Penney Wise, Pound Foolish? JCPenney Backpedals on Confusing Pricing Strategy

At some point, JCPenney CEO Ron Johnson is going to run into massive credibility problems with shoppers, investors and employees. He may already be there.

As part of its new "fair and square" pricing strategy that was introduced as part of its brand refresh in January, the retailer announced new promotions that would give lower prices on specific days of the month and also that some products would have better pricing for month-long periods. Coupons, in a risky move, would be eliminated — a move, it turns out, that didn't sit well with "couponing moms".

But one bad quarter later, in addition to lowering prices every first and third Friday of the month (aka "payday"), Penney’s has backpedaled on its non-promotional stance by adding five additional "Best Price Fridays" throughout the year that will also feature lower prices, such as the one before Memorial Day weekend.

While the move is designed to woo back customers after the brand's dismal first quarter, at least one analyst is afraid that the addition of the new days will confuse consumers even more.

The first "Best Price Friday" took place on May 25th to lure Memorial Day sale shoppers. Another is slated for Black Friday in November. And while for any other chain a Friday promotion before a major holiday would be as routine as mopping the floors overnight, any kind of price-based promotion is a huge deal for the "new" JCPenney.

That's because Apple emigre Johnson has staked not only his tenure as CEO but in many ways the entire future of the JCPenney brand on the notion that American consumers can be "educated" to embrace a new "everyday-pricing" strategy that offers regularly lower prices in exchange for dependability.

"The additional Best Price Fridays equates to adding promotions and is a step away from the company's three kinds of pricing strategy, suggesting that the company is willing to forgo its original thinking," Deutsche Bank analyst Charles Grom wrote, according to Ad Age.

In order to get its various crucial constituencies to understand where he's trying to take the venerable retail brand, Johnson has rolled out everything from Ellen Degeneres in a period Victorian dress in one new TV ad, to a new logo, to comments counseling patience after Penney's miserable first quarter results, in which JCP lost $163 million and sales plunged 20%. He's also reminded everyone not to expect great things out of this strategy for at least another couple of years.

But do consumers actually not want to be lured by coupons and other promotional gimmicks and really not want to be whipsawed by deeply discounted prices one day only to see them return to a higher price the next day? No one's really sure.

And there's certainly plenty of evidence that a highly promotional strategy can work very well even in Penney's specifically defined segment; look no further than Kohl's to find a brand that has figured out how to make a crazily promotional approach work just fine.

It may have been other things about the Penney brand that have been keeping customers away, such as its iffy reputation in soft goods over the last couple of decades — concurrent with Kohl's stratospheric rise in that important market.

"Our first 90 days are a little tougher than we expected," Johnson recently told analysts and investors. He at the same time insisted that Penney's transformation "is way ahead of schedule."

But as HBR bloggers have been noting, even "way ahead of schedule" may not give him enough time.

Below, JCPenney's fact sheets explaining its "fair and square" pricing strategy and "monthly cadence" —