For years, iconic retailer JCPenney department stores attracted a loyal following of customers attracted to discounts and promotions, especially with coupons offering deep markdowns on advertised prices. The idea was to stir shoppers’ emotions by using eye-catching discounts. Shoppers came to regard in-store specials as an incentive to buy now, feeling they were getting a “good deal.” As recently as 2012, JCP ranked 23rd among the top 100 U.S. retailers, although sales fell by nearly 3 percent from the previous year, whereas most others in the top 100 experienced sales increases. Lower revenue, it turns out, was an early sign that the recent change in pricing—replacing coupons and other discounts with its new “everyday low pricing”—was perhaps costing JCPenney its once-loyal customer base.

The dramatic pricing change was headed by CEO Ron Johnson, who for the previous decade had successfully directed Apple’s massive retailing operations. Apple’s pricing, as contrasted with JCPenney’s, more nearly resembles an orientation toward “truth in pricing,” where heavy discounting doesn’t exist and where, in general, “the price is the price.” Johnson brought to JCPenney the notion that customers would appreciate more clarity and consistency in pricing by eliminating heavily discounted sales specials. JCPenney had 590 different sales events in 2011, with special discounts offered at 5 a.m. and on weekends and holidays, and on special clearance days each month. When he arrived at JCPenney, Johnson saw prices that were intentionally inflated or “fake”; management knew that the inflated prices were going to be deeply discounted, sometimes up to 60 percent off, creating the kinds of “specials” that customers had come to expect. So the decision was made to phase out promotional pricing and coupons early in 2012 and change to fixed prices set at 40 to 50 percent below JCPenney’s original pre-discounted prices. Women’s apparel that formerly was priced first at $60 and then discounted down to $35 was instead now priced firmly at $35 in the new “fair and square” pricing method. The same applied to menswear, children’s, and virtually every product in the store.

Consumer reaction wasn’t as expected. JCPenney revenues for 2012 were 25 percent below the year before. By early 2013, JCPenney had suffered $13 billion in revenue losses, along with a 50 percent loss in the firm’s stock price since Johnson’s arrival in 2011. Those attractive discounts that motivated long-time customers were gone, and so was the incentive to shop at JCPenney stores. When customers stopped receiving coupons, they also quit going to JCPenney. While the everyday low prices were clearly lower, consumers no longer had the opportunity for perceived savings when using coupons and other promotions.

Once the financial collapse became unavoidable, CEO Johnson reversed direction early in 2013. In an attempt to rekindle relationships with longtime customers, JCPenney began restoring coupons and the traditional higher prices that could once again be heavily discounted, but the reversal was too little and too late. After just one year of implementing Johnson’s risky strategy, it became apparent that downward-spiraling sales and financial losses threatened the company’s survival. After his arrival from Apple with much fanfare, and just 17 months on the job, Johnson was fired and replaced with Mike Ullman, the previous CEO.

Ullman returned with a familiar pricing strategy for JCPenney. They propped up list prices as much as 60 percent to allow for deep discounts. One advantage of this strategy is the “price anchoring” effect. A high list price creates a perception that the product is of high quality, even when purchased at a much lower price. While the net result of the increased price and deep discounts was not much different from Johnson’s everyday low pricing strategy, Penney’s loyal base began to return.¹¹ It’s still an uphill battle though. In mid-2015, Ullman stepped down once again, this time replaced by Marvin Ellison, who had risen through the ranks at Home Depot before being selected for the top job at JCP. Ellison plans to bring on additional product lines, such as appliances, and even though the company turned a profit in 2016 for the first time in six years, he announced plans to close almost 140 under-performing stores across the country.