Recently, there has been a considerable amount of (well-justified) “Penney-punching” in the business media: as US d-store JCPenney announced the ‘softening’ of a much-publicized pricing strategy employed earlier in the year.
The decision to backtrack (from a recently-adopted “hard-line EDLP” repositioning, to once again announce occasionally using sale prices) has been hammered in the trade press. However, I’d say the flip-flop is a smart move: the experiment hadn’t performed to plan, so there’s no point throwing good money after bad, just to save face.
Penney’s strategy was definitely shopper-oriented, but it failed because it catered entirely to the ‘rational’ components of pricing, and neglected the emotional response that pricing often triggers in shoppers.
JCP’s strategy failed to cater to key emotional drivers – like ‘excitement and urgency’ – that are (knowingly or not!) tied up in the high-low strategies that pervade department store retailing today.
Yet Penney is just one example of emotional negligence in pricing. On the other extreme there are now a raft of retailers offering daily online deals which are, ironically, having almost the same effect on shopper feelings.
Let me back-track, and cover two important emotional drivers that I believe are often overlooked when evaluating pricing strategies.
- One is ‘urgency’: in a high-low model there’s a level of excitement and anxiety to “buy today” because the price might go up again, or because the deal is so good, the item will sell out. This is why Macy’s and others have ‘One Day Sales’ – they generate an emotional drive in shoppers to ‘buy it today’.
- The other emotional driver in high-low which is even more overlooked is the ‘shopper success’ factor: that addictive emotional reward from being smarter than the retailer, smarter than other shoppers and timing my purchase at just the moment to snag the bargain. This is one reason why those ‘one day sales’ also have a preview event the day before – some people like to think they beat everyone else to the bargain!
With these two drivers in mind, let’s consider two example strategies that fail to make use of these critical emotional levers.
One of course is Penney: they basically said, “no need to come today – the price will always be this low!” and “everyone will get these prices, no matter how savvy they are at shopping”. Two swings. Two strikes. No urgency. No special sense of satisfaction.
For the opposite extreme I could nominate any number of retailers using ‘daily online deals’ but (as it’s one I experience personally every day) I am going to choose GAP.
They still have sales in the traditional high/low sense – but they offer me something EVERY DAY. And over time the discounts seem to get deeper and deeper. So do I feel a sense of urgency? No… in fact tomorrow’s deal may be better if I wait.
And do I feel “savvy” if I take advantage of these “amazing” GAP offers? No, because they’re so damned easy to get. They just land right there in my inbox… and probably that of millions of other people at the same time. No effort, no special access, no sense of reward. It’s about as exciting as getting the free newspaper during your morning commute.
With either strategy, there’s no urgency and ‘no thrill of the chase’. In the end, I end up not buying from either of these retailers, because there’s no emotional incentive to ‘do it now’.
Worst of all, it’s well documented that emotion matters… A LOT! When you remove emotion, you have an exponential impact on your Customer Value Proposition. Modern concensus is that emotion is multiplicative in the CVP: so when you remove it, the result is divisive… and destructive. Price perception and benefit perceptions are actually both diminished when you don’t engage my emotions.
All in all, price strategists must not forget that pricing plays an emotional part in the shopper ‘courting ritual’. To take that emotion out of the equation makes you sound boring and you might never get a first date – but if you give up frequent deals for free, you’ll just get used by a long string of the type of shoppers that you’ll never want to marry.
— The Orange Sheep