23 May 2012 Jay Shepherd

Bad advice from Harvard Business Review

Author Rafi Mohammed advises JCPenney to dump what he calls its “risky” pricing strategy:

The best retailers succeed by offering highly differentiated products (as the Apple Store does) or a unique shopping experience (as Nordstrom or Target does). Today, J.C. Penney sells semi-differentiated products and provides a ho-hum shopping experience — it doesn’t have much “mojo” to draw customers into its stores. So what’s the only lever that can excite and bring in customers to make often discretionary purchases? Discounts…

I believe that even if customers fully understand its pricing strategy, J.C. Penney is not going to get the revenue/loyalty windfall that it is hoping for. It’s time to put pride aside and revert back to a discounting strategy.

Mohammed is a very smart guy and he’s written a couple of good pricing books: The 1% Windfall and The Art of Pricing (both affiliate links). But I don’t care for his advice that JCPenney should surrender and return to the brainless approach of discounting. When you rely on discounts, you send a message to customers that your stuff isn’t worth as much as you originally said it was. This is true whether you’re a midmarket retailer, a car company, or a law firm. Discounting belies a lack of creativity.

In fact, Penney’s path to success lies in something Mohammed said above. Since it’s not likely to start selling highly differentiated products like Apple, its best option is to create a unique shopping experience. It needs to figure out what “JCPenney” is supposed to stand for. In other words, something better and more interesting than “also-ran department store.” (And a name change might be necessary, too.)

No one is going to ever say, “Hey, let’s go to JCPenney because they have a new pricing strategy.” Ever.

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