August 17, 2012
RSR Research: Over-Promoted
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.
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Discussion Questions
Discussion Questions: What lessons can others learn from J.C. Penney’s and Supervalu’s pricing challenges? What can other department stores and supermarkets do to avoid similar fates?
Poll
Both stores (JCP and Supervalu) have become victims of the “barbell effect,” in which they are outgunned by lower-priced competitors with better cost structures on the one hand, and stores with more pricing power due to higher-end assortments. In Supervalu’s case, think Walmart below and Whole Foods above. It’s not always about price and promotional activity…a lot of these stores’ issues are driven by content and the store experience.
JCP’s situation is more complex. In hindsight, they may have erred not by pursuing a new pricing policy, but by focusing on it before addressing content and store changes that will take years to unfold. As a result, they have chased some of their most loyal (and bargain-driven) customers to competitors. And they have not done a good job reinforcing the value message in-store: Would it kill JCP to sign its new Levi shops more aggressively with its new everyday prices for jeans?
J.C. Penney was slipping. They had to do something quickly. They hired a successful contemporary CEO. They thought he had the magic wand. They decided that upscaling was the answer, but they wrongly assumed their customer base wanted such a change.
The mistake: The needs of ailing J.C. Penney and those of its well established customer base were not compatible. Penney decided to try to go upscale in their advertising thereby confusing and alienating much of their customer base.
The change Penney installed took away the fun their customers had with coupons clipping and low-ball promotions. Those things didn’t fit into the lifestyle of Penney’s existing customers and Penney had trained them.
Lesson: You can’t convert a customer audience to a new paradigm over night. Time is required to condition for growth. Nor can you win a new customers with snappy ads when you have a established reputation.
Supervalu was the prime food wholesaler in America. It’s business philosophy was well articulated and clearly understood and it was profitable. But the marketplace was changing so they had to redo their business plan. They chose to buy most of an available but declining Albertsons chain, become a big food retailer as well as a prime food wholesaler and set their hopes high on accomplishing what had Albertsons had already lost. They have tried several pricing and promotional strategies and in so doing, confused their customers — and even some of their associates, while learning that Walmart had conquered the low-pricing strategy … particularly as the country experienced a recession. Turnover in managements has further confused the situation.
Lessons learned: Retailers must 1) Set well thought-through priorities. 2) Then always keep their objectives straight. 3) Devise a plan to serve their targeted customers better than anyone is serving them. And 4) Never bite off more than you can chew.
Retailers that constantly offer discounts on almost everything they sell soon find that consumers will not buy unless a substantial discount is offered. I’d put Macy’s in the same boat as JCP. Does anyone ever pay full price for anything at Macy’s? There is always a coupon or promotion to lower any price in the store.
Retraining consumers to trust your pricing is very difficult, but it can be done. One way is to adopt an EDLP strategy and stick to it, without promotional gimmicks. The other is to reposition the brand. Target did this successfully when they brought in designers and became cheap chic.
Today’s consumer is more value conscious than ever. JCP attempted to change the shopping paradigm. Their Board of Directors wanted to improve financial performance by having less of their transactions on coupon. Reducing markdowns, but ultimately offering great product at a great price is not a foreign concept. JCP is not a downscale department store. The imagery in spots since Feb 2012 was fashion forward and eye-catching. The problem was the viewer didn’t get it and unfortunately the imagery, direction and production value resonated as a Target spot. New spots for BTS are sharper, fun and clear in their call to action.
To answer the question specifically, the lesson learned is to protect the brand positioning — be true to it and leverage it every business day. JCP lost their way a bit, but Mr. Johnson will lead, to get it back. It’s not about what to do with pricing. If you scream price all day long, what you get is a store that resembles a dollar store and that’s not attractive in a mall/strip center department store setting offering great service, selection and fashion at a reasonable price.
First off, EXCELLENT observations by Nikki Baird.
Second, I couldn’t resist the irony of the typo in the announcement of this topic emailed to Braintrust panelists this morning. To wit:
“There has been a flurry of news stories on pricing and promotions lately of which two stand out. One is about J.C. Penney’s return to “sale” terminology vs “bets price.”
That Ron Johnson “bet price” in the JCP remake is just too true. It was a “bet” in the best business sense of the word. And it was a bet that consumers were engaged enough in value determination to throw off the shackles of tradition and actually do the math. To be blunt, (I think) he bet wrong.
