Retailers love the idea that consumers can be trained to view certain price points and markdowns as terrific deals. Just tweak the prices and wait for shoppers to bite. And when consumers get to the point that they can see through the manipulative promotions? Then it’s time to retrain them.
Menswear specialist Jos. A. Bank has enjoyed strong sales and rapid expansion in the post-recession era largely thanks to its steady stream of sales and promotions. Virtually all stores have sales, but Jos. A. Bank is known for going over the top, with deals like “buy one, get two free” and 70% off becoming commonplace. The retailer even got sued last summer by customers who contend that Jos. A. Bank’s pricing strategies amount to “deceptive marketing” because no one ever pays the original prices listed on merchandise.
Even without the lawsuit, Jos. A. Bank would probably have been rethinking its never-ending deep discounting over the last several months. In a recent conference call with analysts, company CEO R. Neal Black announced that first quarter profits were down sharply. Stores open at least a year saw an 8% drop in total sales, and this comes on the heels of what Black called a “weak trend in the fourth quarter.”
Black admitted that the big markdowns and promotions that worked in years past just aren’t as effective as they used to be in driving sales. It looks like shoppers are ignoring Jos. A. Bank’s promotions as the store has turned into something like The Boy Who Cried Sale. People have been getting less excited by the retailer’s BIG SALE! promotions because, by now, they realize that everything is always on sale. There’s not much sense of urgency to take advantage of a sale when you know that another deal is guaranteed to pop up as soon as the current one ends.
Jos. A. Bank isn’t giving up entirely on sales and markdowns, but after a brutal few months of sales it is trying to ease off the flow promotions. Mark Montagna, a senior analyst with Avondale Partners, told the Baltimore Sun that 2013 is likely to be a bad year for Jos. A. Bank as consumers have even less reason to visit stores, but that the shift is probably necessary. “Promotions got too steep, and it [went on] for too long,” said Montagna. “But it’s going to be very difficult to retrain the customer. It’s not a one-year process.”
Jos. A. Bank can look at the recent experiences of JC Penney to see just how difficult it is to “retrain the customer.” In early 2012, CEO Ron Johnson promised an end to “fake prices”—the system Jos. A. Bank uses relentlessly, with inflated original prices followed by major markdowns. By the 2012 Christmas shopping season, it was clear that JC Penney’s new no-coupons, minimal-sales policy was failing to gain traction with shoppers. “You have to earn their trust,” Johnson said at the time of shoppers. “In the short run, our business will be a little lower as we retrain the customer to understand value.”
It’s unclear whether whether JC Penney’s apology worked, but the retailer now has another problem on its hands: It must retrain customers who had gotten used to Ron Johnson-era everyday low pricing in its stores.
While there’s nothing particularly new about a store inflating original prices and then discounting them sharply to make a “sale” seem impressive, the tactic (known as “anchoring”) has never seemed quite as obvious—shameless, even—as it has lately at JC Penney. After Johnson was pushed out as CEO, stores began to rapidly raise prices, typically by covering up the item’s old price with a sticker. As one TV station investigation showed, it’s been common to see, for instance, a shirt priced “on sale” at $13.99, down from $20. Only underneath the $13.99 tag, it’s revealed that the shirt was originally listed at $10 mere weeks ago.
It’s pretty difficult to train any customer into believing that this is truly a good deal.