Can J.C. Penney succeed like Target and Apple?

Now that J.C. Penney has announced a radical overhaul of its approach to retail, the question is: Will customers buy it?

Penney's new CEO, Ron Johnson, is rolling out a simplified pricing plan that aims to wean customers off sales and convince them that she store's prices are always rock bottom. He says prices will be slashed by 40 percent, and for the most part that's where they'll stay. That's a big change from the current strategy, which involves literally hundreds of sales every year.

Johnson has a great track record. He's the retailing mastermind behind the Apple retail stores as well as Target's transformation into "Tar-zhay" - the store's partnerships with upscale designers that made it chic to be cheap.

The challenge for J.C. Penney will be to wean retail customers off the idea that it's not a bargain unless you see a sign spelling out the price cut. That's difficult in a weak economy in which consumers have shown they are only willing to open their wallets for good values. And there's a more deep-seated problem, as well.

Behavioral economists have found that people have trouble judging the appropriate value for a given item. So we look for an "anchor" to help us start our calculations. When we see a flat screen TV that used to cost $1,000 marked down to $500, that, of course, seems like a great value. If the same television were priced at $450 to begin with, we are less compelled to buy it.

An experiment at MIT showed that this effect, called "framing," is so powerful that even random numbers can cause people to pay more for an item. Dan Ariely and fellow behavioral economists asked MBA students to write down the last two digits of their social security numbers and then bid on a number of items, including a bottle of wine. Students with the highest numbers bid 200 to 350 percent more than students with the lowest numbers.

The stock market's verdict on Johnson has been mixed. On the one hand, J.C. Penney shares are up 14 percent since he took over in June, far outpacing the broader market. But the stock took a hit as he presented his new strategy yesterday.

At Apple, Johnson created the single best-performing retail spaces in the country, if not the world. Apple's sales per-square-foot, which have been calculated at $5,600 to $7,000, are twice that of Tiffany. At J.C. Penney, he won't be selling iStuff, however. Sure, he's likely to revamp the product offerings (the website's electronics section currently features a boombox iPod dock; so there's some low-hanging fruit)

To help Johnson make the sale, a new ad campaign features a customer screaming "NO" as she is deluged with coupons and for-sale signs. Ellen DeGeneres is the new spokeswoman, and a the store is even rolling out a new logo. 

To see Jack Otter discussing the new J.C. Penney pricing strategy on "CBS This Morning," click on the video in the player above.

[cattiej]

Ron Johnson ruied Target for us..they only have junk to sell now and all their stuff is made in China. The clothes are so cheaply made and inferior that after 2 washings they fall apart. We stopped going to Target after Christmas when we went several times for some of the items in their ads...when we got there the items were just junk..there is no other way to say it.
I know Penny's was going to change when they closed their catalog business at the local Penny's store. The handwriting is on the way and Penny's will go the way of Sears (after Kmart took over). I loved shopping at Pennys and shopped there all the time and I bought some nice clothes and shoes there. I loved the linen department and always bought my curtains and drapes there. My husband said the mens department was changing and he didn't like shopping there anymore. I am done shopping at Penny's after 50 plus years of doing so. I don't think Ellen is a good spokewomen or should I say spokesman either. If you have quality goods you don't need anyone to advertise your stuff, just advertise your items and give the people "sales"...we here in America are used to "sales", and coupons..changing this will mean that Penny's will suffer and the first people to suffer will be the people working at Penny's stores as they will loose their jobs due to the people not shopping there anymore. STORES AND BUSINESS'S HAVE GOT TO STOCK MORE AMERICAN MADE GOODS, NOT GOODS MADE IN CHINA, KOREA,VIETNAM ETC. Buy American folks....the job you save may be your own....

[NoreenB]

The commercials aside, I think Penney's has miscalculated with this strategy. Younger customers will continue to do what currently works; compare the Penney's prices against others via internet over their phones while in the store, and simply go with the lowest price, even if not at Penney's. And older customers who are not phone users or web savvy are too used to the 'sale sale sale' mentality to believe that Penney's has the lowest prices on a regular basis. If the prices truly are the lowest, they have to convince everyone that quality is not sacrificed. I wish them luck.

[Marysmuse]

JC Penney is risking its own future with the completely obnoxious ad they've been running. I've seen more complaints about the "screaming idiots" ad on Facebook than any other issue in a long time, and more than a few people have said once they knew which store polluted their television viewing with such an irritating interruption, they'd avoid shopping there in the future.

[Lancashire]

I certainly agree! Those screaming commercials have really turned me against JCPenney. They are the MOST obnoxious ones I have seem and HEARD! I grab the mute right away. They are even worse that the Oxyclean commercials, which I hate with a passion....