Former Apple Exec goes to JC Penney and slashes prices by 40% | Hacker News Reader

Former Apple Exec goes to JC Penney and slashes prices by 40%

nymag.com

103 pointskennethologist69 comments

It's down at the bottom of the article, but this:

> Penney will use whole figures when pricing items. In other words, you won't see jeans with a price tag of $19.99, but rather $19 or $20.

is actually my favourite part of the whole thing. Taken together, it's a major overhaul that says, hey, sorry, over decades we'd gotten wrapped up in all these little marketing tricks to increase our sales and bottom line, but we decided it was time to treat y'all like grownups for a change.

I hope it works out for them.

My favorite as well. I've found myself in discussion with many on this logic for some time but rarely does it go mainstream. On a logical stance, all these moves represent honesty and no BS. Similar to when General Motors launched the Saturn line of cars with flat pricing. We owned a few in my family growing up and I remember my dad telling me one of the biggest reasons he bought it was because he knew no one else paid a dime less than he did for the same car.

That's a very good point. Four-square (the car sales strategy BS not the site) is one of the most dishonest tactics ever devised to subvert the buying process. Why should I have to deal with a gauntlet of crap that has been tilted so much in the favor of the seller due to decades of salesmanship trial and error? The basis of a good deal is mutual benefit, which can't be reached without honesty.

I've never heard of the four-square strategy. Link please? (And the google namespace is hard to sift through)

http://consumerist.com/2007/03/dealerships-rip-you-off-with-...

http://www.edmunds.com/car-loan/four-square-basics.html

In addition to the four-square article above, Edmunds has the fascinating account of a writer who went undercover as a car salesman. It includes the four-square technique, and tons more:

http://www.edmunds.com/car-buying/confessions-of-a-car-sales...

I've brought a financial calculator to these kinds of negotiations before, that cut through a degree of BS. Those guys are pros though, they found other things to work on and in part, succeeded.

Just search "four square car sales":

http://www.youtube.com/watch?v=HWuSTCj3Y4E

"Similar to when General Motors launched the Saturn line of cars with flat pricing"

And we all know now how well THAT worked out. Haggling, whether successful or not, gives the impression to the customer that they are in control and are 'saving' money.

In the early days people loved the flat pricing and no haggling, and their Saturns. It wasn't until 96-97 when Saturn became just another Lego set GM marque, complete with haggling, that it all went down hill.

How about CarMax? They are flat pricing no haggle if I recall and they're going like gangbusters.

My guess would be they will haggle if the buyer wants to haggle. They aren't going to give up a sale. But, I've never shopped CarMax so I don't really know.

I had a roommate years ago that worked as a salesman at CarMax. He had about the authority to haggle as the kid taking your order at McDonalds. I think the volume is so high that if you don't want it at the marked price, someone tomorrow will. Of course, that was years ago at one lot. YMMV.

Saturn failed because they made crappy cars, not due to any problem with the dealership model.

I say so because it's true!

Toyota in Canada doesn't allow haggling to the same extend as other manufacturers.

Are there any airlines that do the flat-pricing thing? None in the US that I'm aware of.

What do you mean by flat pricing? That everyone travelling between two cities pays the same fare? Because that certainly doesn't (or shouldn't) happen anywhere. Airline tickets are substanially different from standard goods (be that cars, clothing or whatever else)

Why shouldn't it happen anywhere? What makes airline tickets so different? I think you're confusing the fact that airlines have gotten their operations so screwed up that they have to resort to crazy, opaque pricing with some idea that it's necessary.

I mean, sure, fuel prices go up and down, so it's not like prices should remain static from even day-to-day, but doesn't it strike you as absolutely weird that two people on the same flight may have paid wildly different fares?

For airlines travelling to China: Demand is different depending on whether it is close to Chinese New Year or not. Chinese people travel far from their homes to work and every Chinese New Year they return home to celebrate. There are going to be so much more demand then than most other months. As the demand changes but supply remains relatively constant, the price must change to accommodate.

I wasn't making the argument that prices should remain static regardless of demand, day of the week, or any other factor.

My point was that the airlines have created a pricing system so opaque that it can actually become a deterrent to travel. Why do people sitting next to each other on the same flight pay wildly different fares?

It's the same with clothing. Demand for fashion is extremely fickle, but the supply is relatively fixed- the stores order their inventory ahead of time and what they don't sell they have to put on clearance, send to TJMaxx, etc. And like flights, that trendy four-button blazer has a "shelf-life."

