At some level, all shoppers know that a game is being played in every aisle of every store. Original prices, weekly promotions, clearance racks, coupons, Black Friday, blue-light specials, flash sales, oddly specific prices ending in .99 or .97 — these are just a few of the strategies employed to entice shoppers into making a purchase now. Ostensibly, life would be easier for consumers if retailers skipped the marketing tricks and didn’t play games, and the price was the price. At some level, though, it appears as if shoppers actually like these games, and they’re confused when it seems no game is being played.
Using a high-profile ad campaign that involves spokeswoman Ellen DeGeneres poking fun at coupons and markdown gimmicks throughout history, JCPenney has been leading the movement against “fake prices” in the world of retail. Instead of listing an item with a severely marked-up original price, and then almost always selling it at a major “discount” of 30%, 40% or 50% off, JCPenney recently knocked down all prices by about 40%. It also got rid of annoying prices ending in .99, and now lists shirts or belts at a flat $15 rather than $14.99.
The efforts are all part of JCPenney’s overarching new “fair and square” approach, which CEO (and former Apple executive) Ron Johnson introduced in January. Fair and square has been described as “sane” and a “breath of fresh air.” What it hasn’t been called is a success.
The New York Times reports there are signs that some stores are following Penney’s lead, with retailers such as Stein Mart and Supervalu easing off of coupon usage. Logically, the flat-price, discount-averse, no-games approach heralded by Johnson and JCPenney sure does make sense for retailer and shopper alike. The math also seems to prove that consumers don’t buy much more when the original prices are inflated:
An item that cost Penney’s $10 in 2002 was typically marked up to $28. By 2011, a $10 item had been marked up to $40. But the price the customer actually paid for the $10 item increased only 5 cents during that period — to $15.95, from $15.90.
Yet logic only gets you so far in retail. Some shoppers miss using coupons and trying to snag bargains rolled out in weekly circulars. Others are confused by the new pricing system, and have a hard time telling when they’re getting a decent price. JCPenney’s sales haven’t been particularly good lately, though the fair-and-square experiment is still very young and many other factors (seasonality, the economy) may be affecting numbers.
The problem, though, may be that when no game is being played, it’s impossible for a shopper to tell if and when she is winning. And so, perhaps she decides to go play (i.e., shop) in another store or online, where the games are more lively, or at least where it’s clear there’s a game going on.
Soon after JCPenney’s announced changes made a splash in the news, consumer psychologist Kit Yarrow told me that she was rooting for JCPenney’s new approach — because all the pricing games really are quite silly — but was skeptical that it would work in the marketplace. “In some way, we all derive value from an item’s original price. It’s very hard to internally know how much something is worth otherwise,” Yarrow said. “Without the big markdown, there’s no urgency to make a purchase today. People tend to use sales to rationalize buying things that, frankly, they probably don’t need. If you can’t say, ‘But I got it on sale,’ you’re likely to feel guilty about purchasing it.”
Another expert explained to the Times that, despite proclamations of wishing retailer games would disappear, many shoppers love the thrill of hitting the racks in the quest to snag the best deals:
“I think it underestimates what a sport discount hunting is,” Mark Ellwood, author of “Chasing the Sale,” a coming book on discounting, said of coupon hunters. “They’re like mathletes with credit cards.”
Another problem, laid out in a Harvard Business Review post analyzing JCPenney’s bold change, is that:
Quite simply, J.C. Penney lacks the differentiation to make this pricing strategy successful. J.C. Penney’s products are fairly homogenous. When selling a relatively undifferentiated product, the only lever to generate higher sales is discounts. Even worse, if competitors drop prices on comparable products, J.C. Penney’s hands are tied — it is a sitting duck that can’t respond.
JCPenney may have stopped playing games, but that doesn’t mean that games aren’t still being played. What this could mean is that JCPenney — sitting distinguished on the sidelines, a lone voice of reason not breaking a sweat — will wind up missing out on a whole lot of action.