Business management

Internal Assessment

Higher Level

Research question: To what extent does JC Penney’s ‘Fair and Square Every Day'
pricing strategy fit with its competitive positions?

Key concepts: Change

Word count: 1495 words

Session
Student Number
Table of contents
Contents
Introduction...............................................................................................................................3
Findings....................................................................................................................................5
Analysis of findings..................................................................................................................6
SWOT Analysis.....................................................................................................................6
Porter’s Five Forces................................................................................................................7
Trading and Profit and loss account..........................................................................................9
Conclusion..............................................................................................................................11
Bibliography...........................................................................................................................12
Appendix................................................................................................................................13
Introduction

J.C. Penney Corporation is an American retail company founded in 1902 that engages in
marketing apparel, home furnishing, jewellery etc. They operate a chain of 664 department
stores across 49 U.S states and Puerto Rico They were among the first retailers to introduce
the concept of store credit and popularised catalogue shopping. (Reuters,2020). J.C. Penney
offered an important competitive advantage by being one of the most experienced retail
sourcing organisations in the industry. They were also well known for having a portfolio of
private and national brands of remarkable quality and exceptional value.

In 2012, CEO Ron Johnson had decided to transform the 110-year-old department store chain
into a 21st century retail powerhouse. They did this by introducing the “Fair and Square
Every Day” pricing strategy. They believed in instead selling at discounts, they would instead
simply offer three prices.
1. “Every Day”
2. “Month Long Value” (theme such as back-to-school related products in August)
3. “Best Prices” (clearance).
So, where did this lead to a downfall? They had destroyed over a century’s worth of price
conditioning consumers that they have been through with department stores and pricing in
general. With a 20% sales drop, CEO Ron Johnson insisted that the company will continue
with this method (paddle,2021). This further on led to a decline in sales, customers and
market share which was a key reason to them declaring bankruptcy in 2020. This helps us
talk about the key concept of change. Change refers to the conversion, transformation or
movement from one form. State or value to another.

Consequently, this essay aims to examine to what extent does the ‘Fair and Square’ pricing
strategy affect J.C. Penney’s competitive positions among other companies. The pricing
strategy which was employed will be examined through the qualitative tools which are
SWOT analysis as well as Porter’s 5 forces. The effect the pricing strategy had created will
further be assessed by the quantitative tool, trading profit and loss account. By bringing the
qualitative and quantitative tool together, we will be able to analyse why J.C Penney’s
strategy did not work and give overall feedback about the ‘Fair and Square’ pricing strategy.
The supporting documents relating to this matter have been carefully chosen to avoid dealing
with information and provide comprehensive information for the exploration.
Findings

With a 20% sales drop, J.C. Penney’s flight in the face of traditional retail pricing, has failed.
This is because customers are conditioned to using discounts, coupons, and promotions, then
send them offers. We were also informed that the store visits had decreased by 10% and the
average spend was down by 5%. As a result, the retailer lost $163 million after implementing
the new pricing strategy in the same year. J.C. Penney ‘s stock, which bounced above $43 per
share after CEO Ron Johnson enthusiastically announced the new pricing strategy in January
of 2012, by the end of that year sales had dropped down below $30 (hbr.org,2012).
Analysis of findings

SWOT Analysis
It is a framework for identifying and analysing an organization’s strengths and weaknesses,
opportunities and threats. The goal of this is to increase awareness of factors that go into the
making a business decision. This will help us understand the extent as to which J.C. penney
adopted.
 Porter’s Five Forces
The Porters Five Forces is a qualitative analysis tool that identifies and analyses five competitive
forces that shape every industry and helps determine and industry’s weakness and strengths
(Investopedia,2023).
Porter’s forces are:
a. Competition in the industry
b. Potential of new entrants into the industry.
c. Power of supplies
d. Power of customers
e. Threat of substitute products
With the help of this we can determine whether the pricing strategy employed was applicable for them
in their industry thereby giving us a qualitative overview of their decision

THREATS OF NEW ENTRANTS

 Threats of new entrants are relatively low as barriers
to entry in the retail store are high due to factors
relating to economies of scale, other competitors
brand identity and supply chain management.

