Problems with Perceived Value of "Fair and Square" Pricing

February marked the end of endless markdowns at JC Penney. Instead, the retailer has moved to a simpler approach to pricing. Each item now falls in one of three tiers.

First, all merchandise gets a “Fair and Square” price of about 40% less than the average ticket. Each month ushers in a theme sale, where products related to a holiday or time of year get a “Monthly Value” discount. From there, those items that don’t sell are put on clearance, either the first or third Friday of the month.
 
With fewer sales and more predictable pricing, Penney hopes to take the guesswork out of shopping and bring customers in year-round. A sound strategy, no doubt. But what is it doing to the perceived value of the purchase?
 
When anyone buys almost anything, it’s for the perceived value of the item. And this perception is largely based on its benefits. It’s how all of us marketers market to consumers. We build on benefits, showing how something can make us feel.
 
Take the old adage of the drill. We don’t buy a drill to buy a drill; we buy it to make a hole. Better yet, we buy it for what we’ll hang on the screw in that hole.
 
But the benefit of a product is only part of the equation. When it comes to perceived value, we can never discount the role of price. In fact, price often trumps a benefit, especially if the consumer doesn’t recognize the benefit — a potential problem with the “Fair and Square” pricing strategy of JC Penney.
 
We are all easily swayed by price. Even if that price is inflated, it can influence our purchase. Let’s say, for example, a jacket at one retailer is discounted from $500 to $250 and then a store coupon brings the price down another 10% to $225. At JC Penney, you see a similar jacket originally priced at $250, but the “Monthly Value” discount brings it down to $200.
 
Which jacket are you going to buy?
 
The one at JC Penney is obviously cheaper. But you can get a jacket of a perceived higher value at the other retailer by shelling out 25 more bucks. A better bargain is still a better bargain, regardless of out-of-pocket cost. It’s about perception. We’re getting a “better” piece of merchandise for just a little bit more money.
 
To expand market penetration, JC Penney must first differentiate itself from other options on the market. Right now, the merchandise is pretty homogenous when compared to those offerings at other retailers, like Kohl’s, Sears, and even Walmart.
 
Without the deep “perceived” discounts, what’s driving consumers in the door?

This post was originally published at Beneath the Brand.