Are We Asking to be Fooled by Prices?

JCP, coupons, & shopper psychology- NYT

Ron Johnson, J.C. Penney's chief executive, left recently due to what some might call a lack of knowledge about the Penney's customer.  The article references a Penney's shopper named Tracie Fobes who, like many, get a thrill from using a coupon to get a great deal.  It is a rush for shoppers like Tracie to hunt down a deal, go out of their way to where they will get the best price, and hand over a coupon in order to get the best discount possible.

See the current JCP stock price here.

Johnson stopped the practice of offering coupons and sales in J.C. Penney and as a result, saw sales drop precipitously and was accused of not knowing his customers.  Penney has recently reversed the policy and is back to maintaining its usual prices, only to slash them and offer coupons to shoppers.  While customers see the red slashed prices and see the sale signs and feel good about them, the article points out that customers of stores like J.C. Penney are not actually paying less for the products they are purchasing.  Otherwise, how could Penney stay in business, much less turn a profit?  The chain has combatted this by simply continuing to raise prices and then discount them through promotions, sales and coupons.

And customers are used to using coupons and promotions to shop for the best deal.  Walmart (click WMT for current stock price) is one of the select few retailers who can pull off having 'everyday low prices.'  Consumers are so used to waiting for deals and waiting for that coupon in the mail that to take that away from them, reduces their desire to go to those stores.  The consumer no longer feels the same satisfaction out of their purchase because buying something at a price that is low, but is not technically 'on sale' is not the same as buying something with a high price tag that they pay the same low price for by presenting a coupon at the register.  Having one, generically low price, the article points out- only works assuming that consumers have a decent idea of how much a product ought to cost.  In many cases, consumers do not have any idea so this strategy is not effective.

Personally, I very much enjoy getting a great deal.  Everyday low prices are great, but if the price is low to begin with, the perception of quality may be different than if the price were higher, then discounted.  Clearly, there is a lot that goes into pricing products and it is imperative that retailers pricing strategy takes into account the feeling that consumers get from using a coupon or simply feeling like they are getting a good deal.