What JC Penney Can Teach Us About Rational Behavior - Live Like a Mensch
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What JC Penney Can Teach Us About Rational Behavior


Photo courtesy of Dravecky

By now, you've no doubt heard the news that JC Penney has fired their new CEO Ron Johnson after only 17 months on the job, and reinstated their old CEO Mike Ullman.

I've been following this story about JC Penney with interest, because I was actually very heartened by the changes Johnson instituted. Rather than artificially inflating prices so the store could have sales and send out coupons to customers, Penneys had decided to go to a "fair and square" pricing system, where they just kept their prices reasonable and consistent. That meant you could stroll into a Penneys on any old day with no coupons whatsoever and know you were getting a good price.

That, to me, seems like a great innovation.

Unfortunately, I seem to be in the minority.

What Ron Johnson didn't take into account was the fact that shopping is very rarely just about purchasing goods. For the bargain-hunting types who thrive on sales, coupons, special deals, and the like, shopping is actually a game, wherein you can "win" if you save more money than some other sucker who's paying full price. For many shoppers, scoring the cute blouse for just under $10 is more about the thrill of the hunt, and less about the blouse itself. This hardly makes sense if you're looking at shopping rationally--which I try to do and Johnson clearly did--but considering what we see once a year on Black Friday, it's probably safe to say that "rational" and "shopping" are not necessarily two words that can be uttered in the same breath for many American consumers.

Basically, Johnson was under the impression that Penneys was selling consumer goods, when in actuality, they're in the entertainment business. By changing the pricing system to reflect the true cost of the items for sale, Penneys took out the entertainment value of bargain hunting, and completely eliminated many shoppers' reason for shopping there.

As they're new ads have proclaimed, "Oops!"

For me, I'm disappointed that things have gone the way they have for Penneys. (I'd like to think that if I had spent any time thinking about the new pricing system, that I would have had an inkling over a year ago that it wasn't going to work--but I don't think I'm nearly that smart). I would love to see shopping become a more straightforward transaction: you need a particular item, you search for said item and potentially compare prices, you purchase said item. End of story. But considering the fact that shopping (and even bargain shopping) is something of a national pastime, it's unlikely these kinds of games will be ending anytime soon.

Too many of us enjoy the game for companies to start replacing it with rational pricing.

What did you think about Penney's "fair and square" pricing strategy? Were you pleased or disappointed that bargain hunting was no longer possible? Are you more likely to shop there now that you can take advantage of sales and coupons again?



frugal_fun said:

Count me in as preferring to shop at places with consistent, fair pricing. (So that's two of us!!! Only several million more to go. *grin*)  I despise the coupon thing -- there's so much else I rather be doing with my time. And honestly, most coupons seem to be either ill-timed (for us) or simply products we'd never buy.

The reality many (most?) "coupon" buyers are impulse shoppers. The whole point of loss leaders is to get people in the door to buy at least one or two other more than full priced items. And retailers do it because it works. People like me who don't impulse buy a whole lot at are not the people they tend to look for.

Anyway, in reading the article you linked to, it looked like the newly ex-CEO was trying two strategies that were at direct odds with each other. They also trying to "hipster" the clothing line to get young, wealthier shoppers in the door. Out of all the demographics, the teenagers/young quasi-self supporting /young self supporting no kids shoppers are mostly likely to be into the thrill of the shopping hunt. They are the ones that have the time to clip coupons/be part of rewards programs, etc and more likely to be "OMG, I have to have this (full priced item)".

If JCPenny had contented themselves with the 30+ crowd and their offspring, the even pricing strategy might have worked. We're the ones who are far more likely to be tired of and/or have no time for coupon games. Oh, well.

May 8, 2013 12:34 PM

bobi said:

"Fair & Square" pricing might be a good idea IF it actually existed. Sorry, but I don't think it does or will. How is such a price determined? Stores are never going to sell at the lowest price at which they can make a profit, they are going to set the price at the "lowest" price they think the market will bear.

I never really shopped much at JCP so bargains or coupons won't draw me to the store...I kind of think of them as a 'tired' brand; I did check out their "new" look and was unimpressed.

Also, I hate to disappoint frugalfun, but I'm a dedicated coupon shopper who does NOT impulse buy. Cutting coupons doesn't take as much time as the critics think. I plan my purchases and generally do not buy until I can combine a loss leader with a coupon or other deal. I do hang onto current ads and flyers with coupons in case a need arises. For example, I always have a Michael's or AC Moore ad around as there are usually 40% off coupons in every ad. If the need for a gift or necessary item arises, I can just grab the ad and get a good discount. The secret to coupons is not to spend hours clipping and organizing but just knowing how to access them when you need them.

May 8, 2013 5:31 PM

haverwench said:

I agree with bobi that couponing doesn't have to be time consuming...but I also agree with frugal_fun that *most* coupon shoppers probably aren't as methodical and practical as bobi is. After all, the only reason the stores offer "hot" sales and loss leaders is to get people in the door in the hope that they will then buy a lot more stuff at full price...and if it didn't work, they wouldn't do it. So while there undoubtedly are many sensible coupon users out there, there must also be many more who are less sensible.

As for the comments about what constitutes "fair & square" pricing--well, I always thought that *was* the lowest price that the market will bear. Isn't that how markets work? If a price is too high, the customers don't buy, so the stores lower it to the point at which the item will sell. I don't see anything "unfair" about that in the least. However, I do tend to prefer stores where I can go in and know that I'll find a variety of items at good prices on any given day, rather than a large number of high-priced items and just a few that are outrageously cheap. If the sale items don't happen to be what I'm looking for, it doesn't matter how low they're priced.

May 9, 2013 10:27 AM

frugal_fun said:

@Bobi - Far from being disappointed, I'm glad that you successfully work the system. In fact, if there were more of you the couponing/sales cycles wouldn't exist.  There doesn't seem to be escaping, though, that retailers must be ahead at the end of every quarter to make the hassle and expenses of coupons/sales worth it. (Thus the "average" coupon buyer is the loser/impulse buying.) Clearly, JCPenny decided there was no gold at end of the "even" pricing rainbow.

On the time - For us, couponing a matter of return on our time. We try to buy fresh food and be minimalist/durable in our wants. (Not perfect on either, by the way. :) )  Thus, we'd have to spend a lot of time sorting through those endless Hamburger Helper coupons to find what we want.  I abandoned the "groupon" sites for that reason. Ultimately, the stuff we really want doesn't have coupons and doesn't go on sale. :( We do bargain hunt/buy used/recycle, etc, but couponing just doesn't make sense for how we live.

May 9, 2013 4:36 PM

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