A brief analysis of JC Penney's failed Pricing Strategy: Fair and Square, under Ron Johnson's tenure

1. Agenda Introduction
New Logo & New Store
Design
2.
3.
4.
5.
New Pricing Strategy
Reactions & Results
Alternatives &
Recommendations
1.

2. Agenda Introduction
New Logo & New Store
Design
2.
3.
4.
5.
New Pricing Strategy
Reactions & Results
Alternatives &
Recommendations
1.

3. “Do Unto Others as You Would Have Other do
Onto You”
This is the JC Penney’s “Golden Rule”

4. JC Penney History
1902
Founded by James
Cash Penney in
Kemmerer, Wyoming
1924
Became JC Penny
Incorporated
1973
Its highest peak
with 2,053 stores
1998
Launched an
internet store
2011
Hired Ron Johnson as CEO,
he created the Square and
Fair pricing strategy
2016
Only 1,100 Stores
- 11 Distribution Centers
- 5 regional warehouses
- 4 JCO.com fulfillment centers
- 4 furniture distribution centers

5. JC Penney and the retail
landscape was
experiencing lower sales
Lower sales due to:
 The change in store formats like:
• Free Standing Supercenters
o Walmart & Target had garnered
the lower end of the market
o Macy’s & Nordstrom's catering
to the upwardly mobile middle
class.
• Small Specialized Merchandise
(Gap & J. Crew)
 Large International clothing retailers
(ZARA)
 Increasing competition from online
retailing.
Retail Industry

6. Comparison Among Competitors

7. Agenda Introduction
New Logo & New Store
Design
2.
3.
4.
5.
New Pricing Strategy
Reactions & Results
Alternatives &
Recommendations
1.

8. Forbes: “JC Penney the most interesting
retail story of the year”
“It’s the most exciting thing I’ve seen in
retail since Apple opened stores”
Johnson declared it a reclamation of the
company’s heritage: “we need to treat
customers fair and square”
In November 2011,
Ron Johnson
announced a radical
repositioning of JC
Penney’s business
and brand.
JC Penney’s Radical Makeover

9. JC Penney changed the logo a few times since 2011.
The company asked the public for help in redesigning the logo.
In 2012 Johnson changed it again and hired an agency to redesign it. New Logo
represented the new “Fair and Square” mantra of the Co.
JC Penney’s New Logo

10. The announcement of comedian Ellen DeGeneres as the new brand spokesperson.
“One of the most fun and vibrant people in entertainment today”
DeGeneres homosexuality could be affecting the brand’s image.
Firestorm erupted on J.C. Penney’s Facebook page.
New Brand Spokesperson

11. Multi- year plan to re-energize and redesign J.C. Penney’s product offering and
merchandise at retail.
New relationship with top brands.
Redesign of the stores physical distribution.
New Store Design
Company planned to install two-three shops monthly, many of them to bring a
younger customer base.

12. “We are going to make the store a place people
love to come-just to come. We’ll transform the
buying experience not unlike what we did at
Apple.”
Ron Johnson, CEO, JC Penney

13. Agenda Introduction
New Logo & New Store
Design
2.
3.
4.
5.
New Pricing Strategy
Reactions & Results
Alternatives &
Recommendations
1.

14. New Pricing Strategy
Old strategy of high/low pricing
becoming too expensive and addictive
Implemented EDLP similar to
Walmart
New Strategy to implement Every Day
Low Pricing ”Fair and Square” pricing
strategy

15. New Pricing Strategy
• Average discounts to get customers to
buy went from 38% to 60%
• Too expensive for JC Penny’s to sustain
Old strategy of high/low pricing
becoming too expensive and addictive
Implemented EDLP similar to
Walmart
New Strategy to implement Every Day
Low Pricing ”Fair and Square” pricing
strategy

16. New Pricing Strategy
Old strategy of high/low pricing
becoming too expensive and addictive
Implemented EDLP similar to
Walmart
• Stop high/low pricing
• Stop coupon offerings
• Stop daily/weekly/monthly sales
• Ban the word sale from selling vocabulary of the store
• Allows for customers to be free from waiting for specials
and retailer from printing coupons
New Strategy to implement Every Day
Low Pricing ”Fair and Square” pricing
strategy

17. New Pricing Strategy
Old strategy of high/low pricing
becoming too expensive and addictive
• Consumers are savvy shoppers and are
able to instantaneously compare prices
• Will see benefits having the low price
“all the time” compared to competitors
• Regain selling integrity of the
Department Retail Store
• Wanted to regain brand value or
perceived value
• Expected one year roll out to fully
integrate EDLP
Implemented EDLP similar to
Walmart
New Strategy to implement Every Day
Low Pricing ”Fair and Square” pricing
strategy

18. Agenda Introduction
New Logo & New Store
Design
2.
3.
4.
5.
New Pricing Strategy
Reactions & Results
Alternatives &
Recommendations
1.

