The primary goal of the essay is to evaluate Johnson’s pricing strategy and determine the possible reasons for failure while considering the competition and other externalities. Additionally, suggestions are determined based on the current J.C. Penney’s strategy. In turn, a comparison of Johnson’s and current J.C. Penney’s pricing strategies was conducted to define differences and similarities.
Johnson’s Pricing Strategy
Firstly, Johnson’s pricing has to be assessed while providing a brief description of the company and its area of operations. J.C Penney is a corporation, which specializes in delivering the products to the customers while having an extended historical background and $17.3 billion in revenue annually (Reingold, 2012). In turn, Johnson was offered the position of the CEO in J.C. Penney in 2011 and began its operations (Reingold, 2012).
Despite high popularity and recognition in the world, Johnson’s pricing strategy had some significant drawbacks, which led to its failure and inconsistency. In this instance, the firm introduced a new CEO, but it was required to regain Johnson back due to the underestimation of his strategic thinking (Lublin & Mattioli, 2013; Glazer, Lublin, & Mattioli, 2013). Johnson presented a sophisticated pricing strategy by implying using three different types of products such as original price, “a month-long value price”, and “twice-monthly best price” (Reingold, Jones, & Kramer, 2014, para. 12).
The CEO claimed that discounts are unnecessary due to reasonable pricing (Reingold, 2012). Furthermore, some of the unseasonal goods were on sale for the whole month including two clearance sales (Mattioli, 2012a). However, Johnson did not want to highlight the importance of the discounts but desired to lower the initial prices of the products (Mattioli, 2012b; Girard, 2012). This method was implemented along with the transformation of the stores while utilizing well-known brands to attract attention and expand the product lines.
Despite having an advantageous beginning, Johnson was not able to maintain the revenues of the company at a high level since the projections were not profoundly analyzed, and the CEO could not find a balance between expenses and budgeting. The primary consequence of this matter was the necessity to reduce the prices meaningfully to increase sales and attract customers (D’Innocenzio, 2012). The introduced strategies were not successful and caused a significant loss for the company.
Reasons for Johnson’s Pricing Strategy’s Failure
The reasons for Johnson’s pricing strategy failure are highly related to the changes in the market structure, economy, competitions, and modifications of consumer behavior. The rising trend of the convenience of online shopping could be considered as a definer of the failure of Johnson’s strategy (Reingold, 2012). The competition was increasing in this sector while attracting more and more companies to stop utilizing physical locations and start operations online. Furthermore, the failure took place due to the inability to evaluate the expenses of transformation efficiently (Talley, 2012).
Additionally, the absence of the presence of clearance in the stores caused negative attitudes among consumers (Reingold, 2012). The discounts have a positive effect on the consumer-buying behavior since customer experiences satisfaction while purchasing goods with discounts. In turn, customers have to be able to see the downsizing of the price and make a purchase (Berfield, 2012). This strategy is used by competitors to maximize profits and establish trusting relationships with customers.
Lastly, the development of globalization had an adverse influence on Johnson’s strategy, as the competition has been increasing due to Johnson’s desire to reduce the number of brands. Furthermore, the intensified competition in the home products’ industry and modifications in the delivery of the products among competitors caused substantial loss of the market share (Halkias, 2011). Nonetheless, J.C. Penney had chosen to rely on the success of Marta Stewart and failed in its estimations (Timberlake & Townsend, 2012).
The Potential Suggestions for the Improvement based on J.C. Penney’s Strategy
In this instance, J.C. Current J.C. Penney strategy implies lowering the prices of the products while reducing the essentiality of the usage of coupons to attract customers (Conte, 2012). Nonetheless, the company plans to return to the low pricing strategy by minimizing the regular prices of the products. In this instance, the decrease will be a maximum of 10%, as, otherwise, it will have negative consequences on the profitability of the company (Conte, 2012).
In this case, Johnson’s intentions can be considered as being beneficial at the beginning as they had a positive influence on the functioning of the company. Nonetheless, the corporation should not have eliminated the presence of discounts, as it attracted the attention of the customers actively. In turn, the dramatic reduction of the prices caused significant damage to the profitability of the company. In this instance, the prices could have been reduced insignificantly without a high effect on viability. Additionally, sufficient financial planning and budgeting might have reduced the adverse consequences.
Comparison of Johnson’s and J.C. Penney’s Pricing Strategies
Furthermore, a comparison of Johnson’s and J.C. Penney’s pricing strategies has to be conducted to determine the differences and similarities of the pricing formation. Both approaches tend to focus on the reduction of prices. However, the current J.C. Penney strategy tends to decrease its insignificantly without a substantial impact on profits. As for Johnson’s strategy, the price was declined dramatically.
Another difference is the attitude towards planning and budgeting. The underestimations of the costs of the transformation could be considered as the primary reason for the decrease in the profitability and enterprise’s efficiency when Johnson was a CEO. In turn, a new management team was able to calculate the suitable percentage of reduction while focusing on the modernization of the stores. The current emphasis of the company will have a beneficial influence on its development in the following years due to the understanding of the fluctuations of the marketing trends and changes.
J.C. Penney’s management aims towards the modernization while providing reasonable pricing and cultivating the understanding of no need of the coupons applications. Nonetheless, the primary difference lays in the ability to estimate the potential costs of the strategic changes. In turn, the right estimation of the percentage decrease is also a definer in the current situation.
Conclusion
In the end, the development of the pricing strategy is a challenge, as the failure and misconceptions might lead to the loss of the market share. An evaluation of the strategy of the competitors can contribute to the development of the relevant perception of the drawbacks and areas for improvement. Nonetheless, the enhancement of the tactic has to be assessed within the organization to minimize the risks of failure. In this instance, Johnson was not able to consider recent consumer trends related to the attitudes towards discounts and overestimate the ability of the company to remain profitable with a 40% discount from the initial price. In turn, he could not find a balance between expenses and incomes. However, the current management of J.C. Penney acquired from the mistakes of the past and developed a relevant price decrease of 10% maximum and modernized the locations of the stores while planning the financial distribution efficiently.
References
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