Case Study Description of J.C. Penney's "Fair and Square" Pricing Strategy
As a he gets ready to release 2nd quarter 2012 results, Ron Johnson, the new CEO of department store J.C. Penney, is reconsidering the dramatic changes he initiated for the business model and brand image of his company. A new pricing scheme he put in place in February, dubbed "Fair and square", was a central component of the new strategy. The scheme initially had three pricing tiers and eliminated typical sales promotions in an attempt to simplify the shopping experience for consumers; thus moving J.C. Penney off its previous high-low pricing practice. Other components of the new strategy included a new store layout, the inclusion of several well-known brands, and having special lines designed by well-known designers. However, troubling first quarter results that continued into the summer months seemed to indicate that J.C. Penney shoppers, accustomed to receiving JCP Cash coupons and circulars advertising the week's specials, were slow to embrace the new pricing format and began leaving the retailer in droves. Under enormous pressure to turn things around as the all-important back-to-school and holiday shopping seasons were imminent, Johnson decided to make adjustments to the initial pricing scheme that were set to go into effect August 1st. Were these changes enough to turn things around? Should Johnson stay the course on the other elements of his repositioning efforts? Is Johnson's experience in setting up Apple stores helping or hurting him as he tries to achieve his goal of making J.C. Penney "America's favorite store"?
Swot Analysis of "J.C. Penney's "Fair and Square" Pricing Strategy" written by Elie Ofek, Jill Avery includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that J.c Penney facing as an external strategic factors. Some of the topics covered in J.C. Penney's "Fair and Square" Pricing Strategy case study are - Strategic Management Strategies, Branding, Change management, Customers, Decision making, Leading teams, Pricing, Strategy and Sales & Marketing.
Some of the macro environment factors that can be used to understand the J.C. Penney's "Fair and Square" Pricing Strategy casestudy better are - – increasing inequality as vast percentage of new income is going to the top 1%, increasing transportation and logistics costs, geopolitical disruptions, increasing commodity prices, wage bills are increasing, customer relationship management is fast transforming because of increasing concerns over data privacy, cloud computing is disrupting traditional business models,
central banks are concerned over increasing inflation, increasing energy prices, etc
Introduction to SWOT Analysis of J.C. Penney's "Fair and Square" Pricing Strategy
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in J.C. Penney's "Fair and Square" Pricing Strategy case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the J.c Penney, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which J.c Penney operates in.
According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.
SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix
SWOT analysis of J.C. Penney's "Fair and Square" Pricing Strategy can be done for the following purposes –
1. Strategic planning using facts provided in J.C. Penney's "Fair and Square" Pricing Strategy case study
2. Improving business portfolio management of J.c Penney
3. Assessing feasibility of the new initiative in Sales & Marketing field.
4. Making a Sales & Marketing topic specific business decision
5. Set goals for the organization
6. Organizational restructuring of J.c Penney
Strengths J.C. Penney's "Fair and Square" Pricing Strategy | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of J.c Penney in J.C. Penney's "Fair and Square" Pricing Strategy Harvard Business Review case study are -
Highly skilled collaborators
– J.c Penney has highly efficient outsourcing and offshoring strategy. It has resulted in greater operational flexibility and bringing down the costs in highly price sensitive segment. Secondly the value chain collaborators of the firm in J.C. Penney's "Fair and Square" Pricing Strategy HBR case study have helped the firm to develop new products and bring them quickly to the marketplace.
Ability to lead change in Sales & Marketing field
– J.c Penney is one of the leading players in its industry. Over the years it has not only transformed the business landscape in its segment but also across the whole industry. The ability to lead change has enabled J.c Penney in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
Training and development
– J.c Penney has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in J.C. Penney's "Fair and Square" Pricing Strategy Harvard Business Review case study by analyzing – employees retention, in-house promotion, loyalty, new venture initiation, lack of conflict, and high level of both employees and customer engagement.
Cross disciplinary teams
– Horizontal connected teams at the J.c Penney are driving operational speed, building greater agility, and keeping the organization nimble to compete with new competitors. It helps are organization to ideate new ideas, and execute them swiftly in the marketplace.
