JC Penney Proves It’s Hard to Change Pricing Psychology
by Donald Davidoff | Apr 9, 2013 12:00:00 AM
Dont know how many of you follow retail, but JC Penney just pulled the plug on one of the biggest experiments in pricing historyacknowledging it to be a colossal failure. In short, Ron Johnson, the architect of a move from constant couponing to simple fair pricing is out. And expect coupons to be back in.
I was skeptical when he was hired and announced his plans less than 2 years ago on two grounds: 1) Walmart kind of owns the every day low price model (plus its not clear that everyday fair pricing has an authentic ring to it anyway) and 2) more often than not, I find people like to feel theyre getting a deal. In other words, discounting sends a psychological signal that is more powerful than simple pricing.
How is this relevant to multi-family housing, you may ask? Ive been amused that implementation of revenue management systems like LRO and YieldStar have been accompanied by a belief that they make us get rid of concessionsand that this is a good thing. Both systems allow folks to use concessionsthey calculate the recommended effective rent and then mark up the asking rent accordingly. Except for ultra-luxury product (where no discounting signals quality), discounts (which is what we should call concessions) are a great tool for conveying value. JC Penney should have realized it and is now paying the price (note: JC Penney was already struggling, so its no guarantee that they wouldnt have ultimately failed chasing the old way but Im pretty sure they wouldnt have sales down 32% fourth quarter).
Discounts and coupons may be gimmicky, but they keep people coming through the storemy wife loves Kohls; aside from various timed discounts, Kohls gives every customer Kohls cash which is a coupon for a percentage of each sale with the catch that its only good for a week from the sale datei.e. you have to come back into the store in 1-2 weeks to use it.
Anyway, theyll be writing case studies and post mortems on this for a long while. In the meantime, heres my favorite comment post from someone named Bruce who read the article in the link above:
This whole episode was WHACKO on the part of JCP. People would rather be "fooled" into thinking they're getting a better deal in a "sale", than to think they are getting a "low, regular price". Chalk it up the the (sic) incredible naiveté of the American shopper!
Come save 50% on the prices we just marked up 50%!!!
I agree with him that people do often prefer a sale to a low, regular price. And I got a chuckle at him proving at least his own math incompetence, if not actual naiveté. Hopefully by the time you read this sentence, youve figured out that 50% off a 50% marked up price would still be a 25% discount. Numeracy is an issueeven with people who look down on the general public and its general lack of numeracy :)