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Lessons in Market Strategy: JC Penney

August 5, 2020
Written by Golden Section


Having an effective marketing strategy can be one of the most important things for any company, regardless of the industry. An effective marketing strategy will help clear up confusion on market objectives and can also be crucial in understanding the target market and customers. 

By having a detailed and concise market strategy, there will be little room for disconnect between executive management and customer profiling, ensuring that management has a clear understanding of the company’s buyer personas. The importance of this can be seen by evaluating JC Penney’s market strategy and how the company experienced a downfall from this tragic disconnect.  

A Closer Look at JC Penny’s Market Strategy

As a retail department store, JC Penney was in a field of many competitors, such as Macy’s, Walmart and Target. However, JC Penney, now with plummeting stock prices and widespread store closures, is significantly underperforming due to its catastrophic pricing error. Typically, retail pricing combines a combination of psychological pricing strategies or tricks to trigger users to buy their products, thus reducing their sales cycle.

Examples of these include:

  • Promotional Pricing: where prices are temporarily reduced to create a scarcity and increase the value of the product
  • Price Anchoring: where prices are listed higher to increase the perceived value
  • Different-value Pricing: where two similar items are priced differently so the inexpensive one gets bought (leading to more net sales). For example, say there is a limited time coupon that will mark down the price for tank tops in the winter. The original anchor price of the shirt is 60 dollars, but it is being marked down to a price point of $20. Although it seems like a remarkable deal that no one would want to miss out on, the anchored price is inflated to increase the perceived value of the tank top, revealing that value to a customer is all about the way a product is framed.

In retail, customers have been conditioned for hundreds of years to these gimmicks and huge discounts, regardless of the legitimacy of the starting price, as these are what grab their attention. Failing to understand the conditioning of their customers is what fundamentally killed JC Penney’s market strategy, thus its business.  

Connecting to Customers: A Key to Market Strategy Success

In January of 2012, JC Penney stopped using discounts, sales and coupons, but instead went for “fair and square everyday low prices”, where the end price of the products would be the same throughout the year. Logically, the company believed that customers would come to its store more often because the prices were static and low (although customers valued the company less because of the lower original price), so there would be no point in waiting for a sale. 

Business leadership strived to build “the new JC Penney” by appealing to a sense of transparency that relied on customers trusting the brand. A big reason this business decision occurred was due to new CEO Ron Johnson. Johnson came from Apple, where pricing was different compared to retail department stores. As a brand, Apple not only was a classy product that had lots of hype and buzz, but it also is a brand that ultimately sells its product. Apple products are able to market themselves through this buzz and word of mouth, something that JC Penney inherently did not have.

By trying to mimic Apple’s market strategy, Johnson failed to realize the difference in customer profiles between Apple and JC Penney,—Apple didn’t need discounts or sales to successfully sell their products. This infamous mistake showed that JC Penney’s decision makers were not aligned with their customers, as it was the perception of saving money not necessarily actually paying less that motivated customers.

Key Takeaways from JC Penny’s Failed Market Strategy

So, what can we learn from JC Penney? Well, first off, this tells us that it is essential for businesses to understand what motivates their customers and their entire customer persona. If your customer has been conditioned to doing something in your industry for years, it’s difficult to get rid of the conditioning without losing sales, as it is almost like an addiction.

Next, it’s important to realize that it’s okay to experiment with pricing as long as the customer persona is fully understood. For example, Everlane—an upscale clothing retailer—had a radical price change similar to JC Penney, where the company sold everything at a flat rate under $100. Unlike JC Penney, Everlane was more upmarket, and the company experienced success with the ethical and sustainable front for its clothing line, as the brand understood that their customers were willing to pay more for the brand.

Lastly, a lesson can be learned in the importance of communicating price changes to customers. By having a simple, easy-to-follow price strategy as you advertise, customers can more easily understand and follow the change. JC Penney heavily promoted a “fair and square pricing” but ended up complicating things by using color-coded tags that each represented a specific value, and strategic sales days using a blue tag on the first and third Fridays of every month. Because of the oversight in its market strategy, JC Penny ended up with a cluttered promotional approach that eventually drove customers away.

Executing the Right Market Strategy for Your Business

Here at Golden Section, we understand the significance of understanding customer portfolio. We strive for a complete alignment between our executive management and customer profiling, having experience in helping companies find potential disconnects between these two. Our expertise will help B2B SaaS founders recognize when it may be appropriate to use a product to lead growth, learning from the mistakes that JC Penney made.

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