I tweeted this link (“Why JCPenney’s ‘No More Coupons’ Experiment Is Failing”) a few weeks ago. It’s still on my mind, so I thought I’d share my thoughts on it.

In a nutshell, JCPenney wanted to be fair with their customers by abandoning the illusion of saving through sales and coupons. As we know, retail stores often inflate prices, then promote campaigns, advertising discount offers to attract customer through this hype.

I think it was highly commendable of the company to implement this new strategy and create a campaign out of it – they took a risk. Unfortunately, the risk didn’t pay off, sales dropped. Total sales dropped by 20%.

I want to focus on two areas: i) Why it was a great idea; ii) Was the failing of this strategy caused by the campaign message not resonating with customers or did the “fair and square” practice fail to excite customers to return to the store as often?

Why it was a great idea

On paper, this sounds like a plan that cannot go wrong:

1) The brains behind the strategy was CEO Ron Johnson, the man responsible for the success of the Apple Stores model. This guy knows what he’s doing.
2) Wal-mart and dollar stores already practice this approach and have achieved success
3) They took care of their customers, by engaging in open, honest communication                                                                                                
4) The strategy was logical and rational from a business perspective
5) As a result of the abundance of information through the internet today, customers are more educated and aware of business tactics, so should this “fair and square” practice and the campaign been more appreciated?

What caused the poor response?

This article concludes that customers like the excitement of couponing. As Mr. Johnson admits here:

“We did not realize how deep some of the customers were into [coupons],” said [JCPenney COO Michael] Kramer.
JCPenney CEO and Apple retail God Ron Johnson weighed in on it too. “Coupons were a drug,” he said. “They really drove traffic.”

The effect “getting a deal” has on our mind, involves a greater understanding of psychology than we thought. It seems our brains are triggered to release dopamine when we are able to procure items at discounted prices. This is proof that pricing is more than just a mathematical formula.

JCPenney “Fair and Square” Campaign Touches on Customers’ Expectations

Wal-mart and dollar stores also practice the same strategy; however, their positioning and marketing has never gone where JC Penny did. JC Penny recognized how the abundance of info available on the internet and social media has changed customers’ expectations. Customers today are more educated and appreciate open, honest communication. So, JC Penny delivered an honest, open marketing campaign, revealing their stance on the illusion of saving.

Three reflection points:

1) For the entrepreneurs and marketing folks out there, this proves there is much, much more involved in developing a pricing strategy than simply the knowing the break-even point and target sales/profits/costs. The formula for determining the right price should be a collage of finance, accounting, consumer behaviour, what the competitors are doing, environment, and some blue construction paper, and glitter glue. What does the blue construction paper and glitter glue mean to you?

2) Other companies, like Wal-mart and dollar stores (entities which have proliferated lately!) offer lower prices on a regularly and have achieved extraordinary levels of success. Based on JC Penny’s sales drop, are customers resistant because the “fair and square” campaign message simply didn’t resonate with them, or is it the lack of excitement as this article implies?

3) Is consumerism getting out of hand?

Copyright © Esha Abrol. Canada. July 2012