J.C. Penney: Creating America’s Favorite Store Essay

INTRODUCTIONIn 2013, this division store has been celebrating being in logical argument for 110 years. It also once lured its customers in with its famous discount set system and putschons. The retailer is J.C. Penney, a fixture at shopping m all in alls crosswise the country. In 2012, J.C. Penney rebranded itself by making the announcement that it wanted to become the Statess favorite store by creating a specialty department store experience (JCP, 2013). Founder James Cash Penney began the club with a G middle-ageden Rule treat opposites the way you want to be treated Fair and solid (JCP, n.d.).The headspring-known retailer has grown to close 1,100 stores and boasts a workforce of more than 116,000 full and part-time employees (Strand, 1998). JCP operates in the continental coupled States, Alaska, and Puerto Rico. Loyal consumers flocked to the giant big box store where it sold women, men, and childrens clothing on with jewelry and household items much(prenominal) as a ppliances and sign of the zodiac furniture. Over the years, the giant retailer has polished its securities exertioning finesse. JCPs present-day(prenominal) catchy advertising line Creating Americas Favorite stemma (JCP, n.d.).In unified America, there be four diametrical marketplace structures concentrated competition, pure monopolistic, l responsibility, Decision making, oligopoly, and monopoly. J.C. Penney falls under the pure competition market structure which is defined as many sellers furnish identical convergences (Douglas, 2012, Ch. 7). J.C. Penney humble beginnings started as a dry foods store and fork-like forbidden over the years as a successful chain department store competing against other stores such as Sears, Macys, and Dillard.J.C. Penneys somatic culture includes social responsibility to its consumers, its employees, its suppliers, and to the environment. However, over the two several years, J.C. Penney has depotured an scotch downturn which began after the hiring of former Apple conclusion maker Ron Johnson in juvenile 2011 and his subsequence firing in advance(prenominal) 2013 (J.C. Penneys Chief administrator Ron Johnson Ousted, 2013). Executives, such as Johnson, take away the violence to influence the purchasing power of consumers through several different variables such as product price, product design and packaging, product availability, and product promotion (Douglas, 2012, Ch. 3).This paper shall explore the alliances managerial economics decision which includes taking a feeling at its corporate social responsibility, consumer demand, the change in its pricing outline over the past two years, attitudes toward risk, and the price snap bean of demand. SOCIAL righteousness COMPANYJ.C. Penney sets graduate(prenominal) corporate social responsibility for itself. On the ships bon tons official website, it lists the corporations social responsibility which includes establishing untroubled environmental res ponsibility. Under the come withs corporate governance, JCP touts itself as a stewardship to the environment and approved its warmheartedness principles in 1991( JCP, 2013).Among some of JCPs core principles include continuing to review its operations practice in assessing its electric potential impact on the environment or related human health or safety issues working with suppliers and merchandisers to develop packages and products that are environmental trusty and safe and taking steps to reduce the use of non-re youthfulable energy. Among some of the companys recent progress include making a sensible effort to reduce packaging and paper usage, setting up an voluptuous waste management recycling program, and promoting energy conservation (JCP, 2013).JCPs corporate social responsibility directs that the company follows the Triple Bottom Line impression shortened to TBL. This concept follows the three pillars people, profit, and excogitationet (Faragher, 2008). Author Jo Faragher (2008) explained in her expression Sustain To Gain, that the triple bottom line bureau a business is run non just on economic performance, simply also on how it affects the community and the environment (p. 20-22). Companies such as JCP limit that they can non operate while ignoring its responsibility to the environment. By being environmentally responsible, JCPs actions may entice certain consumers who may only spend their coin on companies that care about their community and the environment. Despite a long-standing and self-colored corporate governance, JCP win spiraled in 2012 following a series of pathetic economic managerial decisions. 2012 SEC ANNUAL REPORTThe in vogue(p) figures for J.C. Penneys sales and meshwork are from 2008 to 2012. According to the companys latest United States Securities and Exchange Commission filings for 2012, the report states that the companys market price common stock has swerved substantially and may continue to fluctuate sig nificantly (JCP, 2013). Below is a graph with values indicating the companys struggle for simoleons in 2012 following the hiring of Ron Johnson. The former Apple administrator launched a new pricing strategy following his appointment as CEO of J.C. Penney in late 2011.In its scratch quarter in 2012, the companys profits lost $163 wiz thousand thousand dollars, sales skidded to 20%, and traffic to its stores decreased by 10% (Zmuda, 2012). By the end of 2012, the company net sales decreased by more than five million dollars compared to 2011 earlier to Johnsons appointment. Unfortunately for Johnson, his puzzling pricing strategy did not catch on with loyal JCP shoppers. In addition, Johnson was stubborn and did not opine in conducting research with his new market strategy at a few select stores originally he rolled it out to all the stores (Kumar, 2013). Johnsons biggest cheerleader at the time of his appointment was William Ackman, Founder and CEO of Pershing Square Capital Management, LP. Ackman serves on the jury of Directors of JCP and owns 18% of the company as well as other derivatives that further would boost his exposure (Glazer, Lublin, & Mattioli, 2013).Below is a graph with figures showing JCPs heart and soul net sales in 2012 which decreased by more than five million dollars versus in 2011 (JCP 2012 SEC, 2013). In this case, poor management decisions impacted the companys profits. 