Analysis of the Pricing of the JC Penny Company - Case Study Example

JcPenny fair and square pricing strategy Section one Jc Penny Company was founded in 1902 by James Cash Penny with the first outlet opened in Wyoing, with the philosophy that it would treat customers as the founder would want himself treated as the golden rule of the company. Following its formation, it experienced rapid economic growth to an extent that by the 50th anniversary it had crossed $ 1 billion. The key facts in the case that sets the stage for the CEO include the store closings, sales malaise, declining market share, slumping earning and weak market performance (Kerin et al, 2009). They were the factors that necessitated the requirement of a CEO was who will be able to maneuver these challenges and meet the company goals and expectations (Stern, Neil & Willard, 2008). They were the resultant effect of not meeting the company’s goals due to the high low pricing strategy. This is a case whereby the retailer has to do with frequent sales so that customers enjoy huge discounts on their purchases at the expense of the company maximizing on its high prices. Declining market share is a clear indication of the weakening value of the country’s currency. Closure of stores translates to loss of jobs and a clear indication of the likelihood of losing on the company’s revenue. To solve this situation there had to be major key actors in restoring confidence not just to the customers but to the shareholders as well. Johnson is one of the major key players in this strategy. He was the CEO of the company at a time when the company was expecting to make the major transition from the high low pricing strategy to the fair price strategy (Dongwon, 2009). He was the vice president at Target in the 1990s during which he saw to it that the mass merchandiser was transformed into a hot retail brand selling stylish and affordable brands. It was at this time that he also negotiated a contract with Micheal Graves who was a designer. This was to be the first of the company’s high end sales that helped to market the company as a high end store. It was intended to give the company a competitive edge over other competitors. With a shift from high low pricing strategy to a fair and square pricing strategy the company would make sales throughout the year. Shopping experience would not be seen as a seasonal affair but as an experience that a customer would choose to have at their own disposal and with their own terms. Another key player was William Ackman who was a major shareholder of the company of approximately 18%.he was very instrumental in advocating for Johnson to take up the post of CEO. This was driven by his desire to reclaim the company’s lost value that was tied to the real estate investment which was projected to be $11 billion (Richard, 2014). James Penney was the founder of the company and has greatly shaped the core values of the company. James believed that prices should not be quoted with the expectation to later quote them on a higher scale. According to him, the principle of fair pricing works best and the main reason for being in business is not to be guided with sales (Gonzalez, 2012) Michael graves also assisted in marketing the company after the signing of the contract with the CEO Johnson, which assisted in giving it a brand name. Other key actors were Walmart and target who were the major competitors given the fact that they price oriented and would sell a great deal of their products to the low income earners while Macy’s and Nordstrom’s would sell their products to the upper middle income earners. These two companies are assisted in marketing Jc Penny hence widening their clientele base in the respective areas (Mattioli 2013) Section two Sales in JcPenny is experiencing a decline in the sales before the introduction of fair and Square pricing strategy. A major contributor to this effect is the adoption of a marketing strategy Johnson wants to implement but is causing a rippling effect on the market given the uncertainty that comes along with this move. This strategy comes with several uncertainties since it would not be easy to give prediction of the sales so that the prices can be readjusted to suit the changing competition in the market. This is the most critical issue in managing this company because any miscalculation will be detrimental to the company, the clients and the employees (Robert et al, 2009). The company will lose on its targets and this means that it will not have maximized on its resources. Besides, decisions will not be able to be validated due to the unpredictability of the trends in sales. This reduction in sales is the immediate effect of any decision made by the management, in this case, Johnson as the CEO. Fair and square pricing strategy is a risk and therefore if precautionary measures are not taken to cushion the shock in case of unprecedented eventualities, then consequences could spill over not just to the sales but the human resources as well. The fact that this concept is a whole new process that has not been tested makes it risky because it would be difficult to make projections on the sales.The market environment needs to be analyzed so that proportional adjustments can be made in relation to the market and the completion in the market. When the JcPenny Company decides to embark on this strategy it does not justify its decisions on the past experienced trends but rather treats the move as a new wave that is expected to raise its competition above the other competitors’. The biggest concern however is the fact that the decision making is solely on the hands of the management (Kerin et al, 2009). This comes as a challenge because the employees of JcPenny will not own the