. Oops. In May they reported their revenue was down 20%.
Why is this new strategy not working?
Many writers suggest that shoppers are more addicted to discounts than JCPenney thought. Surely there is some truth to that explanation. After all, doesn’t if feel great knowing you’ve landed a phenomenal deal on something you want? Besides, sales imply a limited time offer, which may motivate people to buy things they weren’t really in the market for.
However, I don’t think that’s the biggest explanation. We see successful stores today that thrive with EDLP pricing strategies. Walmart, Sam’s club, and Costco are examples of big box stores who succeed with EDLP. So surely it is possible for EDLP to work, but why isn’t it working for JCPenney?
Answer: EDLP is a change to their price brand.
Every company that has a brand, has a price brand. Think of this as the expectations the company has established through past pricing behaviors in the shopper’s mind. This could be level of pricing (high, medium, low) or frequency of sale events, or coupon availability or how easily discounts can be found. Look at the following list of companies.
Nieman Marcus, Macy’s, Target, Amazon.com, BMW, Kia, Ford, Apple, Dell, Sony.
For each of these companies, think to yourself, do they charge low prices, high prices or somewhere in between? How often do they offer discounts? What type of discounts do they use?
For each of these companies, you have an idea in your head about how they price. Now add JCPenney to the list. They have a middle of the road pricing strategy, but most importantly everybody who shopped there prior to February 2012 expected to buy their items on sale.
Suddenly, JCPenney is trying to change the way we as customers think about their store. This is very hard. Imagine BMW trying to convince us their cars are inexpensive, or Walmart charging high prices? It doesn’t fit with their price brand.
This is the problem JCPenney is facing. It is very hard to build a brand. It is even harder to change one. Telling someone your brand has changed is rarely enough. A company has to prove it over time. How much time and money is JCPenney willing to invest to change their price brand? I still hope JCPenney succeeds with this strategy, but it’s looking doubtful.
What should you take away from this? Know that everything you do around pricing creates your price brand. It is very difficult to change your price brand once it’s established. Be sure the pricing you use today is consistent with the brand message you want to have in the long run.
Mark Stiving, Ph.D. -Pricing Expert
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