Saturday, February 11, 2012

Zero-sum shopping

The new CEO of the J.C. Penney department store chain, Ron Johnson, has publicly admitted that his store's prices were needlessly inflated and its frequent claims of special sales and discounts useless and misleading. As reported in a recent issue of Time:
"According to the management-consulting firm A.T. Kearney, more than 40% of the items we bought last year were on sale. That's up from just 10% in 1990. Penney has been a notorious discounter, with nearly three-quarters of revenue coming from goods sold at 50% or more off list price--whatever that is--and less than 1% from full-price merchandise.

Inspired by the no-gimmicks pricing that enabled him to make Apple stores a retail powerhouse, Johnson intends to recast pricing at Penney's along rational lines and treat the public fairly:
"Instead of facing infinite discounts and promotions--there were 590 different 'sales' at Penney alone in 2011--the department store's shoppers will now see just three price categories. One will represent discounted seasonal items that change monthly. Another is clearance merchandise marked down on the first and third Fridays of each month. But the majority of goods will be offered every day at 40% or 50% less than the prices Penney used to charge. In retail parlance that's called EDLP, as in 'everyday low price.'"

Johnson is betting that the public is heartily tired of the fact that "all those Sunday circulars, flash deals and holiday sales events--which seemed more intense than ever last year--have turned shopping into retail combat."
"Johnson believes Penney's customers will appreciate pricing clarity, not to mention sleeping in. 'I don't think customers like having to come to a store between 8 and 10 a.m. on a Sunday in order to get the best price on swimwear,' he said."

Laudable as this is, some doubt its practical wisdom:
"'My intuition is that, in the long run, the changes won't be effective,' says Kit Yarrow, consumer psychologist and author of Gen BuY: How Tweens, Teens and Twenty-Somethings Are Revolutionizing Retail. 'A discount gives shoppers the incentive to buy today. Without that, there's no sense of urgency for people to purchase things that, frankly, they probably don't need.'"

I have no doubt that Johnson's conscience will be as pure as that of an innocent child and that he will sleep the sleep of the just at night. I am about as sure that he may as well tell his employees to start looking for other jobs and expect to be employed elsewhere within a year or two. Amazingly for a retail executive, he seems strangely blind to the parts of human psychology that affect the shopping experience in the first place.

There are at least two major kinds of transactions in the way people interact with each other. One is open, non-competitive, and based on the idea of everyone getting a piece of the pie. We see this in toy drives for poor children at Christmas; in that context, the idea that anyone in a disadvantaged group should suffer a loss, strikes all of us as intolerable.

The other kind, much more common--and, indeed, the mainspring of business, politics, sports, and, in its own way, even academics--is competitive. Your loss is my gain. Your second-place finish leaves open my shot at first place. When I recruited teams to compete in trivia tournaments, I and my team were always quite sincerely encouraging toward the teams we beat; we wanted the excitement and suspense of close competition. At the same time, as I often reminded my team, "It only takes one point to win."

Shopping is, to a large extent, the second type of transaction, and probably for reasons that don't do most of us a great deal of credit. Look at the inescapable power of words, meaningless in their actual context, such as "Exclusive," applied to sales, or "Confidential," on the cover of a tabloid; each encourages the consumer to imagine that he is about to be the beneficiary of something not generally available. To be sure, coupon-clipping is a harsh necessity in our struggling economy and in fact, I can remember rushing into Target in the half-dark of a winter morning, years ago, to buy diapers for my as-yet-unborn son because of a "special" price.

But even without the goad of necessity or any personal animus toward other consumers, shopping is, for many, a competitive activity in which my gain becomes sweeter if it is achieved at your expense. Laboring under a vague feeling, through much of life, that we are missing out on what should have rightfully been ours, we welcome the chance to claw back some otherwise forfeited value by buying better things at lower prices than our neighbor, in "exclusive" deals that our neighbor was too dull or timid to take advantage of. Black Friday sales are not some sort of aberration but a sign of something deep in human nature.

What will happen, as Time asks, when the novelty of Penney's reasonable and honest pricing wears off? Johnson hopes that shopper gratitude for the chain's straightforward approach will keep them coming back. I wish him well in that thought, but I think, rather, that he and his employees will find themselves in the position of the perfectly polite and well-groomed young man who finds, to his amazement, that even nice girls don't date him for long and turn, instead, to his tattooed, troubled, and footloose friend for excitement.

© Michael Huggins, 2012. All rights reserved.

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