No coupons, no customers … the perils of being fair & square.

Punch line: JC Penney’s is trying to re-cast itself as the “fair & square” retailer.  So far, the dogs aren’t eating the dog food.  Why? It’s simple behavioral economics. People are predictably irrational.

Personal note: When I was at Black & Decker, we tried to lead the industry out of constant rebating.  You know, $5 back if you mail a receipt, UPC code, etc. to some PO Box in Texas.

When we stopped offering rebates, competitors doubled their’s and ate our lunch.

Penney’s should have asked me …

* * * * *
Excerpted from MSNBC.com

JC Penney’s “Fair & Square” campaign, which launched on Feb. 1, appears to be a disaster.

Revenue dropped 20 percent; customer traffic fell 10 percent; the company lost $163 million in the 1st quarter.

Could we have a moment of silence please for what might be the last heartbeat of honest price tags?

Not only did Penney’s plain pricing structure fail to attract fair-minded shoppers – it “repelled” them.

Apparently, if a firm tries to educate consumers on tricks and traps, and tries to offer an honest product, a funny thing happens: Consumers say, “Thank you for the tips,” and go back to the tricky companies, where they exploit the new knowledge to get cheaper prices, leaving the “honest” firm in the dust.

“Once you educate consumers on the right way to shop, they will seek out the lowest cost store.”

To oversimplify, here’s Penney’s problem.

JCP told the world that retailers only offer their best prices during crazy sales, and Penney stores would no longer host them.

Sensible consumers apparently took that information to heart and decided to simply wait for such sales at other stores.

As an added benefit, Penney lowered consumers’ search costs, because they now knew they didn’t need to bother driving to a Penney’s store anymore.

Penney’s is also leaving a lot of money on the table by rejecting a phenomenon known as “price discrimination.”

Some people have more money than time, and some have more time than money.

Some shoppers don’t mind spending hours to save $20; others would gladly give a store $20 to escape quickly. Smart retailers get money from both.

By killing couponing, Penney has eliminated its ability to satisfy price discriminators.

But the real problem is Penney’s ill-fated attempt to cast itself as the only fair poker player in a game of cheats.

Shoppers just aren’t buying it.

However unsophisticated consumers are, very few of them believe a pair of shoes bought at Penney’s everyday low price will be cheaper than a pair of shoes bought at Macy’s on clearance with a 25 percent off coupon.

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One Response to “No coupons, no customers … the perils of being fair & square.”

  1. Tim Williams Says:

    Another great example of this was American Airlines’ 1992 experiment with “Value Pricing.” No matter how much people complain about crazy airline ticket pricing, when AA tried to make it simple, consistent and understandable, travelers abandoned them for the other airlines, all of whom still offered crazy discounts for advanced purchase, Saturday stays, etc. Value Pricing lasted only a few short months, as I recall.

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