company’s goals and make it a personal responsibility to achieve those goals. In the first place, it would be difficult for them to market a product that they are not enthusiastic about because the decision to do so would have been imposed on them. Involvement of employees on every aspect of decision making affects the productivity any company directly much as the results may not be immediate. This kind of decision making is very much one sided and it could indicate how effective communication is in the firm. It poses a challenge since it constricts ideas to those of the management (Robert et al, 2009). Lack of variety in ideas could lead to lack of variety in solutions. Given that this is the case, it would be hard to get to know what happens in the field even from the employees because their opinions are not valued. Customers are the also an important asset to any business. Getting to know how they would perceive of a particular price at a particular time in the market will influence their shopping habits (Robert et al, 2009). The fair price strategy does not discriminate and so it means that it will not have established itself with a particular market. Suppose goods are sold at low prices it means that anybody will be able to buy and with time these goods will lose their value. Johnson is an aggressive person and his confidence is help to carry through with his decisions to implement a strategy. Besides, he was very determined and creative in carrying out his moves. It is this creativity that made him increase the performance of Apple Stores (Jeff, &Garton, 2013). Most importantly, he was very charismatic, a character that made him the most suitable as a change agent. Market research is vital in establishing the tastes and preferences of consumers so that it will be easy to know the market trends. This will enable the company to adjust their products to suit the consumers’ preferences. Section three Despite all the changes to be undertaken in the change program, the primary goal of JcPenny is to boost its sales through the fair and square price strategy. Subsidiary changes such as a new store design or a new logo was meant to give JcPenny a new face and would be the first impression that markets the product. With marketing the first impression will always create the most long lasting impression on the potential customer. By creating of a new face, the market will be able to adjust to changes and attract potential customers (Barbara, 2013). The new pricing scheme was viewed as the riskiest of all the changes because it affects everybody in the market, the company’s objectives, the customers and the employees. Its impact would be felt by all those in the market whether in the short term or in the long run. In this case, the expected increase in sales is the immediate issue. Pricing strategy theory considers pricing to be motivated around the cost and profits, consumer demand and competition (Robert et al, 2009). For cost based pricing, in order to establish a price for a product, the costs incurred are summed up and deducted from any other sources of revenue. For consumer demand pricing, the producer has to consider the tastes and preferences of the consumers and establish how much they would be willing to pay for the product. Fair and Square marketing strategy is not considerate of the competitors’ way of competition and this brings the competition on a whole new level. The fact that it is a new concept to which no company is willing to go for first makes it even risky (Linda, & Dave, 2013). This is because there are no records to prove its efficiency and so it would be hard to make projections about future sales. The increased sales is a common goal but it comes with the challenge of being accepted by the workers. The decision to scrape all the commission given to sales personnel did not go well with the employees. Johnson’s reason for this decision was that this kind of sales structure did not blend in well with the new structure since customers had to deal with some aggressiveness from the sales employees. The new sales structure was supposed to provide better service to the customers especially in the way the customers were handled. The decision did not go well with the employees especially because they were not consulted and hence found themselves on the receiving end (Hamilton, 2013). Managerial decisions can only have a positive influence on the company if the employees welcome the decision. The decision to do away with the commission is not a better option because much as it would save the company costs on production and by extension increase on its revenue, it would work to the disadvantage of the employees because it affects the financially. Adjusting the price also comes with the challenge of keeping it at the same level and still managing to thrive in the competition. Without having a definite price level does not give a definite boundary in the market segment (Bill, 2004). Market segmentation allows the firm to be able to establish the exact taste and preference of their markets and makes it easier to observe their market behaviors. It will enable the producers to match their capabilities with the market needs. Section four To be able to reduce the conflict that comes along with making decisions without employee, it would be important that the employees are consulted and adequately represented in the management team. The importance of this is that it will reduce the breakdown of information in an organization. The employees will also value and make it their responsibility that the goals of the organization are achieved. This section will focus on the ways or eliminating the causes of the problems in the case. The first strategy in this case is aggressively