J.C.Penny is a US based company which operates a chain of departmentstores. It has approximately 1,014 stores located all over thecountry. All these stores exist across 49 states of the country. Manyof their stores are found near suburban malls. Over the years, thecorporation has created an enormous customer loyalty through theirbrand. However, the company started to report stagnated sales from2010. When the Ron Johnson took the post of the company’s CEO, heimplemented a pricing strategy which saw the company’s salesplummet drastically. 17 months ago, Johnson got forced to resignsince his new pricing strategy had caused a significant loss ofrevenue (Tuttle, 2017). The paper will look at the reasons for thefailure of Johnson’s pricing strategy. Also, it will look at someof the decisions which could have prevented it and lastly, comparisonof the pricing strategies and whether the company will recover in thefuture.
Reasonsfor failure of Johnson’s pricing strategy
Thecompany suffers from intense competition. When the enterprise’sprofits started to plummet, the competition saw a chance tocapitalize on it. As a result, companies such as the TJX CompaniesInc., Kohl’s Group, Macy’s Inc. and TGT Target Corp have seen anincrease in their sales (Denning, 2017). In other words, they havesignificantly chipped away the market share once held by J.C. Penny.The decision by Ron Johnson to change the pricing policy contributedsignificantly to the drop in sales.
Oneof the reasons why Johnson’s pricing strategy failed was that iteliminated the use of discounts and coupons. By doing so, many oftheir loyal customers felt that the company was not complying withtheir needs. Therefore, they decided to shop from other avenues. Inas much as some customers claim that they used to visit the J.C.Penny frequently when they used to send coupons, nowadays, no onewants to go to their stores. Despite the fact that marketers hatecoupons, they are a paramount factor in drawing customers to thestores. Coupons, discounts, and promotions significantly appeal tosmart shoppers.
Oneof the reasons for the failure of Ron Johnson’s pricing strategyconcerns the change in the customer behavior. J.C. Penny is a companywhich relies on promotion and discount incentives to drive trafficinto their stores, but Ron Johnson was obtained from Apple Inc. whichhas its prices heavily controlled with limited distribution (Denning,2017). By doing away with the coupons and discounts, the company sawa decline in their customers. The decision to do away with couponsand discounts forced many loyal customers to seek other alternatives.As a result, they changed their behaviors knowing that they will nolonger shop at the stores belonging to J.C. Penny.
Someof the factors Ron Johnson could have done before implementing hispricing strategy
Heshould have considered the customer’s wants. Understanding theneeds of the company’s customers would have enabled him to positionthe company in a right way. Positioning is one of the major decisionsa business can make if they are to ensure their profitability.Johnson was eager to eliminate the pricing strategy used by thecompany in the past. In as much as he hated the fake pricing strategyemployed by the company in the past, little did he know that hisdecision to change it would result in the significant plummeting onthe company revenue (Tuttle, 2017). He should have understood thatcustomers do not get drawn to stores by the prices of the productsbut rather the coupons and discounts.
Testingthe response from the market in advance
Johnsonshould have put his ideas into the trial before implementing itdirectly in all the company’s stores. Johnson simply applied hisideas out of ignorance. Thus, he underestimated the number ofcustomers who visited their stores for the discounts and coupons thecompany offers. When he realized his mistake, the damage had alreadyhappened. It is always essential to test a good idea first beforefully implementing it. The reason for the test is driven by theresults generated. Therefore, considering that he had not tested hisidea, the company suffered at the end since it sounded like a goodidea from the get-go.
Alienationof core clients
Johnson’spricing strategy did not consider the fact that there are loyalcustomers who had adopted the way the company has previouslyconducted its operations. When Johnson implemented a new pricingstrategy eliminating discounts and coupons, these clients felt likethe company was targeting a new market (Tuttle, 2017). Thus, theyresponded based on how they saw the events unfolding. It is then thatthe company realized the mistake it had made. The feeling ofalienation is the primary reason why the loyal customers left, thus,resulting in the plummeting of sales.
Comparisonwhich exists in pricing strategy between the current J.C. Penney andJohnson’s
Thereis a big difference between the current pricing strategy of J.C.Penney and Johnson`s. The Penney pricing employed the use of fakeprices which were accompanied by not only discounts but also couponswhile Johnson’s strategy used a low pricing strategy with nocoupons and discounts. Johnson adopted the new pricing strategy in anattempt to price their products fair and square (Tuttle, 2017). In asmuch as it is logically justified, the customers responded in anunusual manner as though one would state that they are not logicalcreatures. Many of their clients are not driven to the stores by theneed for fair prices but by the need for discounts and coupons.
Itis my belief that the damage caused by Ron Johnson’s pricingstrategy has accelerated the decline in the sales reported earlier.Despite significant interventions of adopting new products and usingcelebrities to market their products, the company will recover slowlyespecially when one looks at the impacts of their intervention on thecompany’s revenue. At the moment, the company shares are verycheap. In as much as they have strived to lower their prices in anattempt to bring customers to their stores, the response has not beenas expected.
Tosum up, the paper has provided brief information on JC Penney. It hasalso provided information on the reasons for the failure of Johnson’spricing strategy, some of the factors Ron Johnson could have donebefore implementing his pricing strategy, and a comparison betweenthe current J.C. Penney and Johnson’s pricing strategy. The companyhas had tremendous success since its establishment in 1904. It ishard to determine that it has been many years since a significantloss struck the company. However, losses started to be registeredwhen the company decided to rebrand in 2010. Ron Johnson, however,catalyzed the loss of revenue by the pricing strategy he implemented.The paper leaves room for more information to be provided over thepricing strategy in other companies.
Denning,S. (2017). Forbes Welcome. Forbes.com. Available at:https://www.forbes.com/sites/stevedenning/2013/04/09/j-c-penney-was-ron-johnsons-strategy-
Tuttle,B. (2017). Why JCPenney`s `No More Coupons` Experiment Is Failing.TIME.com. Available at:http://business.time.com/2012/05/17/why-jcpenneys-no-more-coupons-experiment-is-failing/
Tuttle,B. and Tuttle, B. (2017). The 5 Big Mistakes That Led to RonJohnson’s Ouster at JC Penney | TIME.com. TIME.com. Availableat:http://business.time.com/2013/04/09/the-5-big-mistakes-that-led-to-ron-johnsons-ouster-at-jc-penney/