Last week, J.C. Penney Co Inc (JCP.N) reported sales at stores open at least a year fell 31.7 percent in the fourth quarter, a much worse-than-expected plunge that might put Chief Executive Ron Johnson’s future at the company at risk.
This despite Johnson’s track record as a retail superstar, running Apple Inc’s (AAPL.O) retail business and implementing a number of dramatic changes to how JCP promotes its offering. Most notably among those moves was Johnson’s move to three kinds of prices (everyday, monthly specials and clearance) and the evisceration of the retailer’s aggressive nonstop promotions that have engaged its shoppers for decades.
Is it possible that this streamlining of the shopping process took all the fun out of it for its customers? Is it possible that shoppers need more than low prices and look to offers as a rationale that they “got a deal”?
Or, could it be that JCP marketers engaged (or disengaged as the case may be) Behavioral Economics principles but failed?
According to Stefanie Riediger, one of our planners here at Marcus Thomas LLC, it seems that JCP marketers may have failed to consider a few principles of behavioral economics in an attempt to re-condition consumer value associations.
“Behavioral Economics is all about the shortcuts the human mind creates so we’re not overwhelmed with processing every detailed piece of information. As an output of our collective experiences over time, we become conditioned to rely on associations, cues, “shortcuts” our minds develop in order to reduce our cognitive load and make quicker decisions. One such shortcut that is unknowingly employed quite often, is that expensive equals quality,” Riediger said. “Perhaps JCP’s new pricing strategy prompted the consumer to question the value of their merchandise rather than rely on their mental shortcuts to rule it as a great deal.
“With their classic mental shortcuts disengaged, consumers end up asking why something isn’t on sale all the time (Best Prices and Month-Long Values strategies). Or if it is on sale all the time (their Everyday Prices strategy), can those products really be of good quality? In the latter case, the mental shortcut is revived, but not in JCP’s favor. It’s a bit of a catch 22 for marketers to outsmart.”
In the end, by setting their pricing up this way, they may have trained their consumers to devalue their products rather than take advantage of their tendency toward snap decisions on “great value.”
Perhaps another observation? The true JCP consumer doesn’t define value the same way as the Apple consumer.
Where’s a Genius when you need one?