competing online with other markets. Online marketing is a main ingredient that any company has to consider in order to increase its market base and attract more customers (Costis, 2009). With online marketing, the company becomes internationally recognized especially if it is well linked to other sites. Online marketing serves to increase sales through social sites and the customers’ feedback is very immediate. The immediate response from customers is because of the curiosity of people who are looking for a new experience in the shop and also would want to compare their experiences with others. Another solution is to increase the strategic cash flow as the change is being implemented. The main purpose of this is to cushion the company against shocks as it embraces change. This can be made achievable through a reduction in the cost so that more can be saved and reinvested into the company stocks (Stern, Neil & Willard, 2008). In as much as these items are all included in current assets and therefore enter into working capital analyses and comparisons, their liquidity is dependent on the particular circumstances of the business in terms of the market situations. Improving on the price management is another way of solving the problem that is associated with this kind of pricing strategy (Robert et al, 2009). Price Management is a closed-loop process that involves companies analyzing, planning, publishing, executing and negotiating price levels. Better strategies around price are vital to combat highly competitive markets and an international customer base. The price management should consider testing its price strategies to be able to know its relevance in the market and know the customer tastes and preferences adjustments. Extremely high discounts and couponing attracts price sensitive customers who eventually turn out to be non-profitable since they are always out to check on the prices and it would be an uphill task to keep such clients. Section five In this section, a recommendation of tactics that will improve the company performance is proposed. The fair and square pricing marketing strategy should embark on monthly promotions in line with the customers’ lives. The three types of prices, that is, the monthly, the everyday prices and month long values should continue taking place so that they can create room for new merchandise. These prices should be accompanied by a promotional pack that is in line with the customers’ lives. Instead of consistently having prices every other day of the month, the company should consider holding annual promotional shows. The shows should include a series of unique products that customers are expecting to purchase and they should also have products that are identifiable with the month. This will allow the customers to shop on their conditions but not that which they are subjected to while in the market. Monthly adjustments in the sale of goods will allow customers to shop when they find it convenient on their terms and not on the company’s terms (Carmona, 2009). When customers shop at their own preferred time and at their preferred prices it means that shopping will be done at any time but not seasonal. Reinvention of the in store experience around new and transformed brands helps the customers to have fun before shopping, during their shopping and after the shopping experience. Alongside the change in the shopping experience, there will also be introduction of new brands (. Ander, 2008). The company should consider introducing a new look to the company by introducing a new logo or having a new brand identity. In the new logo, the company should consider having the American flag on it that will show the company’s commitment to their customers and Americans as a whole (Penney Co, 2009). The new brand marketing should market the products in a captivating way to keep loyal customers. The company should consider engaging the employees more in decision making processes so that they feel valued and appreciated. It will increase the productivity of the company. With a change in all these aspects of the company the sales are expected to increase which will result into an increase in the profit margin. Increase in profits allows for more capital formation that will eventually be used in investment. More investments increases the market value of the product which will result into more shares (Howard, 1983). Other expected positive changes include higher inventory turnover, efficiency in completion of projects and greater rates of growth. The liquidity of the assets will increase the investment portfolio. In respect to these advancements, the general motivation to work among the employees will increase and it will enable them to work better. Assessing the employees, their work performance will represent the corners of a triangle that represent the cause effect relationship which can be used in developing a network that can be used by the company to map out its performance objectives. References Restrepo, James Price. n.d. J.C. 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RETAIL; J.C. penney ousts its CEO, brings back his predecessor; ron johnsons upscale strategy alienated the chains budget-minded customer base.LosAngelesTimes.Retrievedfrom http://search.proquest.com/docview/1324511269?accountid=10382 Mattioli, D. (2013, Feb 28). J.C. penneys losses snowball. Wall Street Journal. Retrieved from http://search.proquest.com/docview/1312818043?accountid=10382 Gonzalez, K. (2012, Feb 02). Leave the coupons at homeJ.C. penney store starts fair, square pricing concept. Pantagraph. Retrieved from http://search.proquest.com/docview/922975383?accountid=10382 Skiadas, Costis. 2009. Asset pricing theory. Princeton: Princeton University Press. Read More