Will J.C. Penney’s New Strategy Positively Influence Sales?

Have you heard, J.C. Penney is going to radically change its business strategy? The giant retailer is getting rid of its traditional sales in favor of low prices all the time, slashing many items by 40% or more! In addition, they’re going to do away with confusing pricing for a simpler approach. No more $14.99 items, they’ll be $15, and those $19.99 items you love will be a nice round $19 or $20. Yahoo Finance ran an article, J.C. Penney gets Rid of Hundreds of Sales, which gave more details on Penney’s new strategy and some of the reasoning behind it.

On the surface you might be thinking this is great for the consumer but don’t forget, Penney’s isn’t doing this for customers; they are doing it to help the bottom line. The company believes sales and profits will be stimulated by lowering and simplifying prices. To help with the implementation, the company brought in some heavy weights in the retail industry from Target and Apple. This is obviously no ill-conceived idea but I want to look at whether or not it will positively influence sales.

Let’s start with doing away with “the sale.” The sale is as all-American as baseball, apple pie, and motherhood! People love a big sale because it makes them believe they are getting a great deal which makes the buying decision easier for the consumer. When you buy something on sale, part of the purchase decision is triggered by the contrast phenomenon. While $26 might sound reasonable for a certain item, it looks really good when compared to the normal $45 price, and you know saving $19, more than 40%, is a great bargain.

The downside is Penney’s is losing the bang for the buck, so to speak, because there will be no higher price to compare to and no desire to take advantage of the deal. Considering nearly three quarters of Penney’s sales revenue came during promotions last year, where prices were slashed by 50% or more, you begin to see how much they could lose if this strategy backfires.

And what’s up with that pricing? Charging $39.99 for an item doesn’t fool anyone because we know it’s essentially $40. Selling an item for $14.99 cannot possibly induce more sales than a $15 price, can it? It sure can!

In William Poundstone’s book Priceless: The Myth of Fair Value (and How to Take Advantage of It) he cites a study in which sales were tracked for an item which sold for three different prices: $34, $39, and $44. Unit sales were highest for the $39 price as was the total revenue. When the item was priced at $39 total revenue was 9.5% higher when compared to sales coming from the $44 price. When the $39 revenue was compared to the $34 price, total sales revenue was a whopping 50.6% more than when the item was sold for less! There are different theories as to why sales tend to be higher for items ending in $9 or $.99, but one thing is undeniable – it works. If it didn’t, retailers would have abandoned the strategy long ago.

As noted earlier, with former Target and Apple executives at the helm this change looks like it makes sense on the surface. Only time will tell if the new strategy works. But let me bring to mind something you might remember, New Coke.

The new flavor for the world’s best-selling soft drink was a well-planned and thoroughly tested idea. Because New Coke was preferred by a margin of 2 to 1 in blind taste tests over regular Coke, it was thought to be a no brainer when it hit the shelves. After all, what could be better than improving the best-selling product in the world? And yet it was an abject failure, considered one of the 100 worst marketing ideas of the 20th century. And you know the rest of the story; New Coke gave way to Classic Coke, the old standby!

J.C. Penney’s new strategy may not have the same kind of response as Coke, but my gut tells me after the initial PR wears off, Penney’s will be no better off and perhaps worse off because it will have abandoned some of the psychology that goes into the buying decision for many of its loyal customers.

UPDATE: It turns out my analysis was correct! Here are notable follow-up items:

1. In January 2013, J.C. Penney’s CEO Ron Johnson, who had come over from Apple, acknowledged Penney’s wasn’t Apple. He was the catalyst for the new branding and pricing that was failing badly. The evidence of the failure was the 40% decline in the value of Penney’s stock.
2. In April 2013, J.C. Penney’s let go of Johnson.
3. C. Penney – now JCPenney – has gone back to its old sales format.

How can you Influence PEOPLE? Change is inevitable and businesses must always consider what they stand to lose with change. People often resist change. And, too much change, too fast, can spell disaster. Even test marketing doesn’t guarantee success because it may not alert customers to what they might lose. Remember, it’s not just about the impact on the business – assess how customers will respond with an eye on the psychology of persuasion and you’ll be better positioned for success.

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Brian Ahearn

Brian Ahearn is the Chief Influence Officer at Influence PEOPLE and a faculty member at the Cialdini Institute . An author, TEDx presenter, international speaker, coach, and consultant, Brian helps clients apply influence in everyday situations to boost results.

As one of only a dozen Cialdini Method Certified Trainers in the world, Brian was personally trained and endorsed by Robert Cialdini, Ph.D., the most cited living social psychologist on the science of ethical influence.

Brian’s first book, Influence PEOPLE , was named one of the 100 Best Influence Books of All Time by Book Authority. Persuasive Selling for Relationship Driven Insurance Agents was an Amazon new release bestseller. The Influencer , is a business parable designed to teach you how to use influence in everyday situations.

Brian’s LinkedIn courses on persuasive selling and coaching have been viewed by over 750,000 people around the world and his TEDx Talk on pre-suasion has more than a million views!