Many, many smaller air services do. Helijet even lets you buy books of 10 flights half off.

stnd air (nyc-hamptons) harbour air (victoria-vancouver) helijet (ditto)

This could work in their favor in an interesting way. Shoppers often consider higher priced items to be more desirable merely due to cost. People perceive a $50 bottle of wine to be better than a $10 bottle, for example. So this could be a way for JCP to improve perception of the quality of their merchandise without actually putting it out of economic reach of their customers.

I would expect the opposite to happen. What you just described is exactly why sales work. An item is perceived as being better because of it's price, but hey look, I've been lucky enough to get it for less than it's worth. I imagine this will just bring them down into more of a budget clothing line.

On the other hand, it could be that the JC Penny name will retain it's feel of being worth X, while costing X*0.6 so consumers really will feel like they're always getting a deal at JC Penny.

Too bad there's still (post price) sales tax.

$20 is still $21.65 in texas...

One of my favorite aspects of that is that they're actually going to make a ton more money while making us feel like they're treating us like adults. Don't kid yourself: it'll be $20 rather than $19. So they make an extra cent, which isn't much, but if you multiply that by all the product lines and each sale every day ... at JCPenney's scale, that's significant.

I'm not criticizing it at all: I think it's better all the way round.

this is the kind of confused reasoning that has people thinking that if they "just do a little" then "it will add up to a lot". the basic problem is that you forget to shift frames when evaluating the significance of the sum.

for example, you might have heard that if everyone would "just" unplug their phone chargers (when not in use) then we'd save millions (or whatever it works out as) of watt-hours a year and so help avert global warming. and it is indeed true that if everyone does something tiny and trivial (relative to a household's total consumption) like that it will add up to an amount that is much more than one household's consumption. yay! but to estimate the significance you need to compare it to the total energy consumption of the entire country. and then it becomes tiny and trivial again, and will clearly make no significant difference to global warming.

similarly here - the total is way more than $20. gosh. but if you compare it to total turnover then it is a tiny percentage, which makes no real difference to the company.

in short: big changes on a global scale require big changes on a local scale.

It's actually 0.05% more for a $20 item, and if we estimate that $20 is the average price of all items it isn't very significant.

.0005% difference in margin. People's brains interpret $19.99 as significantly cheaper than $20, but as a marketing iniative, whole digit pricing may intice people looking for honest, straight forward pricing.

But don't kid yourself, adding a penny per transaction is not going to benefit the bottom line in the way your thinking.

"People's brains interpret $19.99 as significantly cheaper than $20"

Is this really true though? Is there some study that supports this? To me it seems simpler for the brain to round up to $20 when thinking about the price. I certainly wouldn't remember if something was $18.99, $19.95, or $19.99. They're all just $20 to me.

Yes, there are a ton of psych and neurological studies that back up this practice. It is one of those blind-spots in your brain. You peg on the $19 part of $19.99. If you stop to rationally consider things then $19.99 and $20 are effectively the same, but for most casual purchasing decisions you do not actually apply a significant amount of intellectual rigor. You may think that you consider $20 and $19.99 to be the same, but study after study shows that what you think that you are thinking about and what your brain is actually doing are not the same.

Interesting, I always feel like 19.99 = 20, but that is probably because of how my Dad taught me to add and multiply quickly by doing so rounding first then backing off from there.

I have always used the following when thinking about my money:

I always round up any price I see.

I always round down any money I have to spend.

This is referred to as the "fast fashion" business model. H&M and Zara in Europe has been doing it for quite a while already. Wikipedia article here: http://en.wikipedia.org/wiki/Fast_fashion

It's not so surprising that they go for this business model, since "fast fashion" retailers have an average profit margin of 16%, compared to 7% for typical retailers, at least according to this source: http://www.google.com/url?sa=t&rct=j&q=&esrc=s&#...

Basically it's "just-in-time" production coupled with "agile"-type response with regards to fashion trends and customer wants.

Not sure if that's entirely accurate. JCP is a mall anchor/dept store, not an H&M or a Zara. They sell other makers' labels. And this announcement seems relegated to the pricing domain, haven't read anything about them changing their production/distribution model.

I wasn't aware of that. That probably means the ideas behind this is a bit different, yes.

They do have their own in-house items as well, though it's not all they offer.

