Does J.C. Penney pricing change the game?

February 03, 2012

New CEO aims for more trips, bigger baskets and more everyday sales by turning down the heat on promotions. Can this work in food?

The new Apple-bred CEO of J.C. Penney Ron Johnson thinks shoppers have had enough of artificially high price points followed by incessant discounts that make shoppers scramble to get the values they seek. To provide shopper relief, the chain institutes today (Feb. 1) three kinds of prices – everyday (at least 40% lower than last year’s prices), monthly specials on seasonal merchandise, and “best prices” deals that rotate on the first and third Fridays each month.

Among results the chain seeks: more trips (more than its latest average of four times a year), larger baskets, less marketing costs, and more “everyday” price selling.

The Lempert Report wants readers to think about how today’s food price inflation follows a period of food price volatility, which caused CPG and retailers to manage pricing and promotions in ways to retain “price integrity” while showing value. These pricing-promotion strategies strained relationships between retailers and CPG, partly because chains were often left to absorb CPG price hikes in order to look competitive in the eyes of shoppers.

Observing this trend, we suggest that the original 4Ps – product, price, place and promotion – be viewed now as the 3Ps with price and promotion integrally tied into one. We think the J.C. Penney strategy could serve as proof of this concept, and we urge supermarkets to assess how this new model could apply to the food business. 

We think, for example, this model may help supermarkets attract more stock-up trips because: more predictable prices and lengthier promotion windows assist trip planning; customers feel they’d get a square deal whenever they come; and they might trust the retailer more to have their interests in mind.

By contrast, Target aims to compete through direct pricing and exclusive-product help from vendors that “ensure stores are not used as showrooms for online-only retailers.” Wall Street analyst Deborah Weinswig of Citi Investment Research scooped this Target letter last week, and said she expects “more brick-and-mortar retailers to rethink their pricing strategies in 2012, and increasingly demand support from vendors as they strive to compete with lower-priced online retailers.”