Things you should never do when pricing your products

Things you never knew about pricing. But they cost you a lot

It all started when in 2012 top management of a well-known American retailer J.C. Penney came up with a “brilliant idea”.

It was innovative, reasonable, and was supposed to work like a charm because nobody else had done it before. Instead of “complicated and confusing” coupons and sales that, according to their beliefs, only made customers hunt for discounts, they offered "everyday low prices" strategy. It was aimed to simplify the shopping experience for customers and reduce the reliance on promotions to drive sales. The company believed that this approach would resonate with customers who were tired of navigating complex pricing structures and hunting for discounts.

This approach was supposed to resonate with customers who were tired of navigating complex pricing structures

To implement the strategy, J.C. Penney lowered its prices by an average of 40%, and introduced a three-tiered pricing structure: everyday prices, month-long values, and best prices, which were clearance items. The company also introduced a new logo and store layout to reflect the new pricing strategy.

The result? Not only revenue and profitability dropped significantly, but also the sales numbers! It turned out that instead of simplifying the experience the new strategy made customers believe that there was a negative shift in the products’ quality.

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In other words, they just assumed that the company started selling worse products — hence, the decrease in prices. Consumers who could afford to buy elsewhere turned to Target and other J.C. Penny competitors.

Myths about Pricing

There are many myths about pricing that many business executives bear. Some of them can be a result of a genuine mistake, some come from misunderstanding the consumer psychology. In any case, falling victim to pricing myths can be costly for retail businesses, both in terms of lost revenue and damage to brand reputation.

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