Marketing, Robin’s Blog

Is Jeff Bezos the New Ron Johnson on Pricing?

RR Amazon Pricing StrategyIn 2012, JC Penney’s new CEO, Ron Johnson, made a huge bet. With a grand strategy to fundamentally transform JC Penney’s business model, his opening salvo on day one was to totally eliminate the myriad of Penney’s promotional pricing gimmicks to be replaced by “fair and square” real value pricing. His bet was that consumers had reached a point of mass hysteria, crazed and tearing their hair out over the insane and confusing vortex of discounting tricks. To that point, JCP created a TV commercial that literally depicted such a crazed, hysterical consumer being bombarded by sales signs.

So day one was “cold turkey” discount removal. Well, day two was not a pretty sight. The JC Penney sale-addicted customers fled the store in droves. A year and about a $4.5 billion drop in revenues later, Johnson was out.

Was Johnson simply ahead of his time in betting consumers were fed up with on-sale tricks? Or did he just make a mistake in implementing his fair pricing strategy ahead of the rest of his grand vision, which included renovated stores, new brands, enhancing the shopping experience … and more? Had these value-adding innovations been in place, would customers have accepted the pricing strategy?

We will never know the answers to these questions.

However, Amazon’s CEO, Jeff Bezos, is embarking on a similar strategy, which may answer the question as to whether or not consumers are ready to be weaned off of sales addiction.

Amazon started eliminating list prices about three months ago. The list price, of course, provides the consumer a comparison to the ticket price and a quick snapshot of the discount they are getting. According to an analysis by Rout, a comparison pricing firm, about 29 percent of Amazon’s products did not display the list prices in early May. That number has increased to over 70 percent. So do the math. One would have to assume that this strategy is working. Otherwise, why would they have continued forward?

Some experts speculate that Amazon is making this move in anticipation of the increasing number of lawsuits by consumers who are claiming to be misled by the insane and complex pricing gimmickry that pervades all retail sectors.

In my opinion, if Bezos’s strategy works, it takes Amazon out of the discounting race to the bottom that sucks all retailers down. And it would be a vote by its consumer base that Amazon stands for real, credible value.

Just Amazon or All of Retailing?

Here’s a thought. It may be that Amazon and its customer base are just plain different from all other retail models, which it has been in many ways since its launch. More blatantly, the biggest point of difference and advantage from day one was that Amazon does not have to make a profit.

So out of the starting gate, Amazon was able to bludgeon the competition to death, including Walmart, with its money losing prices, which were also dynamic and changeable by the minute. Over time, this kind of consistent lowest-price message gets built into the consumer psyche. So now, when a customer goes to Amazon it’s quite possible they don’t even know the list price is missing. Their expectation is that Amazon will offer a better deal, even if it isn’t. Why? Their perception of Amazon as a better-priced brand is baked into their brains. They just assume the price they see is the best available. And indeed, if they are “brain-washed” in believing this, it also means that Amazon can quietly increase its prices and margins.

If Amazon’s new pricing strategy is successful, could it indicate that all retail consumers are ready to be weaned off of their discount addiction? Or is it just a strategy that’s acceptable only to those consumers shopping on Amazon’s site? Even if all consumers are exhausted, frustrated, crazed and hysterical amidst the bombardment of discount trickery, as Ron Johnson bet they were five years ago, how do mainstream, traditional retailers like JC Penney, Macy’s and others, go about breaking out of the insane promotional vortex?

Amazon seems to be doing it slowly and quietly, and I assume they are attaching performance metrics to traffic, revenues and margin gains or losses, to assess the strategy’s success or failure. I doubled down on Ron Johnson’s bet five years ago and ate crow in doing so. And I don’t know if Jeff Bezos is making the same bet today on all consumers ready to shed their addiction. So far, for those shopping Amazon, the strategy seems to be working.

For all other retailers in the race to the bottom, I will not stick my neck out this time by betting all consumers are ready just yet to end their addiction. However, given Bezos track record, I advise those traditional mainstream retailers that it might be time to at least test the water, so to speak. But unlike Ron Johnson, I would do so very slowly.

Good luck!

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