Why? So they can then give their shoppers discounts and coupons for more discounts.
J.C. Penney calls it “re-ticketing.” Some of their customers call it a scam.
It’s the latest marketing plan by a company that for years has been losing customers and sales to Wal-Mart, Kohl’s, Target and warehouse clubs like Costco.
The company is betting that more people want to feel as if they got a “bargain” even if it’s not really a bargain.
J.C. Penney’s experimentation with pricing began about two years ago when it hired retail marketing guru Ron Johnson away from Apple and made him the company’s chief executive officer. At the time it was bleeding red ink and needed to do something quickly to turn its business around.
By the end of 2011 it was running more than 500 sales a year.
Under Johnson’s leadership, J.C. Penney largely did away with coupons and mass sales and instituted an “everyday low pricing structure.”
It created advertising under the logo of “Do the Math” and showed how a $70 dress at “retail” ended up on sale for $39.99.
But under the everyday price, J.C. Penney touted, the dress would cost $35 all the time.
The new campaign did not have the desired effect.
“Customers love bargain hunting,” one J.C. Penney official said. “It took away all the fun.”
So after a few months J.C. Penney started running a few sales again.
Some of the sales were allegedly phony. The New York Post ran a story last January saying that manufacturers were pressured to come up with fake retail prices so J.C. Penny could mark them down.
Johnson was fired in April and J.C. Penney decide to go back to regular sales and discounts.
While trumpeting its return to bargains and regular sales, J.C. Penney did not announce that it first had to hike the prices before it could mark them down.
The failure to clearly explain the new pricing strategy led to several media stories questioning the validity of its discounts.
For instance, NBC Today show ran a segment July 24 attributed to one J.C. Penney employee and a former employee where they claimed to be exposing the fake bargains.
“A warning for bargain shoppers: is your favorite retailer misleading you with those big sales?” ran the teaser for the segment.
As the result of the program, J.C. Penney put out its first formal statement sort of acknowledging how its new pricing plan actually works. It also conceded that changing the price structure has again confused shoppers.
“We learned that our customers are motivated by promotions and prefer to receive discounts through sales and coupons applied at checkout,” said the company.
“As such, we have returned to the promotional pricing model employed often in the retail industry. This shift requires us to make pricing changes on much of the merchandise to remain competitive.”
“While we understand this transition back to promotional pricing may cause some temporary confusion, the company remains committed to delivering the quality, price and value that customers expect from J.C. Penney.”
It is too early to tell whether the new pricing strategy will help save the company. Some JCPENNEY Facebook members love the bargains and the sales. But others, like Kristie Wicker wrote a post Aug. 1 that she thought it was a “scam.”
Priya Raghubir, research professor of marketing at the Stern School of Business at New York University, says J.C. Penney’s pricing strategy may work short-term because shoppers emotionally feel good if they think they got a bargain.
But, she said in a telephone interview, that long term she is doubtful.
“In the long run it could damage brand,” she said.
Another danger is that customers are trained to only buy an item when it goes on sale.
“Why is Wal-Mart so successful – it doesn’t do that – Costco doesn’t do it, Tiffany doesn’t do it. Target doesn’t do it and people love it,” she said.
“Between going to Macy’s or Target I would rather go to Target,” she said. “I know I am not going to get ripped off.”