Nikki is right, price PERCEPTION is what it’s all about. That is why Walmart has been the master marketer of retailing in my book for many years — a few hiccups lately not withstanding. They have uniformly stuck to low price as their message and reinforced it religiously in everything they do. It works.
And to Nikki’s other excellent point — prices can be too low to fit the retailer’s image — again a hearty “amen!” Consumers look for a harmonious message from a retailer. It can be high price/high quality and service. It can be deal of the day. It can be lowest prices everyday. But it had damned well better be consistent.
Brands need to look in the mirror and not only see themselves, but understand who they are and more importantly understand how their customers see them and where they ‘fit’ in the retailer landscape. Nikki’s point is absolutely spot on. Perception is a very powerful force — especially when you’re trying to change your shopper’s perception of what and who you are!
Shoppers are not always rational as many (if not most) purchase decisions are emotionally driven. Shoppers want honesty and don’t appreciate when they are being manipulated. Retailers need to be true to their brand and where they live in the perceived retailer landscape in the eyes of their customers.
If changes need to be made, make sure you understand all the consequences of those changes to your customers and then communicate honestly so your customers support you through the ‘ride’ ahead. It’s a brave new world where there aren’t many places to hide.
I believe the best policy is to buy well and price accordingly. No one is in business to lose money and your owners and stockholders know what a fair return is on their investment. Your pricing/margins have to meet that goal. How you achieve that is the alchemy that eludes most.
I prefer the Publix philosophy which is to set fair pricing by setting margins by category but balancing penny profit against margins so as not to lose revenue should an individual item’s margin drag down the penny profit of a category. Additionally, working with suppliers to help them meet their goals which creates a partnership instead of an adversarial relationship. This partnership always provides a competitive edge. And most importantly, impressing upon employees the fact that the customer is the real boss. They make a decision every hour of every day how much and where to spend. Make those customers feel welcome, wanted and served!
The problem Penney’s, Supervalu and even Albertsons have is lack of a consistent identity. They don’t seem to have a sense of who they are and why they exist. One minute they are a lady of fashion the next a lady of the evening. They have lost their way due to a succession of “quick fixes” by hired guns. Get back to basics, know your customers and fill their needs. Be aspirational, but don’t do so to the extent that you lose touch with “the one who brung you”!
Hire an external branding firm, determine what your market values in your brand. Then market and sell to your brand strengths. Keep it simple. Some stores are price-only. Some are quality and/or assortment. Some are value-driven. Nail down what you mean to shoppers and don’t try to train them to think of you differently. It is far too rare to find success in changing a shopper’s mind about your brand. Apple and only a few others have succeeded in that. And the market doesn’t have have enough room for a thousand Apple-type store brands.
EDLP only works if you have both — i.e. your prices are the lowest and they’re the lowest consistently — but in order to establish that, consumers need a point of reference. It’s relatively easy to establish with a grocery or general merchandise store, where a consumer shops frequently, and buys a multitude of branded products (that are identical from store to store); but I doubt that it’s the same with a department store where — presumably — much of the emphasis is on having unique merchandise. And most people are quite happy to leave fractions behind once they graduate high school … who wants to compare $29.95 to 75% of 85% of $46.99?
It used to be that Product was the number one “P” in the U.S., but now, it’s definitely Price. Which to me, is a deplorable state to be in. Everywhere you look, merchants are running in fear to their managers; markdown! Sale! Promotion! 70% off!
Even Whole Foods, whose product is clearly far superior to other grocers, gets dinged as “whole paycheck” when in fact, what’s more important than putting quality into your and your children’s fuel tank? Everyone has paid the price of mega-discounting over the last 20 years and it’s due to stop.
It’s going to take a collaborative effort on the part of all retailers to help ‘re-train’ the U.S. consumer about quality — and how if something is actually better, you SHOULD pay more for it. It was a nice try by Johnson to change the pricing policy at JCP, and more retailers should have the guts to do it as well.
Here’s to bringing us to where most of the rest of the world is: quality first.
The big lesson from JCP is that a strategy that worked at one brand (Apple) can’t be ported over to a brand that lacks equal level of customer preference.