2012 2011 2010 2009 2008 Total dismiss Sales $12,985 $17,260 $17,759 $17,556 $18,486 Sales Percentage -24.80% -3% 1.20% -5.00% -6.90% Operating Income -1,310 -2832 663 1,135 Income loss Continuing operations -985 -152 378 249 567 ($ in millions) CONSUMER DEMAND AND PRICING STRATEGYFormer Apple executive Ron Johnson took the helm at J.C. Penney in late 2011. At the time, Johnsons precursor was Mike Ullman whom was fired after more than seven years at the top strategist for JCP (J.C. Penneys Chief Ron Johnson Ousted, 2013). Johnson s experience on paper looked great. He worked for Apple and Target and his appointment was considered a coup for JCP (Kumar, 2013). Ackman touted him as the man who would turn J.C. Penneys stores into sellers of name-brand clothes with few discounts (Glazer, Lublin, & Mattioli, 2013). In the article The Man Who Went Too Far At J.C. Penney, author Nikhil Kumar (2013) express that for decades it has served the great American middle class, luring them in with discounts and coupons (p. n/a).Johnsons first action in changing JCP include eliminating the companys old pricing strategy which he considered as fake prices because the company was forever marking down prices (Kumar, 2013). Johnson eliminated the fake prices and called his new pricing strategy as fair and square. Here is an example of Johnsons new pricing strategy. quite of marking up a island of Jersey at the price of $14 dollars and then slashing the price to $6 dollars with its markdowns and coupons, Johnson suggested to j ust marked the t-shirt at $7. Johnson explained that his new pricing policy not only simple, scarcely fair and square (Kumar, 2013). Unfortunately, the new strategy did not meet with inspiration from loyal consumers.In managerial economics, the pricing strategy is important for consumers particularly for loyal shoppers. A change in pricing also means a movement in the consumer demand curve (Douglas, 2012, Ch. 4.1). Pricing is considered adecision variable and plays a part in consumer demand (Douglas, 2012, Ch. 3). In managerial economics, decisions makers can follow a model called the emolument-maximizing model of consumer demand. In the textbook Managerial economics, author Evan J. Douglas (2012) explained this model as a way individual consumers make decisions to bargain for products based on the outlook that the purchase provide allow them to gain the most psychic satisfaction, or utility, from their limited incomes (Ch. 3.1). Limited income is also another way of describ ing discretionary income, currency that is available to consumers after hireing the necessary expenditures such as mortgage, utility, and other bills.In the case of JCP, the company experienced a diminishing peripheral utility. The marginal utility of a product means that as one product goes up, another product that is a substitute goes down (Douglas, 2012, Ch. 3.1). With the mistake pricing strategy, loyal shoppers and prospective shoppers turned elsewhere to shop such as Sears, Target, and Macys to achieve their satisfaction in spending their money. In managerial economics, consumers satisfaction is explained as the total utility. In describing this alliance between Product A which is JCP versus Product B, Sears, the graph will show the indifference curves to be convex which means as Product A goes down while Product B go up (Douglas, 2012, Ch. 3.1). Thus, the consumers total utility continued to achieve while JCPs marginal utility diminished.Perhaps another mishaps of Johnso ns new pricing policy included using the concept of penetration pricing which is the practice of setting comparatively low price to achieve more consumers sales, therefore in return, the end result is gaining more market shares (Douglas, 2012, Ch. 9.1). Before Johnson came on board, he believed that JCPs old pricing policy devalued the companys brand, save it also caused confusion because the company was constantly sending out flyers and coupons that added footling to the shoppers experience (Kumar, 2013). In the end, Johnsons waste move did not pay off and the company saw a decline in profits in 2012. ATTITUDES TOWARD RISKJohnsons mis post was not road-testing his pricing ideas plan before implementing it. Risk analysis is part of managerial economics. Johnson did not take into account adjusting for risk using the certainty equivalent factor looking at the decision and the amount of money that a decision-maker feels is equivalent to the pass judgment value of a decision (Dougla s, 2012, Ch. 2.1). There are several different attitudes toward risk running from the gamut of being risk neutral to an individual who is a risk seeker. Johnsons attitude toward risk appeared to be more of a risk seeker defined as an individual who seeks a risky action because in return that risky action means a high rate of return (Douglas, 2012, Ch. 2).Another more transparent decision rule that should have been followed for Johnson was using the Maximin Decision Rule (MDR) which is the practice