Shoppers’ Insatiable Appetite

Sunday, January 29, 2012
Posted in category Economics

Here is an interesting article on Yahoo about the new pricing strategy of J.C. Penney.

The plan, the first major move by Apple executive Ron Johnson since he became Penney’s CEO in November, is different from Wal-Mart’s iconic everyday low pricing. Unlike Wal-Mart, Penney’s goal isn’t to undercut competitors, but rather to offer customers more predictable pricing.

“Pricing is actually a pretty simple and straightforward thing,” Johnson told the Associated Press during an interview ahead of the announcement at the company’s Plano, Tex. headquarters. “Customers will not pay literally a penny more than the true value of the product.”

These quotes from the story are rather interesting:

Perhaps the biggest challenge for Penney is to sell shoppers on its new pricing. For years, Penney, like many other stores, has propped up price. The intent: to make it look like shoppers are getting great discounts when items go on sale.

The increased discounting has been a vicious cycle that only feeds into shoppers’ insatiable appetite for bigger and better discounts. In fact, whereas it took 38 percent off to get shoppers to buy 10 years ago, it now takes discounts of 60 percent, Johnson says.

Kohl’s is perhaps the worst at carrying out this pricing strategy. Kohl’s shoppers think that an item marked $45 (that is worth $20) and on sale for $25 is a great deal. So many items at Kohl’s are not priced appropriately until the items are marked 60% off – household items, kitchen items, shoes, bedding items, etc. The average shopper has been trained to see sales, not the real value of the products they buy. The cheap-and-easy credit era helped to fuel that ignorance because the abuse of credit has been justified by folks who believe that there is an upside to all the debt: they are buying value because goods appear to be listed at bargain prices. In reality, they are overpaying for products and getting sucked into buying things they didn’t plan on buying, and the end result is more stuff, more debt, and a skewed perception of value.

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One Response to Shoppers’ Insatiable Appetite

  1. trevalyan says:

    January 31st, 2012 at 12:54 pm

    15 years ago, it might have been legitimate to point out that the average shopper can be easily suckered by “sales” that rely on overpriced goods and services. I still watch the airlines hold sales all the time, resulting in very unpredictable products. But now stores can easily be compared to other stores, including online vendors such as Amazon, using the Internet. It takes less than 15 minutes for an average search. Most shoppers know this and it’s a mistake for the liberty-oriented to think they’re too dumb to figure out why old “sales” policy isn’t working. Glad Penney’s has finally caught up to what I knew six years ago!

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