High switching costs
– The high switching costs that J.c Penney has built up over years in its products and services combo offer has resulted in high retention of customers, lower marketing costs, and greater ability of the firm to focus on its customers.
Sustainable margins compare to other players in Sales & Marketing industry
– J.C. Penney's "Fair and Square" Pricing Strategy firm has clearly differentiated products in the market place. This has enabled J.c Penney to fetch slight price premium compare to the competitors in the Sales & Marketing industry. The sustainable margins have also helped J.c Penney to invest into research and development (R&D) and innovation.
High brand equity
– J.c Penney has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled J.c Penney to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Operational resilience
– The operational resilience strategy in the J.C. Penney's "Fair and Square" Pricing Strategy Harvard Business Review case study comprises – understanding the underlying the factors in the industry, building diversified operations across different geographies so that disruption in one part of the world doesn’t impact the overall performance of the firm, and integrating the various business operations and processes through its digital transformation drive.
Successful track record of launching new products
– J.c Penney has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. J.c Penney has effective processes in place that helps in exploring new product needs, doing quick pilot testing, and then launching the products quickly using its extensive distribution network.
Analytics focus
– J.c Penney is putting a lot of focus on utilizing the power of analytics in business decision making. This has put it among the leading players in the industry. The technology infrastructure suggested by Elie Ofek, Jill Avery can also help it to harness the power of analytics for – marketing optimization, demand forecasting, customer relationship management, inventory management, information sharing across the value chain etc.
Superior customer experience
– The customer experience strategy of J.c Penney in the segment is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
Diverse revenue streams
– J.c Penney is present in almost all the verticals within the industry. This has provided firm in J.C. Penney's "Fair and Square" Pricing Strategy case study a diverse revenue stream that has helped it to survive disruptions such as global pandemic in Covid-19, financial disruption of 2008, and supply chain disruption of 2021.
Weaknesses J.C. Penney's "Fair and Square" Pricing Strategy | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of J.C. Penney's "Fair and Square" Pricing Strategy are -
Increasing silos among functional specialists
– The organizational structure of J.c Penney is dominated by functional specialists. It is not different from other players in the Sales & Marketing segment. J.c Penney needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help J.c Penney to focus more on services rather than just following the product oriented approach.
Aligning sales with marketing
– It come across in the case study J.C. Penney's "Fair and Square" Pricing Strategy that the firm needs to have more collaboration between its sales team and marketing team. Sales professionals in the industry have deep experience in developing customer relationships. Marketing department in the case J.C. Penney's "Fair and Square" Pricing Strategy can leverage the sales team experience to cultivate customer relationships as J.c Penney is planning to shift buying processes online.
High operating costs
– Compare to the competitors, firm in the HBR case study J.C. Penney's "Fair and Square" Pricing Strategy has high operating costs in the. This can be harder to sustain given the new emerging competition from nimble players who are using technology to attract J.c Penney 's lucrative customers.
Slow decision making process
– As mentioned earlier in the report, J.c Penney has a very deliberative decision making approach. This approach has resulted in prudent decisions, but it has also resulted in missing opportunities in the industry over the last five years. J.c Penney even though has strong showing on digital transformation primary two stages, it has struggled to capitalize the power of digital transformation in marketing efforts and new venture efforts.
Capital Spending Reduction
– Even during the low interest decade, J.c Penney has not been able to do capital spending to the tune of the competition. This has resulted into fewer innovations and company facing stiff competition from both existing competitors and new entrants who are disrupting the industry using digital technology.
High cash cycle compare to competitors
J.c Penney has a high cash cycle compare to other players in the industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.
Interest costs
– Compare to the competition, J.c Penney has borrowed money from the capital market at higher rates. It needs to restructure the interest payment and costs so that it can compete better and improve profitability.
Slow to harness new channels of communication
– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, J.c Penney is slow explore the new channels of communication. These new channels of communication mentioned in marketing section of case study J.C. Penney's "Fair and Square" Pricing Strategy can help to provide better information regarding products and services. It can also build an online community to further reach out to potential customers.
