JC Penney and Supervalu have recently admitted their mistakes in over-promotion after dismal quarterly performances, and both have promised a return to the drawing board to address their habits of training customers to wait for deep promotional discounts. This combined with more people taking notice of the floods of promotional emails hitting inboxes has retailers considering their pricing strategies. Experts say retailers must first know the right price for the right product and then figure out the right price for the right brand image. Otherwise, more stores will be addressing retail space rather just the pricing of products. For more on this continue reading the following article from Blue MauMau.
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 JCPenney’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 company is going to lower prices and promote less, and implement much of it by the end of its fiscal 2013. Both announcements come after what might kindly be called “disastrous” quarters. Both companies reaffirm that they have fallen into a trap of training consumers to wait for deep promotional discounts before buying anything and need to change their ways, fast.
Is retail over-promoting? Whenever I host consumer panels, I always hear from consumers that they receive way too many emails from retailers. Personally, I signed up for ShoeDazzle (Kim Kardashian’s enterprise – and primarily because Paula thought it was cool, though I will admit I own a pair of shoes that I purchased from that site). I receive anywhere from 3-5 emails PER DAY from the company. I can now highly sympathize with the Milennial panelist who told an audience that she sets up a rule in her email to divert all promotional emails into a folder. Before she goes on a shopping trip, she glances through the folder to see if there is anything in there worth using. That sounds like over-promotion to me.
Certainly, retailers are aware of the problem. They continue to cite consumer price sensitivity as one of their biggest business challenges around price. They worry constantly about price transparency and showrooming. They complain bitterly about store having to compete with rock-bottom online prices that often don’t reflect the full transaction costs. And yet, only two retailers are on the record that they have over-promoted and need to change their ways – and these are not the two most successful retailers out there, either. Not at the moment.
Overcoming the challenge of over-promotion is not easy. While there are probably more, I see two big issues right off the bat, and while I confess I haven’t been in an Albertson’s in a really long time, and there are no other Supervalu banners in my neck of the woods, I’m going to try to apply my thinking to both Supervalu and JCPenney.
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The first challenge is making sure you have the right price for the right product. In JCPenney’s case, I think this is a real problem. And I think that Kohl’s and Macys better be careful of this issue. JCPenney’s CEO, Ron Johnson, went through this challenge in painstaking detail at his analyst show in January – he had bar charts and all kinds of graphs to demonstrate that “consumers know the right price for an item” – his point was that JCP was fooling itself by marking products up 40% higher than they should’ve been, only to promote them at 40% off to consumers. But my sister-in-law’s reaction to JCP’s new price strategy (she’s a prime target for them, age, income, and lifestyle level) was, “the new prices aren’t that great.
JCP has done the work to determine that Arizona jeans should be priced at, say, $30 per pair instead of $50 with a 40% 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% off than the $50. Yeah, the math is the same, but the one thing that psychologists have proven about price is that consumers are not rational creatures when it comes to reacting to the prices they see. I have to wonder how happy Vera Wang and Jennifer Lopez are to see their fashions constantly marked to 40% off in Kohls. I’m not sure that deep discounting is something that either woman wants associated with her personal brand.
This reasoning can be applied to what I know of Albertsons. I never shopped there because I always found the produce department to be disgusting – whether in Texas, where I first tried them, or in Colorado, before they closed their stores. A piece of bruised fruit in a cloud of fruit flies is not worth the same as a nicely chilled, pristine piece of fruit in say, Kroger or Target. And it’s not going to matter to me if Albertsons is running a “great” sale on their fruit, either. Albertsons produce department felt to me like what a rock-bottom discount store might provide in produce than something that Albertsons should be providing – which leads me to challenge #2.
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 Macys and Dillards. But I think they are more accurately placed in the Sears and Kohl’s category instead. Ron Johnson pointed out that removing something like Arizona jeans from the $50 price range left room to actually carry $50 jeans (he used towels as his analogy, but I’ll stick with my earlier example). But is JCP the first place you think to go when you have $50 to spend on jeans? I’m not sure that they have entirely accomplished that, especially when the ads that are supposed to help create an image of what kind of value JCP provides always makes me think of Target first. Is JCP cheap chic? Or are they just cheap? They’re stuck in the middle between Macys and Target, and they have not yet made a compelling case for why they should be considered by either shopper.
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? But the weekly insert was always full of deals. I used to know what Supervalu’s brand proposition was, and I used to know what Albertsons’s was. Now I’m not sure of either. Neither Supervalu nor JCPenney can overcome their promotion challenges until they can make a convincing case for what kind of value they stand for – what kind of value they’re working to provide their customers. And I don’t think either company has done a good job articulating that.
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. And 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.
This article was republished with permission from Blue MauMau.