Evaluation of Pricing Strategy of JC Penny - Assignment Example

Number: Paper: Table of Contents Table of Contents 2 Pricing strategy of J C Penny 3 Evaluation of Pricing strategy of JCPenny 4 References 7 Pricing strategy of J C Penny In 1992, JCPenny Company Inc, awls founded; it is the most significant brand name in the American retailing industry. The retail chain is commonly known as JCPenny. The company is observed to depend on promotions, discounts and sales extensively. The recent strategies undertaken by the retailer in setting prices of the product have given a good lesson to the manufacturing and retailing companies to evaluate their pricing strategies before launching a product (Christ, n.d.). In 2009, under the leadership of new Chief Executive Officer (CEO), Ron Johnson JCPenny experienced changes in the pricing strategies. The new strategies aim at eliminating promotion of products and focuses on selling the recognized brands. The promotion based pricing strategy was initially adopted by the company but latter the company undertook mark-up pricing strategy which made room for promotional discounts. However, the new everyday pricing strategy helped the company to set prices at a lower range and eliminated the need for higher sales price. There are several changes in the pricing structure of the company as the prices no longer ended in decimal number such as $9.99 etc rather whole figures are used for the products. The price tags of the products employed only one price and did not print the retailing price of the manufacturers. This trend of printing the retailing price in the product provided greater comparison pertaining to the amount of product that should be sold. The retailer has made important changes in assorting merchandise (Hess, 2011). The company focused on its mini-stores within larger ones and evaluated that the mini-stores are selling higher than the larger one. Evaluation of Pricing strategy of JCPenny The new pricing strategy never gained any attention and thus it is unsuccessful in making any change to the situation. The consumers are not happy with the pricing strategies and the sales of the company declined steadily as time passed. The company encountered a loss of $3.3 billion in the first year of sales of Johnson plan. The amount increased as it approached the second year. The annual revenue of the company in 2011 declined 25% a sharp decline after 1987 (Henricks, 2010). As a result of the decline the CEO announced that the company will not use the everyday pricing strategy anymore and would return to the previous coupons and discounts and would focus on advertised sales (Henricks, 2010; Hill, 2010). From the experience of JCPenny, the following evaluation can be made with regard to its pricing strategy: 1) Everyday pricing is not correctly executed by the company as it sells many products and does not concentrate on a unique one. Everyday pricing is successful for those products which are unique in nature. The high-end brands that sell unique products may operate in fewer promotion and sales are limited. JCPenny usually sell those products that are available to other retailers and thus there is no uniqueness. This type of pricing strategy can only work is the company has the ability to build up from the ground level. The low cost structure is not a favorable condition for JCPenny (Mouroukoutas, 2013). 2) Consumers are no longer fool to believe the company details and buy a product without knowing the whereabouts and functioning (Petro, 2013; Zmuda, 2013). They know what to expect from the manufacturer or retailer. JCPenny use to offer high-low pricing strategy so as to make impact on the consumers and expected that the sales will rise. Sales events were held to educate the consumers regarding the product. However, the company eliminated the use of such events and made new ideas to make the consumers shop for the products (Petro, 2013; Zmuda, 2013). 3) The everyday pricing strategy was criticized by the consumers and encountered many difficulties as it eliminated the retailer price that is ascertained by the manufacturers. The retailer’s price is also known as the reference price as the marketers have made reference of the same. Some consumers have examined the reference price to evaluate the quality of the product and its value. Without the reference price, the consumers will encounter problem in examining the quality of the product and value of the merchandise. The product of JCPenny was also undifferentiated and thus there is no need for switching (Petro, 2013; Zmuda, 2013; Henricks, 2010; Hill, 2010).). Through there is change in pricing strategy of JCPenny, the future of the company is vague as its success cannot be judged presently (Cochran, 2006). Though there are many criticisms to the new pricing strategies. The company after encountering criticism changed back the reference prices of the Arizona stores and the products thus showed the reference prices. This will enable the consumers to compare the prices and make a decision of buy. The CEO of the company has also tapped for an amount of $ 850 million for the credit line (Zmuda, 2013). He announced that the company has taken this step in order to strengthen its balance sheet and have balanced the situation to give space to the new pricing plan. The amount on credit line has provided time to the company to re-boot. However, it is evident that retailing in s unpredictable as the changes in price affects the consumer behavior and the sales of the company (Zmuda, 2013). Apart from the failure of the everyday pricing strategy, the company also failed to communicate the changes in the pricing strategies to the customers through mails. This affected the consumers very much as they felt that they should have been informed of the major changes. The marketing process also suffered along with the pricing policies. Thus the sales declined to a great extent. The company was unsuccessful in considering the core customers of the target and builds a new business. In 2012, the sales of the company declined to a great extent (25%) along with the reputation. The pricing strategy is not at all a successful one as it did not consider the sentiments of the customers (Zmuda, 2013; Henricks, 2010; Hill, 2010). References Christ, P. (no date). Factors affecting pricing decisions. KnowThis. Retrieved from http://www.knowthis.com/principles-of-marketing-tutorials/pricing-decisions/factors-affecting-pricing-decision/ Cochran, C. (2006). Building a balanced scorecard. Quality Digest. Retrieved from http://www.qualitydigest.com/sept05/articles/05_article.shtml Henricks, M. (2010). Price-Cutting Peril: Do You Know What You’re Doing — Really? CBSMoneyWatch. Retrieved from http://www.bnet.com/blog/business-myths/price-cutting-peril-do-you-know-what-you-8217re-doing-8212-really/477?promo=857&tag=nl.e857 Hess, M. (2011). 5 Ways a Business Plan Can Come Back to Bite You. Retrieved from http://www.cbsnews.com/8301-505143_162-57338800/5-ways-a-business-plan-can-come-back-to-bite-you/?tag=nl.e857 Hill, D. (2010). Why Leading with Price will Kill Your Advertising and Your Brand. Retrieved from http://www.argylemarketing.com/blog/why-leading-with-price-will-kill-your-advertising-and-your-brand/ Mouroukoutas, P. (2013). A Strategic Mistake That Haunts JC Penney. Retrieved from http://www.forbes.com/sites/panosmourdoukoutas/2013/09/27/a-strategic-mistake-that-haunts-j-c-penney/ Petro, G. (2013). Retail CEO perspectives on avoiding the Race To The Bottom. Retrieved from http://www.firstinsight.com/blog/bid/266394/Retail-CEO-Perspectives-on-Avoiding-The-Race-To-The-Bottom Zmuda, N. (2013). JC Penney Changes Pricing Strategy – Again. Retrieved from http://adage.com/article/cmo-strategy/jc-penney-pricing-strategy/240568/ Read More