The Price of Misunderstanding

In the years following the Great Recession, traditional department stores faced declining mall traffic, growing competition from online retailers, and changing consumer preferences. J.C. Penney was particularly vulnerable because of its long-standing role as a mall anchor. By 2011, the company needed to determine how a century-old retailer could remain relevant in a rapidly changing market.

J.C. Penney turned to Ron Johnson. After helping create Apple’s highly successful retail experience, Johnson was named J.C. Penney’s chief executive officer, effective November 1, 2011.[1] The company and its shareholders hoped his innovative approach would position J.C. Penney for another century of success.

Take a look at how J.C. Penney introduced its new pricing strategy in 2012. One commercial portrayed shoppers overwhelmed by an endless barrage of sales, coupons, and limited-time offers. The message was clear: Customers were tired of confusing discounts and being “couponed to death.”

J.C. Penney’s new “Fair and Square” strategy sought to simplify the shopping experience. Instead of hundreds of sales throughout the year, the company introduced three types of prices: everyday prices, month-long values, and its lowest “best prices,” offered on the first and third Fridays of each month.[2] The strategy eliminated many of the coupons, doorbusters, and short-term promotions on which the company had traditionally relied.

The approach incorporated elements of the everyday-low-price model associated with retailers such as Walmart. J.C. Penney wanted customers to trust that they were receiving a fair price without waiting for a sale or searching for a coupon. If successful, the strategy could also reduce the operational burden of repeatedly changing signs, updating displays, and adjusting prices as promotions began and ended.

On paper, the idea had merit. The problem was not necessarily the concept itself, but the assumption that J.C. Penney’s customers wanted the same shopping experience as customers of other retailers.

The reaction was swift. Longtime customers had grown accustomed to combining coupons, rewards, and seasonal promotions. Finding a bargain was not merely an inconvenience they they tolerated. For many, it was part of the appeal. A coupon or markdown provided a visible point of comparison and made the value of a purchase feel tangible. Without those familiar signals, customers did not necessarily perceive J.C. Penney’s lower everyday prices as better prices.

The company’s results reflected that disconnect. During fiscal year 2012, J.C. Penney’s comparable-store sales fell 25.2 percent, while total net sales declined 24.8 percent, from approximately $17.3 billion to $13.0 billion.[3] In April 2013, after approximately 17 months as CEO, Johnson left the company and was replaced by his predecessor, Mike Ullman.[4]

Johnson was not responsible for every challenge J.C. Penney faced. The company’s difficulties began before his arrival and continued long after his departure. J.C. Penney ultimately filed for Chapter 11 bankruptcy protection in May 2020, amid continued disruption within the department-store industry and the additional pressures created by the COVID-19 pandemic.[5]

Nevertheless, the “Fair and Square” strategy offers a valuable example of what can happen when an organization misunderstands what its customers value. Johnson attempted to transfer a simplified, experience-driven approach to a retailer with a very different customer relationship. A strategy that appeared transparent and customer-friendly from inside the organization removed something many customers considered central to the J.C. Penney experience.

Some J.C. Penney shoppers may also have been Apple customers, but they entered the two stores with different expectations. At Apple, customers sought innovative products, specialized knowledge, and convenient technical support. At J.C. Penney, many customers expected affordability and the satisfaction of finding a deal. Understanding the same person requires understanding the purpose, expectations, and context surrounding each interaction.

J.C. Penney eventually returned to coupons and promotional pricing. Today, its website once again prominently advertises sales, coupon codes, and additional percentage discounts.[6] That return reinforces the central lesson: Innovation must begin with a clear understanding of the customer. Simplifying a process does not create value if it removes something customers value.

Sources

[1] J. C. Penney Company, Inc., “Ron Johnson Named J.C. Penney’s Next Chief Executive Officer,” June 14, 2011.

[2] J. C. Penney Company, Inc., “J.C. Penney’s Transformation Plans Revealed at Launch Event in New York City,” January 25, 2012.

[3] J. C. Penney Company, Inc., “2012 Annual Report,” filed March 20, 2013.

[4] Harvard Business School, “J.C. Penney’s ‘Fair and Square’ Strategy (B): Out with the New, In with the Old,” 2013.

[5] J. C. Penney Company, Inc., “Quarterly Report for the Period Ended May 2, 2020,” filed June 11, 2020.

[6] J.C. Penney, “Coupons and Promo Codes,” accessed August 24, 2026..