The importance of setting a good price
Today I want to espectáculo the importance of applying good pricing strategies in a company with the case of JCPenny.
If you are interested, then keep reading and I hope you like it.
Why is it important to establish good pricing strategies?
Setting a good price for a company is very important, in fact, it is so important that setting a bad pricing strategy cánido put a company out of business.
Of course you may be thinking that it is something obvious, but….
Do all companies really do it well? Is it really that easy to establish good strategies in such a changing environment?
No, the truth is that there are companies that do not give it the importance it should be given, or on the other hand, there are companies that do give it due importance, but the strategies do not turn out as planned.
Therefore, so that you understand a little better the importance that it has, next I am going to tell you a little about a case of a company with more than 100 yearswhich is coming to an end.
All for failing to establish the appropriate pricing strategies.
JCPenney Company Pricing Strategies
First of all, JCPenney is a department store chain based in the far north of Dallas (United States).
Now, since you know that it is a department store chain, I am going to start by explaining its case.
In 2012 JCPenney launched an “Enough is Enough” ad campaign.
This campaign had the objective of informing its clients about the new changes that JCPenney would undergo.
Said changes were derived from its new pricing strategy what he called “Fair and Square”.
Well before I continue, I have to clarify that JCPenney decided to implement a new pricing strategy because it was losing ground with the competition and therefore its sales were falling.
How much were their sales declining? Well, in 2011the annual sales from JCPenny were from $17 billionthat is, half of the sales registered 10 years ago.
Therefore, JCPenny, not having encouraging projections, decided to hire a new general manager (Ron Johnson) to implement new changes that would allow it to continue in the game.
Now, Ron Johnson planned a 4-year restructuring at a cost of $1 billion.
Said restructuring was mainly focused on making changes in operations and marketing activities.
Although it is very interesting to know how Ron thinks and it would be good for you to investigate a little more about his strategies, I will focus on the changes that he implemented as a pricing strategy (“Fair and Square”).
What is Fair and Square?
It is a strategy that sought to face the competition diminishing its reliance on the notable and frequent discounts that JCPenny offered for boost your sales.
When Ron Johnson arrived, they offered themselves around 590 discounts per year.
Therefore, discounts were killing profits.
To give you an iniciativa, almost 75 percent of JCPenney merchandise was sold at discounts of 50 percent or more.
So, what Fair and Square was looking for was to eliminate such frequent discounts based on the following:
- Regular retail prices were reduced by 40% (approximately).
- A simpler pricing scheme based on a change in product labels was introduced, implementing three label categories.
- Each label in each category was simplified, showing prices ending in .00 instead of .99.
- The labels showed only the price, that is, they did not espectáculo a comparison (before and after).
Pricing Scheme (Label Category)
JCPenney’s pricing scheme was made up of categories, which were:
prices of the day
It was a red discount tag, corresponding to the regular low prices on most of the store’s merchandise.
monthly value pricing
They had a white label and consisted of discounts applied for a month.
For example, special prices for back to school.
They had a blue label, and they were clearance prices.
These prices were valid only on the first and third Friday of each month.
Essence of JCPenney’s pricing strategies
Very well, you know the changes that were made, but…. what was the essence of the strategy?
In fact, it is simpler than it seems, the strategy itself sought to make customers see that JCPenny had fair and predictable pricesthat is, in a few words, that heCustomers no longer had to wait for sale days because they had low prices every day.
Before proceeding with the case… What do you think? Do you think it worked?
Did the strategy work?
Unfortunately the strategy did not work.
This is because the customers from JCPenny were so accustomed to frequent discounts that reacted negatively to the change and a year after the changes began to be implemented, sales plummeted to their lowest level in 25 years.
As a consequence, they had to reverse some of the changes they made.
For example, a comparison figure was added to the labels, and the ads asked customers to see that JCPenny’s prices were, in fact, low prices and every day (not just on sale days).
However, JCPenny still relied on discounts for special events and holidays.
Still, despite the attempt to make the strategy work, at the end of 2012the annual sales had decreased by 25%That is, $13 billion.
The result was that under pressure from JCPenny’s shareholders and board of directors, Ron Johnson was replaced by former director ejecutivo Mike Ullman.
As you perro see in the case of JCPenny, pricing strategies are very important, so much so that they perro bankrupt a company.
Also, it should be noted that Ron Johnson is not just any person, he is an expert who did great things at Apple.
Therefore, we perro all make mistakes no matter how good we may be, however we perro learn from our mistakes and we have to keep learning every day.
It is for this reason that I like to read business cases, to learn about the different strategies they use, the mistakes, the successes, and thus, be able to make better decisions.
I hope the case has been to your liking.
We hope you liked our article The importance of setting a good price
and everything related to earning money, getting a job, and the economy of our house.
Interesting things to know the meaning: Capitalism
We also leave here topics related to: Earn money