Whatever JCP once was, the stores deteriorated in appearance over the last few years to the point where they have to be compared to the lower end of the retail spectrum. The pricing strategy adopted by JCP disconnected from the reality of its store experience and therefore lost traction with customers.
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Both stores (JCP and Supervalu) have become victims of the “barbell effect,” in which they are outgunned by lower-priced competitors with better cost structures on the one hand, and stores with more pricing power due to higher-end assortments. In Supervalu’s case, think Walmart below and Whole Foods above. It’s not always about price and promotional activity…a lot of these stores’ issues are driven by content and the store experience.
JCP’s situation is more complex. In hindsight, they may have erred not by pursuing a new pricing policy, but by focusing on it before addressing content and store changes that will take years to unfold. As a result, they have chased some of their most loyal (and bargain-driven) customers to competitors. And they have not done a good job reinforcing the value message in-store: Would it kill JCP to sign its new Levi shops more aggressively with its new everyday prices for jeans?
J.C. Penney was slipping. They had to do something quickly. They hired a successful contemporary CEO. They thought he had the magic wand. They decided that upscaling was the answer, but they wrongly assumed their customer base wanted such a change.
The mistake: The needs of ailing J.C. Penney and those of its well established customer base were not compatible. Penney decided to try to go upscale in their advertising thereby confusing and alienating much of their customer base.
The change Penney installed took away the fun their customers had with coupons clipping and low-ball promotions. Those things didn’t fit into the lifestyle of Penney’s existing customers and Penney had trained them.
Lesson: You can’t convert a customer audience to a new paradigm over night. Time is required to condition for growth. Nor can you win a new customers with snappy ads when you have a established reputation.
Supervalu was the prime food wholesaler in America. It’s business philosophy was well articulated and clearly understood and it was profitable. But the marketplace was changing so they had to redo their business plan. They chose to buy most of an available but declining Albertsons chain, become a big food retailer as well as a prime food wholesaler and set their hopes high on accomplishing what had Albertsons had already lost. They have tried several pricing and promotional strategies and in so doing, confused their customers — and even some of their associates, while learning that Walmart had conquered the low-pricing strategy … particularly as the country experienced a recession. Turnover in managements has further confused the situation.
Lessons learned: Retailers must 1) Set well thought-through priorities. 2) Then always keep their objectives straight. 3) Devise a plan to serve their targeted customers better than anyone is serving them. And 4) Never bite off more than you can chew.
Retailers that constantly offer discounts on almost everything they sell soon find that consumers will not buy unless a substantial discount is offered. I’d put Macy’s in the same boat as JCP. Does anyone ever pay full price for anything at Macy’s? There is always a coupon or promotion to lower any price in the store.
Retraining consumers to trust your pricing is very difficult, but it can be done. One way is to adopt an EDLP strategy and stick to it, without promotional gimmicks. The other is to reposition the brand. Target did this successfully when they brought in designers and became cheap chic.
Today’s consumer is more value conscious than ever. JCP attempted to change the shopping paradigm. Their Board of Directors wanted to improve financial performance by having less of their transactions on coupon. Reducing markdowns, but ultimately offering great product at a great price is not a foreign concept. JCP is not a downscale department store. The imagery in spots since Feb 2012 was fashion forward and eye-catching. The problem was the viewer didn’t get it and unfortunately the imagery, direction and production value resonated as a Target spot. New spots for BTS are sharper, fun and clear in their call to action.
To answer the question specifically, the lesson learned is to protect the brand positioning — be true to it and leverage it every business day. JCP lost their way a bit, but Mr. Johnson will lead, to get it back. It’s not about what to do with pricing. If you scream price all day long, what you get is a store that resembles a dollar store and that’s not attractive in a mall/strip center department store setting offering great service, selection and fashion at a reasonable price.
First off, EXCELLENT observations by Nikki Baird.
Second, I couldn’t resist the irony of the typo in the announcement of this topic emailed to Braintrust panelists this morning. To wit:
“There has been a flurry of news stories on pricing and promotions lately of which two stand out. One is about J.C. Penney’s return to “sale” terminology vs “bets price.”
That Ron Johnson “bet price” in the JCP remake is just too true. It was a “bet” in the best business sense of the word. And it was a bet that consumers were engaged enough in value determination to throw off the shackles of tradition and actually do the math. To be blunt, (I think) he bet wrong.