Compensation and incentives
– The revenue per employee as mentioned in the HBR case study J.C. Penney's "Fair and Square" Pricing Strategy, is just above the industry average. J.c Penney needs to redesign the compensation structure and incentives to increase the revenue per employees. Some of the steps that it can take are – hiring more specialists on project basis, etc.
Employees’ incomplete understanding of strategy
– From the instances in the HBR case study J.C. Penney's "Fair and Square" Pricing Strategy, it seems that the employees of J.c Penney don’t have comprehensive understanding of the firm’s strategy. This is reflected in number of promotional campaigns over the last few years that had mixed messaging and competing priorities. Some of the strategic activities and services promoted in the promotional campaigns were not consistent with the organization’s strategy.
Need for greater diversity
– J.c Penney has taken concrete steps on diversity, equity, and inclusion. But the efforts so far has resulted in limited success. It needs to expand the recruitment and selection process to hire more people from the minorities and underprivileged background.
Opportunities J.C. Penney's "Fair and Square" Pricing Strategy | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities highlighted in the Harvard Business Review case study J.C. Penney's "Fair and Square" Pricing Strategy are -
Developing new processes and practices
– J.c Penney can develop new processes and procedures in Sales & Marketing industry using technology such as automation using artificial intelligence, real time transportation and products tracking, 3D modeling for concept development and new products pilot testing etc.
Leveraging digital technologies
– J.c Penney can leverage digital technologies such as artificial intelligence and machine learning to automate the production process, customer analytics to get better insights into consumer behavior, realtime digital dashboards to get better sales tracking, logistics and transportation, product tracking, etc.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for J.c Penney to expand its talent hiring zone. According to McKinsey Global Institute, 20% of the high end workforce in fields such as finance, information technology, can continously work from remote local post Covid-19. This presents a really great opportunity for J.c Penney to hire the very best people irrespective of their geographical location.
Loyalty marketing
– J.c Penney has focused on building a highly responsive customer relationship management platform. This platform is built on in-house data and driven by analytics and artificial intelligence. The customer analytics can help the organization to fine tune its loyalty marketing efforts, increase the wallet share of the organization, reduce wastage on mainstream advertising spending, build better pricing strategies using personalization, etc.
Learning at scale
– Online learning technologies has now opened space for J.c Penney to conduct training and development for its employees across the world. This will result in not only reducing the cost of training but also help employees in different part of the world to integrate with the headquarter work culture, ethos, and standards.
Low interest rates
– Even though inflation is raising its head in most developed economies, J.c Penney can still utilize the low interest rates to borrow money for capital investment. Secondly it can also use the increase of government spending in infrastructure projects to get new business.
Better consumer reach
– The expansion of the 5G network will help J.c Penney to increase its market reach. J.c Penney will be able to reach out to new customers. Secondly 5G will also provide technology framework to build new tools and products that can help more immersive consumer experience and faster consumer journey.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects J.c Penney can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Using analytics as competitive advantage
– J.c Penney has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in the sector. This continuous investment in analytics has enabled, as illustrated in the Harvard case study J.C. Penney's "Fair and Square" Pricing Strategy - to build a competitive advantage using analytics. The analytics driven competitive advantage can help J.c Penney to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Building a culture of innovation
– managers at J.c Penney can make experimentation a productive activity and build a culture of innovation using approaches such as – mining transaction data, A/B testing of websites and selling platforms, engaging potential customers over various needs, and building on small ideas in the Sales & Marketing segment.
Reconfiguring business model
– The expansion of digital payment system, the bringing down of international transactions costs using Bitcoin and other blockchain based currencies, etc can help J.c Penney to reconfigure its entire business model. For example it can used blockchain based technologies to reduce piracy of its products in the big markets such as China. Secondly it can use the popularity of e-commerce in various developing markets to build a Direct to Customer business model rather than the current Channel Heavy distribution network.
Buying journey improvements
– J.c Penney can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. J.C. Penney's "Fair and Square" Pricing Strategy suggest that firm can provide automated chats to help consumers solve their own problems, provide online suggestions to get maximum out of the products and services, and help consumers to build a community where they can interact with each other to develop new features and uses.
