Through a special arrangement, what follows is an excerpt of a current article from Retail Paradox, RSR Research's weekly analysis on emerging issues facing retailers, presented here for discussion.
There has been a flurry of news stories in the last couple of months about pricing and promotions of which two stand out very strongly in my mind. One is J.C. Penney's report that they are returning to "sale" terminology instead of the cute "best price" attempt. The other is Supervalu's repositioning on price. The grocer is going to lower prices, promote less and implement much of it by the end of its fiscal 2013.
Both companies have fallen into a trap of training consumers to wait for deep promotional discounts before buying anything and need to change their ways — fast.
Overcoming the challenge of over-promotion is not easy, but I see two big issues right off the bat.
The first challenge is making sure you have the right price for the right product. JCP has done the work to determine that Arizona jeans should be priced at, say, $30 per pair instead of $50 with a 40 percent off coupon. But I don't think they've done the work to set expectations with consumers that Arizona jeans are worth $30, especially after expectations have for so long been defined more by that 40 percent off than the $50. Yeah, the math is the same, but the one thing that psychologists have proven is that consumers are not rational creatures when it comes to reacting to the prices they see.
In the same manner, Albertsons' produce department felt to me more like a rock-bottom discount store than something that Albertsons should be providing — which leads me to challenge number two.
The second challenge is to ensure that you have the right price for the brand image. This is another big deal for JCP. They aspire to be included in the same competitive set as Macy's and Dillard's. But I think they are more accurately placed in the Sears and Kohl's category instead. Is JCP cheap chic or are they just cheap? They're stuck in the middle between Macy's and Target and have not yet made a compelling case for why they should be considered by shoppers of either chain.
Albertsons has the same problem. I always thought of Albertsons as slightly premium over most other grocery banners. But the look and feel of the stores I visited simply did not support that impression. And what is Supervalu's price strategy? Is it EDLP? The weekly insert was always full of deals.
JCP and Supervalu aren't a simple case of "it's always easier to move down-market than it is to move up." They reflect a complex challenge of anchor prices, brand price image and communication of a clear value proposition. For the retailers out there worried that they too may be over-promoted, I hope you're rooting for these two companies' success. Because you just might be walking in their shoes next.