BARGAINING POWER
OF SUPPLERS
the bargaining power of
suppliers is very high.
This is because suppliers
have the power to raise
their prices and reduce
quantity and quality of
factors of production
which can have a
significant impact on
retailors profits.
RIVARLY AMONG EXISTING BARGAINING POWER
COMPETITIORS OF BUYERS
The rivalry among existing
The bargaining power of
competitors in the retail industry is
buyers especially in the
very high. This is because there
retail industry is high. This
are number of establish retail
stores that can provide a better is because buyers have
price and shopping experience for substitutes to choose from
customers. and a lot of choices when
it comes to shopping in
the retail industry

THREAT OF SUBSTITUTE PRODUCT/SERVICES

 The threats of substitute products and services
are relatively high due to the retail industry
being rather competitive with each other. This is
because there are several different ways for
customers to spend their money.
As observed, by using Porters five forces it suggests that the situation that J.C. Penney are in
they should have reevaluate their pricing strategy as it goes against their industry norms as
the four of the fives forces were working against J.C. Penney’s bold move of the usage of
Fair and square pricing strategy.

The pricing strategy was not successful. One reason for this is that J.C. Penney was not able
to communicate their pricing strategy with its customers. This left customers unaware about
the pries they are encountering. Furthermore, the fair and square pricing strategy was unable
to differentiate J.C Penney from its competitors making other retailers’ prices more
reasonable to the customers.
Trading and Profit and loss account

Trading and Profit and loss account is a quantitative analysis tool that discusses a firm’s
trading results for a specific year and shows how the profits were used or the losses were
financed. By using this, we can give an overall evaluation of the
statement over the past few years compared to the previous years before the pricing strategy
implementation.

More specifically, I will be discussing about the three sections of Trading and profit and loss
account and being throughout the years of 2012 to 2020 being able to check in what section
was a drop in profits and being able to find reasons as to why this happened.

As observed, we can clearly find out that there is a significant change in net income at the
year of 2012 when J.C Penney released their income statement. J.C. Penney had been in a
loss in the previous year itself and lost more money rather than making profit out of it. This
continued for the next couple of years making 2013 the worst financial year for the company.
The consistent loss since 2012 has shown that the pricing strategy deployed by them has
created a negative impact and made customers not wanting to shop at J.C. Penney.

In conclusion, based on the income statement, it is evident to say that the change in pricing
strategy has created a negative impact financially for the company. The trend here has clearly
indicated that there is a major financial loss in the year of 2012 onwards which has influenced
their reason for bankruptcy.
Conclusion
In conclusion, the analysis conducted in this essay aimed to provide the answer to the
following research question: To what extent does JC Penney’s ‘Fair and Square Every Day'
pricing strategy fit with its competitive positions? The findings have suggested that the
implemented pricing strategy had created a negative effect for the company.

The Fair and Square pricing strategy was examined by using Porters Five Forces. The change
in pricing strategy had a negative impact in its industry that thrives through competition and
unique pricing strategies where the findings clearly states that four of the five competitive
forces have gone against J.C. Penney’s pricing strategy. Due to the relatively high
competition, Fair and square pricing strategy is overwhelmed by the fierce competition in the
retail industry.

In terms of their profits, we can analyse this by using the income statement to check whether
how much off an impact this had on their profits. With sales as well as profits significantly
dropping as the launch of ‘Fair and Square’ took place, reporting significant losses were
made by the company in comparison to the previous year. This indicates the idea of
standardized prices being less motivating towards customers.

In conclusion, Fair and Square pricing strategy has been an unsuccessful business decision
made by J.C. Penney as there has been a clear drop in sales revenue creating major losses for
the company. Hence leading to bankruptcy by the year of 2020. This allows us to understand
the role of different pricing strategies and how they affect customers perspectives. Pricing
strategies such as promotional pricing tend to be more attractive customers as they believe
that they are being able to save money by obtaining it during a lower price.
Bibliography
Intelligently, AuthorPrice. “Lessons from the Failure of J.C. Penney’s New Pricing Strategy.” Paddle,
www.paddle.com/blog/j-c-penny-s-pricing-strategy. Accessed 3 Sept. 2023.

Team, The Investopedia. “How Close Is J.C. Penney to Bankruptcy? (JCP, KSS).”
Investopedia, Investopedia, www.investopedia.com/stock-analysis/043015/how-close-
jc-penney-bankruptcy-jcp-kss.aspx. Accessed 26 Sept. 2023.

“JC Penney’s Fair and Square Pricing Strategy Case Study Solution Analysis.”
Calameo.Com, www.calameo.com/read/0071875702f32fbe41619. Accessed 26 Sept.
2023.

“J C Penney Inc Income Statement Annual.” CSIMarket, csimarket.com/stocks/income.php?

code=JCP&annual&hist=2. Accessed 26 Sept. 2023.
Appendix

(Income statements from 2011 to 2020)

Figure (stockholder return comparison) *declaration of fair and square pricing strategy
started in 2012*