3 reasons why J.C. Penney is wrong to compete on price

March 2, 2012 at 7:02 am | Blog

Department store JC Penney is going the way of Walmart, by changing their pricing structure into more of an “everyday low prices” style of marketing model. According to this article from Yahoo Finance, instead of offering hundreds of sales and promotions, JC Penney is trying to adopt a more consistent and predictable pricing structure, with all merchandise priced about 40% lower than its previous “regular price.”

Until recently, JC Penney has offered hundreds of sales and promotions throughout the year, and last year the company earned nearly 75% of its revenue from merchandise that was discounted by 50% or more. The old strategy was that by propping up prices, and then discounting them as “special promotions,” customers would be motivated to snap up bargains.

Unfortunately, JC Penney’s old strategy of marking up prices and then slashing prices hasn’t led to big sales. Same-store sales were up only 0.7% in 2011, much less than competitors like Macy’s and Kohl’s.

With its new “lower price” strategy, JC Penney’s is hoping that instead of being dazzled by major markdowns off the “suggested retail price,” JC Penney customers will buy more stuff once they have a better understanding of the “Every Day” price.

I think JC Penney’s strategy is wrong. There are ways to compete, even in the highly competitive world of retail, without slashing your prices.

3 reasons why JC Penney should not be cutting their prices: 

  • Price is not a competitive advantage: We tell our clients again and again, “Don’t try to compete on price; offer more value instead.” I’ve written before on this blog about how price wars have no winners. If JC Penney is trying to cut their prices to keep customers in the store, they’ve already lost. There is always going to be a lower-priced competitor out there, and even a massive, high-volume retailer like Walmart has struggled to compete solely on price.
  • Cutting prices is not what JC Penney does best: JC Penney needs to take a hard look at why people should still shop with them. There’s got to be some reason why customers keep coming back to JC Penney. Is it the selection, the service, the one-of-a-kind brands? Is JC Penney a good store for moms with young children, school-age kids, or for middle aged people and “empty nesters” who need comfortable, convenient shopping? Whatever the answer is, JC Penney needs to figure out who their ideal customers are, and find new ways to reach these customers with relevant selling based on JC Penney’s unique competitive advantages. 
  • Online stores will always be cheaper: The JC Penney story is yet another example of how brick and mortar retailers all need to reassess why people should still drive to the mall, park, spend an hour in the store, and then wait in line to buy clothes when they could shop online instead. Instead of just lowering prices and hoping to hang on to fickle, price-sensitive customers, JC Penney should take a fresh look at its in-store experience and customer service. What can JC Penney give to customers in the store that those customers can’t get anywhere else? Could they upgrade the changing rooms, put more staff on duty to help customers find the right sizes, or invest in employee training and retention so customers get to talk with happier, better-informed customer service staff? Online stores are going to eat the brick and mortar retailers alive (all of them!) if the brick and mortar stores cannot establish a compelling reason for people to come back.

If JC Penney wants an example of how to be profitable in retail, they should look to Nordstrom, another department store that is often at the opposite end of the mall from JC Penney. Nordstrom is a great example of a brick and mortar retailer that does well despite their higher prices, and their secret weapon is customer service.

Chances are, whatever industry you’re in, your business is facing the same choice as JC Penney: do you want to race to the bottom by cutting your prices, or position yourself as a premium option that people will happily pay more to experience? Don’t cut prices. Offer bigger value instead – by focusing on your company’s true competitive advantages, and offering those competitive advantages with relevant sales messages.