JC Penney’s EDLP Strategy Is Sound-But Show Consumers It’s True
By admin In Uncategorized Posted June 20, 2012 0 Comments

This week’s announcement of the firing of Penney president Michael Francis is seen by many as an admission that the “every day low pricing” (EDLP) strategy won’t work in the apparel industry, and that the decision not to turn from that strategy is the decision that should have been made. They cite the reluctance of consumers to shop without markdowns, coupons, and sales (despite higher prices to justify the markdowns) as evidence that the consumer will not change.

I posit that the strategy is a solid one, not just from a sales perspective but in the long run from a supply chain perspective. Just as with EDLP in the grocery chains, and Walmart, the leveling effect that regular and consistent low prices brings on demand can (and usually does) bring predictability to forecasting for sales, and thus will drive out the costs incurred by inaccurate forecasts. Remember, forecasts are wrong in both directions. The inability to forecast drops in volume results in the need to run clearance sales to clear out excess inventory, but failure to forecast high demands leaves money on the table. Not to mention the challenges of forecasting sizing and colors in the fashion market.

The CEO of Penney’s has made it clear that he believes the failure is one  of messaging.

Part of the problem is that customers are still confused by the new terminology Penney has been using to describe its deals, such as “Best Price Friday” and “month-long values.” He said the company is looking for ways to communicate everyday-low pricing more clearly. (Wall Street Journal, June 20, 2012)

The commercials that JC Penney put out were attractive, colorful, and got people talking, but in today’s jaundiced market, the consumer needs more. There needs to be some way to convince the consumer that their prices really are consistently lower, and that they have ended the accepted practice of marking up prices only to bring them down for sales.  It is just Enter technology.

One of the more useful tools in the consumers arsenal are the apps designed to compare prices between stores right on the store floor.  It is just this sort of technology that some have argued have put Best Buy on the endangered species list–the ability for consumers to use a brick and mortar store as a “showroom” for products, and then purchase them online.  I am in a sense “guilty” as well.  I use my favorite app “Red Laser” (available on Android and iOS devices) to comparison shop.  No surprise, I often find some store’s “sale” prices are comparable or even higher, than other retail non-discounted pricing–both online and in storefronts.

Data synchronization, one of the key focal areas of VICS and GS1, plays a critical role here.  When companies share information regarding pricing and product characteristics,  third party firms are able to then provide the service of visibility to consumers.  That visibility can lead to a more informed consumer who can now make the decision through “virtual comparison shopping” rather than driving around town to draw comparisons.

Penney needs to find a way to leverage the ability of these “honest brokers” to provide consumers with price comparisons so that the consumers will feel confident that the price they pay is the lowest available price.  Ideally, the tools will start presenting information in terms of percentages as well.  Consumers respond to “percentage off” sales so knowing that your product is already “20%” cheaper can be quite compelling.

JC Penney should have as their major marketing effort now to drive consumers to these honest brokers.  To encourage consumers to check before they shop.   Reverse the trend and instead of being the showcase for online shoppers, use the online data-synchronization tools to show consumers the value in their products and drive the consumers back to their store.

Their new motto should be:

“Don’t take our word for it–CHECK.”

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