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JC Penney and price shrouding

I, like many people, thought that when Ron Johnson left his job running Apple’s retail operation to take over JC Penney, he’d turn things around completely. Not long after he took the job, he promised to completely remake the department store experience. One of the biggest experiments he tried was completely bucking the industry trend when it comes to pricing.

In January, the New York Time ran an article explaining Johnson’s plan, which involved simplifying the pricing structure and eliminating most large sales and promotions relating to those sales. This sounded like a great idea to me. The idea of going into a store and buying things without wondering whether I could get a better discount later by gaming the system seemed like a relief.

Based on the early results, I was completely wrong. JC Penney’s since they changed their pricing model have been incredibly bad. MSNBC’s Bob Sullivan explains why, in an article about price shrouding. In short, people feel like they get a better deal when they’re playing the game. The open question remains whether JC Penney is suffering poor results now but will rebound once consumers better understand what they’re doing. I wouldn’t count on it.

I think the lesson here for any product designer is that we have to really understand human behavior when we’re making decisions that depend on it. The Apple Store sells products that cannot be purchased more cheaply anywhere else. Furthermore, Apple’s profits are roughly the same whether you buy an iPod at an Apple Store or you buy that iPod at Best Buy. JC Penney does not retain either of those advantages.

2 Comments

  1. I think you and I are outliers in the world of department store shoppers: men–and among men, geeks.

    After reading the article, In the world of apparel marketing, I’d say that anchoring is probably at least an important a factor as shrouding.

  2. Well, Ron Johnson is now used to selling to geeks. For every $100 I have spent on computers, cameras, iPads, iPhones, etc, etc, I’ve probably spent about $1 on clothing. And while I have really enjoyed spending that $100, practically begging companies like Apple and Nikon to take thousands of my dollars, I’ve been pretty grudging about every penny of that $1.

    With this understood, it should be no surprise that all my clothes were falling apart. So, with Ron Johnson’s strategy in mind, I visited J C Penney. I wouldn’t have if it hadn’t been for Johnson’s takeover, of course. Overall, other than a long checkout line, I really liked the experience – I liked the clarity over sales, and the quality of the clothes seemed very good for the money.

    As I told the checker, I liked the experience so much I might shop for clothes once every six months instead of every two years! She laughed so hard she practically fell down on the floor! I think she shops for clothes a little more often than I do :).

    So if you hate clothes shopping, Penney might be your cup of tea. I think Johnson’s experiment is worthy of support and I hope he can make it work.

    D

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