J.C. Penney launches an Innovative Business Model

J.C. Penney launches an Innovative Business Model


by Oksana Girs

After a dismal revenue increase of 0.7 percent in an 11 month period, J.C. Penney decided to start fresh with new leadership and innovative “pricing strategy.”  Under this new strategy, Penny’s will eliminate all sales in favor of everyday low pricing.

In 2011, J.C. Penney Company, Inc. hired a new team of successful professionals helmed by CEO Ron Johnson, former Apple executive, and President Michael Francis, former Target CMO. This team believes that their new pricing strategy can change customers’ way of shopping, purchasing habits and satisfaction level.

So what’s this all about?

  1. Why wait for sales? Shop when you want. Penney is reducing all of its merchandising by at least of 40 percent. In contrast, in 2011 J.C. Penney hosted 590 sales events.
  2. Tired of confusing tags? Penney will offer an easy tagging system for you. They will divide all the merchandise into just three pricing categories: “Every Day,” “Month-Long Value,” and “Best Prices,” each having its own color for shoppers’ convenience. The last one will take place every first and third Fridays monthly, and it’s designed to make room for new merchandise.
  3. Still fooled by psychological pricing? Penney doesn’t think so. They will round their prices: instead of having $14.99 tag, the price will be a round number like $14 or $15.
  4. Bored with same old advertisement? J.C. Penney launched a new promotional campaign, featuring a new logo and a spokeswoman, talk show host, Ellen DeGeneres.

Is this actually going to work?

Based on the 3005 comments, as of 30th of January, left on the Yahoo! Finance article “J.C. Penney gets rid of hundreds of sales,” readers are looking forward to Penney’s new pricing strategy.  Rapid increase in the JCP’s shares on the stock market indicates that stockholders believe in sales growth and are optimistic about company’s strategic change.

By the same token, the new business model could be a train wreck.  Sales create motivation to make a special trip to a store.  With mall traffic down, will shoppers still be motivated to head to JC Penney’s for the same pricing that was available yesterday and the day before?  There is a scenario where this business model blows up badly and 1) lowers Penney’s overall margins, 2) lowers annual sales as reasons for a special trip to Penny’s disappear, 3) lowers impulse buys of high margins items from sale shoppers, and 4) makes Penney’s a Kohl’s Version 2.

What do you think about J.C. Penney’s new Business Model? Can it change customers’ purchasing patterns? Will it revolutionize the retailing industry?

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