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JCPENNY:

“FAIR AND SQUARE” PRICING STRATEGY

Author: Thien Tran | November 2014

Evaluate the overall effectiveness of the ‘Fair and Square’ repositioning strategy.

What elements work for you? What does not? What elements to your mind are

missing?

To “Fair and Square” repositioning strategy, Johnson deployed a plan to JCPenney’s radical

makeover such as new logo, new brand ambassador, new store merchandising, new sales

structure and especially new pricing strategy. Among them, new logo and new brand

ambassador seemed quite efficient as theoretically, there are many ways to change brand

positioning which can be visible and invisible. JCPenney’s logo and brand ambassador were

what consumers could imagine, describe and exist in their mind for a long time. Therefore,

changing its identification enabled consumers to implicit a change in brand structure. However,

any changes really need a certain time to get consumers perceived and remembered gradually,

but Johnson changed three JCPenney’s logos within three years from Penney’s to JCP and then

JCPenney which I do not think it is a good strategy. Similarly, brand spokespeople are the

person whose characteristics may be homogeneous with a brand personality, and represent a

certain group of consumers. They consolidate brand message and play a role of connecting a

brand to its target consumers. It is asserted that the selecting a right ambassador is not an easy

job as it impacts indirectly on the success of the brand in terms of positioning and revenue.

Johnson thought choosing Ellen to be JCPenney’s brand ambassador could fit their new brand

positioning, but the problem was that he did not make a thorough study on his choice to

foreseen and avoid unexpected problems. As a result, this led to conservative opinions relevant

to sexuality among consumers.

CASE STUDY ANALYSIS

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The next step in his plan was to renovate JCPenney’s makeover including developing private

label and store merchandise. In my opinion, private label was one of a good ways to identify the

brand, but new merchandise did not really work out. What Johnson did was to cut and paste

business models of Walmart, Target, especially Apple to make up a new JCPenney, but he forgot

that those companies sold different types of product, served different customers and positioned

at different tiers. Unlike old model, JCPenney abandoned “sales” and “clearance”, which has

existed in consumers’ mind for a long time, making 60% of responses noticed a negative change.

As they could not find the bargain or clearance items which had been main reasons for their

shopping at JCPenney so far. In addition, the mixture between private label and other

multinational brands in new stores made consumers confused as they might not know whether

the company now positioned itself as a lower-tier discounter of higher-tier department store.

They thought JCPenney might try to gain new younger shoppers, but those people felt

comfortable with shopping at frumpy stores only.

In conjunction with above elements, Johnson noticed a totally new sales structure by which

there was no commission for salespeople taking effect immediately. From my point of view, no

matter what he did, he should give it a trial meaning that the staffs should be informed in

advance before effective date. Clearly, they were the people who interacted with consumers on a

daily basis, so this sudden change affected their working attitude which might impact on

consumer purchase behaviour and business as a whole. Without the support of internal factors,

the company finds harder to complete and achieve business target. It is the fact that happy

staffs, happy customers, happy stockholders.

The most significant in “Fair and Square” strategy is changing pricing structure consisting of

three pricing tiers, eliminating coupons and “sale and clearance” terminologies, ending price

with .00 instead of .99 and new return policy. Among these changes, I just agree with only the

new return policy as it was a point of difference against competitors which reassured consumers

and motivated their purchase behaviours at JCPenney. As for the rest, the first one is to

eliminate coupon and “sales and clearance” which I think they did not work. There is no doubt

that value has been main reason consumer shopped at JCPenney and this seemed to be the

brand’s value proposition over competitors. They chose JCPenney for its reasonable and clear

pricing structure which demonstrated in old “Sales and Clearance” promotional events and

high-low mechanism. Furthermore, most target consumers of department stores were mothers

who hunted around for coupons or good deals on a daily basis which motivated their purchase

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behaviour at JCPenney. As reported by Morgan Stanley, 58% of responses thought “Best Prices”

were difficult to understand and 69% of them found it difficult to compare with non-sales prices.

As a result, they scored JCPenney lower on value perception score and moved to its competitors

meaning that this new strategy did not work. Besides above changes, Johnson rounded all .99

pricing to .00 which I think it was a proper change. As psychologically, 0.99 ending usually

made purchasers think that the price was discounted against original one, so it will be more

efficient on sales seasons.

Regarding new communication strategy, Johnson and his team raised a war against both

customers and competitors. Stopping using coupon, complex pricing structure, and direct mail

were what they conveyed to consumers, which were completely contrasted with their previous

value proposition. It meant that the company abandoned its heritage and more importantly it

did not concern about their consumers’ demand. Without making research and testing before

launching, Johnson’s “Fair and Square” strategy was rejected by its core consumers.

