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JC Penney Abandons Three-Tier Pricing Strategy

Retailer Ditches Month-long Values, Offers Price-Match Guarantee

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JC Penney is moving from its much-hyped, much-dissected three-tier pricing strategy to a two-tier pricing one. What's more, it's taking a page from discounters like Walmart and Target with plans to begin promoting price-match guarantees.

Since the retailer unveiled its three-tier pricing strategy in January, sales have fallen, traffic has slowed and consumers have expressed confusion. Doing away with the three-tier strategy altogether is the clearest sign yet that CEO Ron Johnson's approach to remake the aging retailer could be seriously flawed.

The original strategy included month-long values, everyday prices and best prices. In the revamp, month-long values are being eliminated. As Mr. Johnson explained month-long values to analysts and investors back in January: "Instead of putting items on sale for an hour or a day or a week, we're going to give the customer an entire month to come in and shop on her terms," he said.

The month-long values had been a key aspect of Mr. Johnson's approach, and he often spoke about how JC Penney was moving from 590 sales per year to 12. Now Mr. Johnson's approach is looking more and more like a traditional discounter, with everyday prices and clearance. Yet, as recently as January, Mr. Johnson tried to distance himself from discounters.

"Clearly I do not believe in an everyday low-pricing strategy," Mr. Johnson said during the January presentation. "There's no evidence that that works in the U.S., and we're in a very competitive environment."

Kate Coultas, a JC Penney spokeswoman, told Ad Age the retailer is staying true to its "fair and square" pricing model.

"We remain committed to offering straightforward pricing that is fair and square and have made some recent enhancements to further clarify and simplify our pricing," she said. "We will continue to offer great low prices every day. When it's time for the product to go away to make room for something new, we will call it what it is : clearance -- and it will be marked down to a clearance price so it moves quickly."

Ms. Coultas said JC Penney will also begin promoting a price-match guarantee program. It's a tactic both Best Buy and Target have taken in recent years in order to compete with Walmart.

Month-long values
Month-long values

"We want customers to have the assurance that they are getting low prices every day at JC Penney, so if a customer finds a lower price on an identical item at a competitor, we'll gladly match that price," Ms. Coultas said.

Best Price Fridays
Best Price Fridays

In the past few months, JC Penney has tweaked various aspects of the marketing approach unveiled with great fanfare earlier this year. Five Best Price Fridays were added to the calendar, a "Do The Math" campaign meant to convince consumers that JC Penney's prices are competitive has been in heavy rotation, and recently it began calling sales, well, sales. Michael Francis, who was lured from Target to lead marketing and merchandising for the retailer, departed abruptly in June. Mr. Johnson took responsibility for marketing following Mr. Francis' departure.

Still, despite a rocky few months, analysts have largely been giving Mr. Johnson some breathing room, given the magnitude of the reinvention he's attempting. But with the all-important back-to-school and holiday seasons approaching, JC Penney will soon be expected to show at least some progress.

To that end, earlier this week JC Penney unveiled the first phase of its store-within-store revamp, featuring a trio of denim brands, in time for the school-shopping season. And Ms. Coultas said new TV spots are slated for August to promote back-to-school, including one spot that will highlight the retailer's free haircut offering.

"We think the simplification to our price strategy, exciting new denim shops and free haircuts will offer a great reason for customers to shop JC Penney [in August]," Ms. Coultas said.

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