1. Review J.C. Penney’s business strategy in the recent past.

What are some of the things the

company has done well? What has it done wrong?

1.0 J.C. Penney’s business strategy in the recent past:

J.C. Penney was losing its market share to competitors in all segments and there was a steady
drop in sales. The newly appointed CEO, Ron Johnson tried to give a rebirth to J.C. Penney by
radically repositioning its business model and its brand in February 2012. The centrepiece of the
repositioning initiative was a switch from J.C. Penney’s existing high-low pricing strategy, in which
the retailer ran frequent sales to offer customers deep discounts off of its higher list prices, to a new
strategy the company dubbed “Fair and Square” pricing. “Fair and Square” pricing was meant to
simplify J.C. Penney’s pricing structure and make it more straightforward for customers to shop. It
offered great prices every day, with less frequent price promotions. Fair and Square” pricing strategy
aims to do away with promotions in favour of a simple three-tiered pricing scheme which are:

Everyday low price. The firm will use sales data from the previous year to determine the everyday
price. The intention is for these prices to be at least 40 percent lower. For example, a pair of Arizona
jeans, priced at $40 would now have the everyday price of $24.

Next is Fewer promotions. There will be only 12 sales each year, with each one corresponding to
the calendar months. The store will select items to put on sale for a “Month-Long Value.” For
example, “jewelry and Valentine’s Day gifts” would go on sale in February, while Christmas
decorations would be discounted in November.

Poor-selling products would go on clearance and be tagged “Best Prices,” letting consumers know
that this is the lowest price possible.

A new tag to help the customer identify the “tier” in which a product is located. JCP used to cover
the old price with the new sale price. Now, each time a product is allocated a new price, it receives a
new tag to let customers know the value they are receiving. A red tag indicates an “Every Day” price,
a white tag a “Month-Long Value,” and a blue tag a “Best Price.”

Haggle-free pricing is the firm will use whole numbers in its prices. For example, instead of pricing
an item at $19.99, it will be marked $20. Johnson believes customers are not fooled by the old
pricing scheme and will appreciate the candour of up-front pricing.

Ellen Degeneres is the new face of JCP and TV ads will be aimed to inform and excite shoppers
about its new pricing strategy and its benefits. The retailer will also send a freshly designed
catalogue (that refers customers to its bricks-and-mortar stores and/or online store) to some 14
million customers.

Besides that, Johnson upgraded the atmosphere of JCP’s stores as a way of differentiating them
from competitors. He hopes that fresh displays and layouts will limit the threat of online competitors
by giving customers a place they enjoy shopping. JCP hopes that the new look along with the ability
to physically see, touch, and try on clothes will give it an advantage over online retailers, who are an
increasingly strong threat to JCP.
1.1 What are some of the things the company has done well?

J.C. Penny is fashion oriented departmental store. It offers women’s apparel, men’s apparel,
children’s apparels, home accessories, family footwear, and fine jewelry.

JCP also offers special services in elegant settings such as tea-room, saloon, on-site tailoring which
serve as a social hub. Besides that, shoppers purchase during “Sales and Clearance” season. They
love shopping during weekend sales. Consumers are addicted to coupons and discounts. Customers
are habituated to play games and hunt for good deals. Mostly shops during big holidays with great
discounts and promotions.

Shoppers shop in stores located both in small towns and metropolitan areas. JCP operates 400
stores in small towns and around 700 in metropolitan areas. Shoppers also shop through catalogues
and e-commerce website.

Shoppers do shop at J.C. Penney for the sole reason of value addition the number 1 reason why a
consumer shopped at J.C. Penney in the past, and has been a point of differentiation for J.C. Penney,
historically.

JCP avoided using the words “Sale” and “Clearance” in its messaging. Listed only the “Fair and
Square” price. All “Fair and Square” prices ended with .00 instead of .99. Distribution of high quality,
editorial content-heavy glossy magazines to highlight Monthly Values (both branding and
promotion)

1.2 What has it done wrong?

To fix the problem of sameness and make it appealing for customers to come into the store, he
came up with the idea of unique boutiques within each JC Penney which is the store-within-a-store
concept. J. C penny added services in the middle of the store where, for example, people get their
nails done. They focused more on the more affluent which are something that is harder to do in a
bad economy, since spending more money to attract a new demographic that isn't showing up fast
enough. Meanwhile, their old demographic is deserting them, putting them between a rock and a
hard place.

They also tried to deal with department stores' biggest problem, promotional pricing, or what we
often call high-low pricing. When Johnson took over JC Penney, fifty to seventy percent of all sales
were at discounted prices. Here's how it works. You start off pricing something at $100, but you end
up selling it at, say, $50. All the actual sales take place at 50 bucks. JC Penney does business, with a
new “fair and square” everyday low pricing scheme to replace the “fake prices” used commonly in
the past.

Johnson thought it made sense to cut to the chase by listing realistic prices from the get-go and
foregoing nonstop sales. It does make logical sense, after all. But shoppers aren’t purely logical
creatures. They’re often drawn to stores not by the promise of fair pricing, but by the lure of hunting
for deals via coupons and price markdowns. It’s all a game, and a contrived one at that. But it’s a
game that shoppers are accustomed to playing, and that many consciously or not like playing, with
the “How Much You Saved” line at the bottom of the receipt serving as a score.
 It didn’t take long for people to note that Johnson’s no-coupons, no-sales experiment was failing
to attract shoppers. Sales collapsed through early 2012, and by the summer, even Johnson
acknowledged the stores had made a big mistake.

The problems that high-low pricing causes are tremendous. Customers come into the store, they
look at the new merchandise, and they look at the prices. They like the merchandise, but don't like
the price, and so they don't buy. As a result, this new merchandise sits on the shelves. The first
markdown takes place after six weeks, and only then does the merchandise begin to move. So for six
weeks, not much happens.

Customers, on the other hand, are accustomed to shop for discounts, especially lower- and
middle-income families, while the boutiques didn't want their brands diluted by discount pricing.
The depths of the recession made this everyday-low-prices strategy difficult to carry out. Customer
traffic dropped sharply, and without that, JC Penney and Johnson were clearly in trouble.