JCPenney’s Financial Flop
http://www.dailyfinance.com/2012/08/10/penneys-sales-keep-sliding-as-customers-shun-new-pricing-plan/
Ever since JCPenney’s CEO Ron Johnson launched his new pricing idea by making merchandise at everyday low prices, sales have drastically gone down. No matter how hard JCPenney tries to change the visual appeal of their stores to make it more inviting, the problem always leads back to the pricing. JCPenney has gotten rid of their coupons and large sales and replaced it with everyday low prices. By doing so, shoppers feel no motivation or incentive to purchase from JCP because the prices do not explicitly point out a huge sale, which the majority of shoppers naturally drift to. Instead, shoppers go to other stores for a product that’s exactly the same item and price that JCP had, and purchased the item at the other location because the other location made it seem like the product was on a large sale, which immediately attracted costumers.
The pricing of the items at JCP can be related to game theory and finding the Nash Equilibrium. For example, one of the players is the “other store” and the other player is JCP. JCP has two options: keep their low everyday prices and host large sales every month or keep the prices the same but at a low price. The “other store” also has two options: keep their current pricing strategy with items constantly at regular price or have occasional huge “sales”. The payoffs would be valued accordingly. This way a Nash Equilibrium could be found, if any, and JCP could use this pricing strategy to better their current one.