I find it really surprising that their profit margins are so small, considering that the actual physical product is so cheap to produce.

I would expect a significant part of costs to be rent, as stores typically are in relatively expensive locations. And there's also considerable loss due to unsellable excess inventory, which is what the "fast fashion" business model tries to reduce.

I could see this being hugely successful. The only question is whether people have been conditioned for the sale season. Growing up in a household full of women who buy clothing and accessories all the time, they particularly save up for when holidays approach.

Johnson made no mentioning of eliminating popular sales seasons like Black Friday.

This New York Times article (yes, login may be required) is much more informative in regards to his plans: http://www.nytimes.com/2012/01/26/business/jc-penneys-chief-...

Johnson pointed out that last year, JC Penney had 590 promotions, which made it seem that everyone was always on sale in some form or another. Honestly, that's tremendously confusing for consumers, as you basically can't keep track of what's on sale. The net result is they were selling everything at such a low price, that a 40% cut puts it only higher than the average sale price with those near-600 promotions.

"“So customers ignored us 99 percent of the time,” he said. “At some point, you, as a brand, look desperate if you have to market that much.” He will move to monthlong promotions, on which Penney will spend $80 million a month, he said, which is a decrease from Penney’s current marketing spending level, which is more than $1 billion a year. And instead of mailed fliers, the company will send shoppers a 96-page catalog each month with a more magazinelike presentation."

72% of JC Penney's revenue came form products sold at a 50% or higher discount. So a 40% across the board reduction on SKU prices still increases their ASP. Apparently from between 2002 the 2011, their average cost per item sold stood around the same, yet even as the average price tag rose from $27 to $36, JC Penney's margin never increased due to the 590 promotions a year. "Now most things are on 60 percent markdown, and every time we do that, we're discounting Penney's brand".

So less trickery around pricing, far fewer promotions at regular schedules with long intervals that consumers can actually respond to, and an attempt to increase the overall ASP of products. Sounds like a good change from their promotion-driven, brand-devaluing death spiral.

Johnson pointed out that last year, JC Penney had 590 promotions, which made it seem that everyone was always on sale in some form or another. Honestly, that's tremendously confusing for consumers, as you basically can't keep track of what's on sale.

I agree. I wanted to buy a sports jacket at Macy's, but their continuous sales made me wait for a long time. Every time I would just peek into the store; and then convince myself to wait till the next big "sale" came along.

In a sense, it's like the "secretary problem".

Apt analogy: http://en.wikipedia.org/wiki/Secretary_problem

The teaser ads that JCP is running on TV show people getting mad and screaming at piles of coupons as they fall out of mailboxes, newspapers, clippings, etc and then missing the sale when they get to the store, or after the fact:

http://www.youtube.com/watch?v=NA0L556vGa4

Great commercial and easily relatable.

Just yesterday I was looking for shirts at a top3 US retailer and encountered something I'd never seen before:

  - there were six rows (shelfs) and about 7-8 columns
  - there was a maybe 14x10" "70% OFF" sign at eye level
  - HOWEVER, there were two qualities/brands contained in the cells
  - one brand had the clearance 70% off marked on their tags
  - the other brand DID NOT and was marked full price
  - the clearance and full price cells were randomly placed

So the display resembled this simplified matrix:

  [FULL][sale][FULL]
  [sale][FULL][FULL]
  [FULL][sale][sale]

I had already carted four shirt designs before realizing three of them weren't on sale. Tricky bastards. ;)

edit: formatting

It probably wouldn't work everywhere but JC Penny's is a little weird with their sales, it generally seems like at any given time about a third to a half of their stock is "on sale." I don't know about the everyone else but at this point in my life sales at JCP don't even register.

Honestly Kohl's, Macy's, etc. are all the same way. It's almost enough to make me want to go to Nordstrom where at least I know I'm paying too much.

Also, new JC Penney logo and branding: http://www.underconsideration.com/brandnew/archives/jcpenney...

"The new jcpenney logo, which combines the elements that have made jcpenney an enduring American brand, by evoking the nation’s flag and jcpenney’s commitment to treating customers Fair and Square."

Soo.. they made it look almost exactly like the US flag and made is square. Design genius. Personally I think the new logo is pretty crappy, wouldn't scale well and would lose most of it's appeal printed in B&W. Alas this debate should be saved for another thread.

