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10 Worst Business Decisions Ever Made


6
J.C. Penney Drops 'Fake Prices'
This J.C. Penney store shows a jacket on sale for $39.99, down from $100. Studies have shown that customer prefer this kind of pricing scheme to 'everyday low prices.' Unfortunately, CEO Ron Johnson didn't believe it. © JONATHAN ALCORN/Reuters/Corbis
This J.C. Penney store shows a jacket on sale for $39.99, down from $100. Studies have shown that customer prefer this kind of pricing scheme to 'everyday low prices.' Unfortunately, CEO Ron Johnson didn't believe it. © JONATHAN ALCORN/Reuters/Corbis

In 2012, newly hired J.C. Penney CEO Ron Johnson made some refreshingly honest comments about the pricing tactics of clothing retailers. The former Apple executive admitted that stores like J.C. Penney try to attract customers with a near-constant barrage of sales and "fake prices" [source: Tuttle]. If J.C. Penney wants to sell a shirt for $10, it tags it at $20, and then marks it down 50 percent during a weekend blowout sale.

Johnson was hired to mix things up at the 110-year-old company, which had been losing market share for decades to bigger fish like Wal-Mart. His strategy was to stop looking "desperate" by clamoring after shoppers with coupons and promotions and drastic markdowns and replace that with "everyday low prices" and fewer sales [source: Clifford]. He also redesigned the drab stores to have a younger, more stylish feel.

Instead of embracing the new "fair-and-square" price system, loyal shoppers missed their coupons and sales and hit the Internet to complain. Psychology might be to blame. When a shopper sees a $12 shirt, she assumes it's low quality. But if the same shirt is marked down from $35, it's now a high-quality shirt being sold for a steal [source: Ehrenberg].

Either way, CEO Johnson was fired after only 17 months on the job and J.C. Penney quickly brought back the sales and phony jacked-up prices. In a fateful twist, the man who was hired to rehab the brand was Sergio Zyman, the former Coca-Cola advertising executive who saved Coke by slapping the word "Classic" on its old cans [source: Townsend].


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