19. Reactions to New Strategy
Good reactions:
“Refreshing, daring and probably
exactly what the retailer needs”
Bad reactions:
• “J.C. Penney lacks the differentiation
to make this pricing strategy
succeed” in notes not in
presentation: when selling a
relatively undifferentiated product,
the only lever to generate higher
sales is discounts.
• If competitor’s dropped prices on
comparable products J.C. Penney
wouldn’t be able to respond.
• J.C. Penney´s everyday low prices
weren’t as low as the bigger
discounts it once offered.

20. JCP decided not to run a market research to test the
appeal of the new strategies with consumers.
Launched new pricing plan on February 1st 2012.
Ellen DeGeneres was featured in a new advertising
campaign.
Consumers were confused (and disappointed) with new
pricing scheme
Fair and Square Results

21. First 3 months following the launch 67% of sales were at the “Fair and square” price.
March – mothers, a critical market for department stores started downgrading their
opinion on whether J.C. Penney offered good value for their money.
Research firm reported negativity among adults 18+ for whether JCP advertising
campaign was Hot or Not?
Fair and Square Results

22. Consumer surveys results revealed that shoppers think that the old JCP offered better
value than the Fair and Square JCP
Only 16% of shoppers associated “Best Prices” with JCP.
Loyal costumers were moving away from the Brand because they were used to
receiving coupons.
Fair and Square Results
Costumers felt that JCP was catering young shoppers and that in reality the younger
shopper wasn’t the one buying at JCP.

23. $163 million
loss on JCP first
earnings report
Sales revenue
fell 19%
E-commerce
decreased
28%
Gross margin
from 40.5% to
37.6%
Stock price
plunged 20%
Net Income
margin was
negative: -5.2%
Fair and Square in Numbers

24. Agenda Introduction
New Logo & New Store
Design
2.
3.
4.
5.
New Pricing Strategy
Reactions & Results
Alternatives &
Recommendations
1.

25. JC Penney Options:
Back to Basics : Reposition the
High-Low pricing strategy
Enhance Omni-channel
Experience
Improve staff morale and
engagement
Explore niche markets: Men’s
clothing, Millennial
Building Value and
Differentiation Through Private
Brands, Home and Beauty

26. Back to Basics : Reposition the High-Low
pricing strategy
• Listen and understand customer expectations
• Allows price discrimination to maximize the average
price paid by customer
• Makes customers feel smart and talk with others
consumers about it
• Customers a re more savvy so they wait for sales to
buy or comparing prices among retailers

27. Building Value and Differentiation Through
Private Brands, Home and Beauty
• To deliver on its value proposition to shoppers by
offering private and exclusive brands
• Offer special sizes
• Home refresh
• Enhance Beauty Experience

28. Enhance Omni-channel Experience
• Advance its omni-channel (*) execution to connect
with customers how, when and where they prefer
to shop.
• Ship to any JC Penney store
• Same-day pickup in stores
• Faster home delivery
(*) multichannel approach to sales that seeks to provide the customer
with a seamless shopping experience whether the customer is shopping
online from a desktop or mobile device, by telephone or in a bricks and
mortar store.

29. Explore niche markets: Millennial consumers
• They account for 28% of shopping or consuming
spending
• 80% of them are influenced by price
• Most of them prefer to shop online
• Heavily interested in online discount or coupons

30. Improve staff morale and engagement
• Fire CEO Ron Johnson
• Reestablish sales commission system
• Make employees feel as an important part of the
turnaround strategy
• Reeducate old employees and train new hires
about the importance of the unified shared values
and specially about: The Golden Rule

31. Diversify
Market
Development
Product
Development
Market
Penetration
Market
Product
New Old
NewOld
Ansoff Matrix