Case Study Analysis

J.C. Penney’s “Fair and square” Strategy

1. Key Marketing Issue

The key marketing issue that J.C. Penney is facing here is the inability to communicate to
their customers that they offer the best deals for the products at their stores. In 2012, the
C.E.O. of J.C. Penney, Ron Johnson switched to a new “Fair and Square” pricing
strategy, but failed to effectively market the benefits of this strategy to their customers,
leading to loss in revenue and decrease in number of customers in the second quarter of
2012.

2. Alternate Solutions

To overcome the marketing challenges discussed above, following solutions can be

implemented:

a. First Solution

The first solution to this problem is revamping the pricing strategy for their products
by turning back to the previous “High-low pricing” methodology of running frequent
sales to offer big discounts on higher listed prices, conducting clearance sales and
providing cash coupons to the customers. As per the case study, the new strategy
caused dissatisfaction among the customers as the bargains were hard to find and
there was no additional incentive to the customers as cash and discount coupons were
no longer offered. Running frequent sales and providing additional benefits such as
coupons will enhance the overall customer satisfaction and will encourage the
customers to choose J.C. Penney over other retailers.

Pros:

 This strategy can help J.C. Penney in pulling back their lost customer base and
increase their sales and profit, as customers will be more encouraged to visit the
stores, if better deals are provided.
 As this strategy was previously in place, it will be very easy to switch back to it
with low cost and implementation and less time of execution.

Cons:
 “High low pricing” is not a good pricing strategy moving forward and not
advisable in the longer run, as this strategy is unable to provide the company with
new opportunities for growth and increase in profits.
  This strategy might reap benefits and increase sales for a short period after its
implementation but in the future, it might lead to stagnancy with no further scope
for increase in sales and profit.
 With no scope for improvement in sales and profits, J.C. Penney were more
susceptible to their competitors such as, Macy’s and Kohl’s catching up on them
in an already shrinking retail market.

b. Second Solution

The second solution is educating the customers about the benefits of their new “Fair
and Square” pricing strategy and explaining them how to get the best deals, through
promotions and effective marketing strategy. As per the case study, A Deutsche Bank
analyst report showed that for a random basket of 50 identical items, J.C. Penney was
9% cheaper than Marcy’s and 26% cheaper than Kohl’s, after the “Fair and Square”
pricing strategy was implemented. Had the company effectively communicated this
difference in price through efficient marketing techniques, it could have capitalized
on this advantage for their benefit.

Pros:

 This strategy gives the company an opportunity to increase their sales and profits in
the future.
 This strategy can bail out the company from the problems of stagnancy in the sales
and increasing competition.
 If the new pricing strategy is properly marketed, it can be helpful in attracting new
customers.

Cons:

 This strategy might take some time in showing its positive effects, especially during
initial phase of implementation and the sales might be low for that period.
 Marketing a new pricing strategy will require huge investment and planning.

3. Recommended Solution

In addressing the marketing challenge mentioned above, solution 2 will be more effective
as it not only provides J.C. Penney a whole new dimension for increase in sales and profit
in the future, but also gives them an opportunity to regain their lost customer base.
 Qualitative Analysis:

 From qualitative point of view, implementing a new pricing strategy and efficiently
marketing it can help J.C. Penney in increasing their profits, as it provides the
company a new way to price its products. With the implementation of solution 1,
sales might increase for a shorter period but it will lead to loss in profit and market
share even within the shrinking department store channel.

 Implementing the “Fair and square” pricing strategy with extensive marketing can
help the company in pulling the highly price sensitive customers who used to wait for
sale days to make purchases.

Quantitative Analysis:

 As per the case study, A Deutsche Bank analyst report showed that for a random
basket of 50 identical items, J.C. Penney was 9% cheaper than Marcy’s and 26%
cheaper than Kohl’s, after the “Fair and Square” pricing strategy was implemented. If
J.C. Penney can convey this price difference to its customers through the channels of
effective marketing, it can achieve a cutting edge over its competitors such as
Marcy’s and Kohl’s.

 As per the exhibit 7, Cost of a T-shirt after the implementation of

“Fair and Square” pricing was 33.3% less than that during this time when “High-
Low” pricing strategy was in place. If the same trend followed for other products as
well, J.C. Penney could make the best use of this pricing strategy by properly
marketing it among its customers.

4. Implementation

The solution discussed above can be successfully implemented in the following ways:

 Focusing on educating the customers about the benefits of new pricing strategy
through new advertisements, email campaigns.
 Carefully choosing the celebrities as brand ambassador that are hugely popular
among most customer segments.
 Applying the pricing strategy on e-commerce platform as this platform has huge
potential for growth.
 Performing market research and focusing on customer reviews will help in
understanding the overall satisfaction level of the customers with the products and
prices offered by the company.