JC PENNY FAIR & SQUARE PRICING STRATEGY Â Case Solution
Finally, it was also foolish to create three tiers to the pricing scheme without conducting the market research. This is because having three different tiers in a single store proved to be confusing for the customers. Although, the new pricing strategy seems to be in the best interests of the long term success for JCP as it eliminates all the different price games, however, the lack of promotional spending and the communication have created a coherence gap with the other elements of the marketing mix which inhibits the success of this strategy.
First & Second Quarter Results Assessment
Â Â Â Â Â Â Â Â Â Â Â The first and the second quarter results for JC Penny show that the fair and pricing strategy have a negative impact on JC Penny. The sales growth of the company was negative as shown in the appendix. The net margins were also negative at 5.2% in first quarter of 2012. The sales growth by category also shows that there has been decrease in sales for the majority of the product categories of JCP. If we evaluate the performance of JCP compared to its competitors then the calculations performed show that the profitability margins are too low for the company as compared to its close competitors for fiscal year 2011.
Similarly, the sales per square foot growth are highly negative for JCP compared to its competitors. The revenue growth for second quarter of 2012 has been -4.12% and the six months ended in 2012 is -21.34%. The earnings per share for the same periods is $-0.67 and $-1.42 per share. The average spend per visit has also declined in dollar terms. Therefore, the first two quarters of the year 2012 show a very negative reaction of the customers to the new fair and square pricing strategy. This is all because of the holes and the miscommunication identified in the previous section.
These results are enough to invalidate the ineffectiveness of the new pricing scheme. If Ron Johnson wished to continue with the same pricing strategy then an aggressive promotional is needed to communicate and educate the customers about how the new shopping experience, logo, store layout and pricing created value for them. The marketing expenses have also dropped in 2011 which shows that significant promotion has not been performed therefore; consumers are unaware about why they should purchase EDLP rather than a discount.
Faulty Strategy or Faulty Execution
Â Â Â Â Â Â Â Â Â Â Â The negative results and the declining sales performance of JC Penny in the first six months of 2012 is due to both the negative timing of execution and the faulty strategy. The intentions of JC Penny for implementing the new pricing strategy have been to remove the reliance of the customers on the basis of discounts and make attract them towards the VDLP model. . This is because the high low pricing model can diminish the profitability and the positioning of the brand quickly. But the major elements of the company such as the sales structure and the spokesperson lacked the cohesiveness with the entire fair and square pricing strategy.
Moreover, in terms of the position and the pricing change the strategy was poorly executed. The promotion of the company was too limited to make the customers aware and change their perceptions about how the new pricing strategy would create value for them. The spokesperson was not enough to make them aware about the value of the new pricing scheme on a large scale. Moreover, the timing does not seem to be the reason behind the negative reaction of the customers. If the company had implemented the strategy slowly, then the results might have been marginally better but still the lack of promotion and communication would have created the same negative reaction from the customers………………
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