of choosing submit the alternative that has the highest maximum value and the lowest minimum outcome (Douglas, 2012, Ch. 2.2). Although it appeared that Johnson did not seek out an alternative to his plan, perhaps, his best practice should have manifold following the MDR concept. PRICEELASTICITY OF DEMANDAlong with the decision variables of product, pricing, placement, and promotion, in managerial economics, decision makers also need to consider the price elasticity of demand or PED. The sensitivity of quantity demand is known as the elasticity of demand. The price elasticity of demand is affected by prices where high prices suggest consumers would buy less of the product and lower prices mean consumers would buy more of the product (Douglas, 2012, Ch. 4). PED is influenced by a multitude of factors such as availability of substitutes, household income, consumer preferences, expected duration of price change, and the products share of a households income (Andreyeva, Long, & Brownell, 2010). According to the website www.About.com EconomicsThe high the price elasticity, the more sensitive consumers are to price changes. A real high price elasticity suggests that when the price of a best goes up, consumers will buy a great deal less of it and when the price of that good goes down, consumers will buy a great deal more. A real low price elasticity implies just the opposite, that changes in price have little influence on demand (About.com Economics, 2013).In the case of JCP, the company witnessed the opposite with the price elasticity of demand. Even though Johnsons new pricing ideas were meant to streamline the shopping experience for the consumers, the end result did not take place. Consumers did not understand nor did they liked the ideas. In the end, the faithful consumers remiss the company and looked elsewhere to spend their money. Shoppers felt the new pricing ideas were confusing adn did not feel that they adhere to JCPs The end result profits suffered in 2012 with a 25% sales slumped compared to 2008 when the company brought in nearly $19 million dollars in total net sales (JCP, 2013). RECOMMENDATIONS step have been taken to rectify the managerial decision makings that took place in late 2011. In less than two years, Johnson is out, along with his team of executives. The jump on of Directors for JCP replaced Johnson earlier this year with his predecessor Mike Ulman (Kumar, 2013). Although Ulman received criticisms under his leadershi p, JCP and the Board of Directors returned to the old strategyIn addition, the company returned to its popular pricing strategy that it abandoned in 2011 following the appointment of Johnson. That pricing strategy twisty increasing prices of private label lines followed by slashing prices as a means of bringing up sales and margins ( division shop JCPenney Revives devoted Pricing Strategy, 2013). Companies tend to go back to the same marketing strategies that worked in the past. Prior to Johnsons departure, he admitted that his bold, but risky pricing ideas were a mistake and acknowledged that ending the retailers markdown and couponing were a mistake that cost him companys profits and his job.Before JCP rely to changing its marketing strategy, it needs to consider and perhaps ask consumers what they want. At times, decision makers forget to consider and ask consumers what they want versus just accept or thinking consumers want change. Johnsons rejected retail industry procedur es which included testing changes in limited stores before rolling them out to all the stores (Glazer, Lublin, & Mattioli, 2013). This was not the case for loyal shoppers. They wanted to feel that they were acquire a bargain versus just paying for one simple price.These are necessary changes the company has implemented following the firing of Johnson in early 2013. JCP is now looking to regain its standing in the department stores war. At the helm is Ulman who lead the company for the past seven years prior to being replaced two years ago. During his time as CEO, JCP saw profits gain (JCP 2012 SEC, 2013). CONCLUSIONJ.C. Penney is reinventing itself and wants consumers to remember that it is Creating Americas Favorite Store. It has a new CEO who was reinstated and returned to its old pricing plan. It is a company that has a strong corporate governance, but due to poor managerial economic decisions, J.C. Penney went through a spiral for nearly 18 months before the bleeding stop. The poor economic decisions led to profits loss along with low morale within the company (Kumar, 2013). In managerial economics, decisions such as pricing, product, placement, and promotion affect the consumers demand curve. JCP experienced it firsthand.ReferencesAbout.com Economics (2013). monetary value elasticity of demand. Retrieved on June 2, 2013 fromhttp//economics.about.com/cs/micfrohelp/a/priceelasticity.htm Andreyeva, T., Long, M. W., M.P.H., & Brownell, K. D., PhD. (2010). The impact of food prices on consumption A systematic review of research on the price elasticity of demand for food. American Journal of Public Health, 100(2), 216-22. Retrieved from ProQuest Central. doi 903343408. Department store JC penney revives abandoned pricing strategy. (2013). Retail Week, Retrieved ProQuest Central. doi 1324133045. Douglas, E. (2012). Managerial Economics (1st ed.). San Diego, CA Bridgepoint Education. Faragher, J. (2008). Sustain to gain. Personnel Today, pp.20-22. Retrieved from ProQuest Central. doi 229932707. Glazer, E., Lublin, J.S., & Mattioli, D. (2013, April 9). Penney backfires on ackman. Retrieved on June 2, 2013 from http//online.wsj.com/article/SB10001424127887324504704578412440293890624.ht