Do you agree or disagree with the changes that Johnson is making to the pricing

scheme that are set to take effect August 1st? If yes then why? If no then why not?

Are they enough to turn things around?

After reviewing negative effects of “Fair and Square” strategy, Johnson decided to change

pricing scheme from “Best Price Friday” to “Clearance” and eliminate “Fair and Square” within

the store. Personally, these were positive changes showing the company’s goodwill to listening to

customers. As reported by Morgan Stanley, 69% of responses said that the term of “Best Prices”

made them confused and difficult to compare with non-sales prices, and 71% of them thought

that “Best Prices” was difficult to compare to other deals. Thus, when it turned to be “Clearance”

it was much easier to understand as this terminology has been in their mind for a long time.

However, I do not think it was enough to turn things around. Psychologically, JCPenney’s

consumers, especially mothers, who were key target segment for most department stores, got

used to play a game of hunting for deals and mark down from the original price. Also, coupon

was one of the incentives to impulse their purchase behaviour at JCPenney but unfortunately

they no longer received. As a result, they moved away from JCPenney and started shopping at its

competitors’. Therefore, I think Johnson should resume coupon programs and make a better

and constant communication plan to bring them back as soon as possible.

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As a matter of fact, in addition, 590 promotion events ran in 2011 demonstrated their efficiency.

In particularly, the stock index witnessed a shoot up 24% in conjunction with an increase in

revenue of $17.3 million. However, Johnson decided to winnow from 590 to 1 with a reason that

it confused consumers, but he did not think “Fair and Square” strategy was the problem. The

business was on a downward slope and it needed an immediate action plan of which sales events

could be prosperous, so I do not agree with his decision.

What should Johnson do now? Looking out one year, will J.C. Penney be a

stronger or weaker brand if he stays on the current course?

Personally, JCPenney will be a weaker brand if the company continues to follow current strategy

as before Johnson took over the business, the company’s revenue had suffered a heavy lost in

revenue. When the company was under his control, he had brought about others crisis including

a significant decrease in amount of core customers and uncooperative attitude of internal staffs.

It probably denotes that JCPenney’s working capital was no longer healthy and the company

really needed time to figure out solutions to recover as soon as possible.

Given data showed that e-commerce of JCPenney was much lowers than Kohl’s Corp and

Marcy’s, so Johnson should allocate marketing budget to boost e-commerce transaction. To

draw people to online shopping channel, on the one hand, he may offer a deeper discount on

online items to impulse their “call to action”, and separate online retail from brick and mortar

store on the other hand. Regarding online shopping, the product assortment should be different

from department store; for instance online channel offered wide ranges of private label products

which target women while department store will mainly sell other famous brands such as

Mango, Gap, and so on. Due to the failure of “Fair and Square” strategy, JCPenney lost dozens of

loyal customers, so he should run short-term sale promotions with deeper discounts on original

price in conjunction with advertising to draw consumers’ attention. Moreover, he should

prioritize marketing budget on key categories which mainly generate high turnover such as

women’s and men’s apparel accounted for 45% over total revenue in 2011.

Next, as can be seen from exhibit 4, the sale per retail square footage of JCPenney was lower

than competitors meaning that the merchandise did not work efficiently. The potential reason

could lie behind the number of items per transaction which will be high or low depending on

retail sales team. Through personal selling technique at point of sales, most salespeople can

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convince customers to pay for items that they do not plan to buy, so the conversion rate

increases significantly. Of course, they need an incentive to get the transaction done, but

Johnson considered sale commission as null and void. As a result, they were not enthusiastic in

explaining new pricing structure to consumers. Therefore, I think Johnson should restart that

program, especially in low sales season to inspire and motivate staffs to close sales on every

transaction. This does not only help the company increase revenue, but also relieve JCPenny’s

vendors as the higher conversion rate, the lower inventory.

JCPenney has 1,100 stores in total of whom 400 stores are in small towns. I think one of the

reasons leading to JCPenney failure is that Johnson was so subjective and confident in his

experience and success in the case of Apple and Target to JCPenney, so he applied these

concepts to JCPenney without any testing on market and consumers. To make sure feasibility,

therefore, I think he should temporary stops renovating remaining stores instead of spending

time on evaluating and analyzing the market especially consumers to make a better plan in the

short term. Simultaneously, he may use that budget for marketing activities such as sales

promotions, advertisement, customer relationship management, staff training, to raise the

company revenue.