Nikki is right, price PERCEPTION is what it’s all about. That is why Walmart has been the master marketer of retailing in my book for many years — a few hiccups lately not withstanding. They have uniformly stuck to low price as their message and reinforced it religiously in everything they do. It works.
And to Nikki’s other excellent point — prices can be too low to fit the retailer’s image — again a hearty “amen!” Consumers look for a harmonious message from a retailer. It can be high price/high quality and service. It can be deal of the day. It can be lowest prices everyday. But it had damned well better be consistent.
Brands need to look in the mirror and not only see themselves, but understand who they are and more importantly understand how their customers see them and where they ‘fit’ in the retailer landscape. Nikki’s point is absolutely spot on. Perception is a very powerful force — especially when you’re trying to change your shopper’s perception of what and who you are!
Shoppers are not always rational as many (if not most) purchase decisions are emotionally driven. Shoppers want honesty and don’t appreciate when they are being manipulated. Retailers need to be true to their brand and where they live in the perceived retailer landscape in the eyes of their customers.
If changes need to be made, make sure you understand all the consequences of those changes to your customers and then communicate honestly so your customers support you through the ‘ride’ ahead. It’s a brave new world where there aren’t many places to hide.
I believe the best policy is to buy well and price accordingly. No one is in business to lose money and your owners and stockholders know what a fair return is on their investment. Your pricing/margins have to meet that goal. How you achieve that is the alchemy that eludes most.
I prefer the Publix philosophy which is to set fair pricing by setting margins by category but balancing penny profit against margins so as not to lose revenue should an individual item’s margin drag down the penny profit of a category. Additionally, working with suppliers to help them meet their goals which creates a partnership instead of an adversarial relationship. This partnership always provides a competitive edge. And most importantly, impressing upon employees the fact that the customer is the real boss. They make a decision every hour of every day how much and where to spend. Make those customers feel welcome, wanted and served!
The problem Penney’s, Supervalu and even Albertsons have is lack of a consistent identity. They don’t seem to have a sense of who they are and why they exist. One minute they are a lady of fashion the next a lady of the evening. They have lost their way due to a succession of “quick fixes” by hired guns. Get back to basics, know your customers and fill their needs. Be aspirational, but don’t do so to the extent that you lose touch with “the one who brung you”!
Hire an external branding firm, determine what your market values in your brand. Then market and sell to your brand strengths. Keep it simple. Some stores are price-only. Some are quality and/or assortment. Some are value-driven. Nail down what you mean to shoppers and don’t try to train them to think of you differently. It is far too rare to find success in changing a shopper’s mind about your brand. Apple and only a few others have succeeded in that. And the market doesn’t have have enough room for a thousand Apple-type store brands.
EDLP only works if you have both — i.e. your prices are the lowest and they’re the lowest consistently — but in order to establish that, consumers need a point of reference. It’s relatively easy to establish with a grocery or general merchandise store, where a consumer shops frequently, and buys a multitude of branded products (that are identical from store to store); but I doubt that it’s the same with a department store where — presumably — much of the emphasis is on having unique merchandise. And most people are quite happy to leave fractions behind once they graduate high school … who wants to compare $29.95 to 75% of 85% of $46.99?
It used to be that Product was the number one “P” in the U.S., but now, it’s definitely Price. Which to me, is a deplorable state to be in. Everywhere you look, merchants are running in fear to their managers; markdown! Sale! Promotion! 70% off!
Even Whole Foods, whose product is clearly far superior to other grocers, gets dinged as “whole paycheck” when in fact, what’s more important than putting quality into your and your children’s fuel tank? Everyone has paid the price of mega-discounting over the last 20 years and it’s due to stop.
It’s going to take a collaborative effort on the part of all retailers to help ‘re-train’ the U.S. consumer about quality — and how if something is actually better, you SHOULD pay more for it. It was a nice try by Johnson to change the pricing policy at JCP, and more retailers should have the guts to do it as well.
Here’s to bringing us to where most of the rest of the world is: quality first.
The big lesson from JCP is that a strategy that worked at one brand (Apple) can’t be ported over to a brand that lacks equal level of customer preference.
Whatever JCP once was, the stores deteriorated in appearance over the last few years to the point where they have to be compared to the lower end of the retail spectrum. The pricing strategy adopted by JCP disconnected from the reality of its store experience and therefore lost traction with customers.