ACTIVITY/TASK
The J.C. Penney department store chain is currently through a major cost-cutting
program, associated with its transformation strategy. The firm’s goal is to cut expenses by
$900m in two years, with $200m in savings from its corporate headquarters, $400m from store
operating expenses, and $300 million in advertising cuts.
As part of its transformation strategy, the department store is overhauling every aspect of
its operations, from a new pricing plan to new brands to how it produces its goods.
But it is the new pricing plan, which cuts hundreds of sales events in favor of everyday
pricing, has turned off shoppers used to big discounts. Unfortunately, the change in the pricing
approach has failed, as yet, to deliver results, with a 20 percent drop in revenue in the first
quarter after the pricing plan was implemented.
“One of the most challenging tasks for any leadership is to reorganize a company,” said
Ron Johnson, Penney’s new CEO and a former Apple Inc. executive, in a statement. During an
address to investors last month, Johnson continued to back his new pricing strategy. He said that
the problem was the chain improperly communicated the change to shoppers. It’s now clarifying
the savings for shoppers under the three-tier plan, which calls for reducing prices by 40 percent
from a year ago, offering deeper month-long discounts and clearance events.
In reaction to the revenue fall, the company has now started adding clearance events to
their marketing calendar in addition to the first and third Fridays of the month. It is now using
the term “best clearance” instead of “best prices”.
News Source: BusinessWeek
QUESTIONS
1. What are the main advantages and disadvantages associated with an ‘everyday low
prices’ approach?
2. Why have customers not reacted overly positively to the department store’s ‘everyday
low prices’ approach? Should the firm continue with this approach? Why?
3. What does the CEO mean by “the chain improperly communicated the change to
shoppers”? In what ways could they have communicated the change? What impact would
the reduction in advertising budget had in this regard?
4. Will using “best clearance” instead of “best prices” make a significant difference in your
view? What other pricing tactics could they implement?