J.C. Penney’s “fair and Square” Strategy

J.C. Penney’s “Fair and Square” Strategy

PROBLEM STATEMENT

The main problem is J.C. Penney repositioning in the market. Whole department stores industry, especially middle market retailers experienced declining in consumers’ demand. Economic recession hit them badly and increased in consumers’ economic conservation. There was a gradual decline in stock performance (Exhibit 1) from ~ 82 (mid-2007) to ~ 40 (beginning-2012). J.C. Penny needed some changes in strategies. After being appointed as CEO, Johnson was determined that overhaul of every aspect of business will solve J.C. Penney’s problems. A new plan was positioned which included new logo, new brand spokesperson, new store design, new sales structure along with new pricing strategy - Fair and Square, which was the central component of the new strategy.

The Fair and Square strategy had three pricing tiers and got rid of traditional promotions and offers, trying to simplify the shopping experience for consumers. Announcement of Fair and Square pricing encouraged the investors, sending its stock up. But several months later, the company delivered disappointing results, the number of customers down by 10% and revenue dropped by 19%. What went wrong was not just a matter of miscommunication, but majorly J.C. Penney’s marketing team made a mistake by getting rid of the traditional discount offers which attracted the consumers. The coupons and limited period discounts were discontinued. There was just no sense of urgency. Loyal customers were moving away as there were no more special discounts since the chain stopped sending them coupons. Total sales decreased by 20.1 percent. Online sales through jcp.com were $271 million in Q1, 2012, dropped 27.9% from previous year.[1]

SITUATION ANALYSIS

According to Johnson, the new pricing strategy was based on the idea: “The customer knows the right price for every product, so it’s better to price things right from the start.” Their strategy was to clear up discounts and offers, trying to communicate fair prices to the consumers. But there are several flaws in this strategy. How do the consumers consider prices to be fair and do they prefer fair prices of the products over low prices?

No coupons, discounts means higher price image for the consumers and they are normally unaware of the prices until they get to see the price tags and mostly perceive level of pricing in stores based on their past experiences. Johnson might consider Fair and Square pricing to be beneficial for the consumers, but the elimination of discounts and sales backfired as the customers’ perception of no discounts was different and also lowered the chances of loyal customers to return.

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1 http://ir.jcpenney.com/phoenix.zhtml?c=70528&p=irol-newsCompanyArticle&ID=1696183

Strengths

Well established, more than a hundred years old retailer. Wide national presence.

Private and national labeled brands, large product range at reasonable prices.

Weaknesses

Elimination of discounts and coupons with the new pricing strategy, taking away the sense of urgency.

Opportunities

Expansion