"printed in B&W"

I haven't read a printed newspaper in years. Having said that, it's true that a good logo should still be recognizable without color. The new logo passes that test.

Knowing that I can pop in at any time and get a fair price is much better for than wondering if I'm getting screwed that particular day. Maybe it's an American thing - it seems that the rest of the world loves to haggle.

When was the last time that someone haggled at JCPenny?

Is there a website where I can go to see when normal retailers have had sales in the past, so that I might predict the arrival of the next one?

Better yet, imagine this data set: the price of every consumer good sold in retail stores, as a function of store and time.

What would be the impact of such a database, if it became widely available, say, from a company whose mission is to organize the world‘s information and make it universally accessible and useful?

"What would be the impact of such a database, if it became widely available, say, from a company whose mission is to organize the world‘s information and make it universally accessible and useful?"

More ad buys from the covered companies.

One thing to keep in mind is that this cheapens the brand. It's one thing to buy a $10 t-shirt at Gap and another - a $30 T at 60% discount at Banana Republic. They might be identical, but the perceived value of latter is higher.

This is a very ballsy move for the company. Must be desperate times.

I think the JC Penney brand has already been placed into this cheaper segment. They are squarely aimed at the mass market.

Agreed. Most of the retail JCP outlets near me have closed. They are grasping at straws.

Ballsy, yes.

But ballsy doesn't imply desperate. Maybe they are ambitious and want to get ahead.

Thank you OP (kennethologist) for fixing the title of this article. The nymag title is "JCPenney Permanently Cuts All Prices by 40 Percent" which is certainly not true. Copy editor Bill Walsh writes:

The company meant "permanent" in the sense of regular prices as opposed to sale prices. It’s lowering regular prices and cutting back on sales in a strategy that may or may not work. If the strategy doesn’t work, the company has every right to change course -- and if it does, a bunch of news outlets will be revealed as big, fat liars.

Bill goes on to criticize lazy journalists who just write what they're told: http://theslot.blogspot.com/2012/01/penney-want-cracker.html

For a really good explanation of what is going on, I highly recommend Brian Roemmele's quora post: http://www.quora.com/JCPenney/Why-did-Ron-Johnson-leave-Appl...

Not sure if he was at Johnson's press event or not, but he has pictures from it and explains in detail Johnson's new strategy for JCPenny. Looks like a good bet to me.

A long time ago I read a book called "The 22 Immutable Laws of Marketing" [1] and one of them was don't get caught up with couponing (i.e. sales). They are like drugs: they quickly increase revenue, but now you are dependent on them to get revenue. I like how this exec thinks. (I also like how they'll round up prices to the nearest dollar)

[1] http://www.amazon.com/22-Immutable-Laws-Marketing-Violate/dp... (not an affiliate link)

It doesn't appear terribly novel to me, hasn't big box retailers done this for a long time? I don't recall IKEA doing out-right sales for an example (they have continuous clearances and promotions, of course, but not an "everything is cheaper in January" type sale).

For instance, jewelry and Valentine's Day gifts would go on sale in February, while Christmas decorations would be discounted in November.

Isn't the point of "seasonal sales" to clear stock? So Christmas stock goes on sale in January, Valentines stock goes on sale 15 Feb?

True, except Ikea (and H&M, Zara and Forever 21) only sell their own merchandise. Slashing markups on branded items on his scale is fairly novel.

Clearance sales are used to clear stock. Other types of sales are used to get shoppers in the door, like promotional sales and loss leaders.

Just informally talking with the women in my household, they all seem to hate the idea of not having sales. I told them that JCP will still have sales (Christmas, Valentines Day, etc.) but they were nonplussed on the whole idea. The first thing my wife did when she got her new JCP catalog was look for coupons and she was sorely disappointed.

I think it's hard-wired into some people's (read: women's) brains to not purchase anything unless its on sale. Every single one of them said it was a bad idea.

I agree with this fully. I know many people who wouldn't buy a pair of boots for $100, but would buy the same boots if labeled "Uusually $400, but on sale for $200!"

People don't understand the shopping experience. It's about going there, trying the clothes, getting good deals. The whole shopping experience starts at the parking lot: find the spot closest to the main entrance.

For some reason I read the headline as saying that an Apple exec got pissed and drunk after being fired then stumbled into a random JC Penney and demanded that all prices be slashed 40%.

The actual news is much more interesting.

Reply on news.ycombinator.com