For all his success at Apple, Ron Johnson misread the J.C. Penney consumer. J.C. Penney's board ousted him after a year and a half in which his high-risk strategy backfired. Johnson famously tried to break the cycle of marking up prices just to mark them down.
Instead of discount coupons and sales, his idea was to have low prices everyday to make things easier for the company and its customers. But shoppers quite literally didn't buy it. It’s a reminder of just how strong a hold sales have on consumer psychology and the pricing games retailers play.
It may help to step back and consider the lifecycle of a V-neck dress on sale at J.C. Penney right now. Its color is Stardust, which apparently means purple in J.C. Penney’s language. The original retail price was $60. The store likely paid less than half that. But it has stuck around too long, so it’s time to put it on sale.
“The lightest promotion that you would probably see nowadays is 20 percent off, probably within four weeks of when it hit the merchandising floor,” says retail consultant Stacey Widlitz.
That’s close to where the dress is now, marked down to $50. If customers don’t snap it up at that price, it’ll be reduced further. Customers who buy the dress at the lowest price may feel pretty great about their purchase.
“They look at sales as a way of feeling like they’ve kind of gotten one over on the retailer, that for sure, they’ve won,” says Kit Yarrow, a consumer psychologist at Golden Gate University.
J.C. Penney’s rejection of sales made shoppers feel like losers all the time. The truth is, they always have been. At 20 percent, 30 percent or even 50 percent off, a retailer can still make money. But shoppers don’t know that.
“People are shopping with very little actual information about what the prices are and so they’re gonna rely a lot on cues,” says Jean-Pierre Dubé, a marketing professor at University of Chicago’s Booth School of Business. “The most commonly used kind of cue is a discount.”
J.C. Penney has long taught its customers to expect that cue.
“Over the years, they’ve just been trained,” Dubé explains.
It’s not that sales are mandatory for all businesses. Stores as different as Wal-Mart and Apple have long stuck with stable prices. But J.C. Penney shoppers await sales. And once that mentality is in place, anything less feels like a ripoff.
As if to underscore the point that Johnson’s attempt to break the sale cycle is fully rejected, a bright green 20-percent-off promotion dominated the J.C. Penney homepage the morning after he was let go. The deal caught the eye of at least one longtime customer. At the store in midtown Manhattan, the shopper cited the offer as the reason she had come in.
She had been confused when the J.C. Penney sales stopped. Now, she’s back among the clothing racks.