Use of Bitcoin and other crypto currencies for transactions
– The popularity of Bitcoin and other crypto currencies as asset class and medium of transaction has opened new opportunities for J.c Penney in the consumer business. Now J.c Penney can target international markets with far fewer capital restrictions requirements than the existing system.
Threats J.C. Penney's "Fair and Square" Pricing Strategy External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study J.C. Penney's "Fair and Square" Pricing Strategy are -
Backlash against dominant players
– US Congress and other legislative arms of the government are getting tough on big business especially technology companies. The digital arm of J.c Penney business can come under increasing regulations regarding data privacy, data security, etc.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, J.c Penney can face downward pressure on margins from increasing competition from international players. The international players have stable revenue in their home market and can use those resources to penetrate prominent markets illustrated in HBR case study J.C. Penney's "Fair and Square" Pricing Strategy .
Environmental challenges
– J.c Penney needs to have a robust strategy against the disruptions arising from climate change and energy requirements. EU has identified it as key priority area and spending 30% of its 880 billion Euros European post Covid-19 recovery funds on green technology. J.c Penney can take advantage of this fund but it will also bring new competitors in the Sales & Marketing industry.
Easy access to finance
– Easy access to finance in Sales & Marketing field will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. J.c Penney can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
High level of anxiety and lack of motivation
– the Great Resignation in United States is the sign of broader dissatisfaction among the workforce in United States. J.c Penney needs to understand the core reasons impacting the Sales & Marketing industry. This will help it in building a better workplace.
Regulatory challenges
– J.c Penney needs to prepare for regulatory challenges as consumer protection groups and other pressure groups are vigorously advocating for more regulations on big business - to reduce inequality, to create a level playing field, to product data privacy and consumer privacy, to reduce the influence of big money on democratic institutions, etc. This can lead to significant changes in the Sales & Marketing industry regulations.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for J.c Penney in the Sales & Marketing industry. The Sales & Marketing industry is already at various protected from local competition in China, with the rise of trade war the protection levels may go up. This presents a clear threat of current business model in Chinese market.
Technology disruption because of hacks, piracy etc
– The colonial pipeline illustrated, how vulnerable modern organization are to international hackers, miscreants, and disruptors. The cyber security interruption, data leaks, etc can seriously jeopardize the future growth of the organization.
Technology acceleration in Forth Industrial Revolution
– J.c Penney has witnessed rapid integration of technology during Covid-19 in the Sales & Marketing industry. As one of the leading players in the industry, J.c Penney needs to keep up with the evolution of technology in the Sales & Marketing sector. According to Mckinsey study top managers believe that the adoption of technology in operations, communications is 20-25 times faster than what they planned in the beginning of 2019.
New competition
– After the dotcom bust of 2001, financial crisis of 2008-09, the business formation in US economy had declined. But in 2020 alone, there are more than 1.5 million new business applications in United States. This can lead to greater competition for J.c Penney in the Sales & Marketing sector and impact the bottomline of the organization.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents J.c Penney with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
Instability in the European markets
– European Union markets are facing three big challenges post Covid – expanded balance sheets, Brexit related business disruption, and aggressive Russia looking to distract the existing security mechanism. J.c Penney will face different problems in different parts of Europe. For example it will face inflationary pressures in UK, France, and Germany, balance sheet expansion and demand challenges in Southern European countries, and geopolitical instability in the Eastern Europe.
Aging population
– As the populations of most advanced economies are aging, it will lead to high social security costs, higher savings among population, and lower demand for goods and services in the economy. The household savings in US, France, UK, Germany, and Japan are growing faster than predicted because of uncertainty caused by pandemic.
Weighted SWOT Analysis of J.C. Penney's "Fair and Square" Pricing Strategy Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers in the HBR case study J.C. Penney's "Fair and Square" Pricing Strategy needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants.
We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –
First stage for doing weighted SWOT analysis of the case study J.C. Penney's "Fair and Square" Pricing Strategy is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.
Second stage for conducting weighted SWOT analysis of the Harvard case study J.C. Penney's "Fair and Square" Pricing Strategy is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.
Third stage of constructing weighted SWOT analysis of J.C. Penney's "Fair and Square" Pricing Strategy is to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that J.c Penney needs to make to build a sustainable competitive advantage.
