Macroeconomic conditions and their effects

Economics

Changing Strategies and the Case of Big Drive Auto

Firms may undertake strategic changes in response to changing economic conditions. The current slow down and sluggish recovery has seen a number of firms adopt new pricing strategies. One of these firms was JC Penny, who in January 2012 moved from a strategy of dynamic pricing to one with a higher level of fixed pricing using the concept of 'everyday low pricing' (Bickle, 2012). The use of everyday low pricing has been seen to be successful for other firms, such as WalMart, where the firm has been able to gain a reputation for consistent low prices that has been supported with marketing and become a competitive advantage.

It may be argued that is seeking to emulate the same strategy the firm was trying to give customers a higher level of consistency on low prices that would help to boost business while times where slow and customers were cutting their shopping bills. It may also be argued that the firm wanted to wean customers out of using the different special offers and promotions which invariably cut into the profits; consistent pricing had the potential to increase profits across the board with lower prices on many products, but without the large discounts the firm had been using on leading product lines. However, the firm looked at the strategy without considering the habits and nature of their customers and their expectations.

Consumers always like to feel that they are getting a bargain, or at least value for money. The strategy JC Penney prior to the change has been to widely utilize promotional deals. In 2011 alone the company had run approximately 590 different sales promotions (Chernev, 2012). The JC Penney customers were used to the promotional strategies, where prices would go up and down. The customers want to watch out the promotional offers, and a recent survey showed that in many cases it would take discounts of up to 50% to persuade customers to make a purchase (Business Insider, 2012). Therefore, rather than appreciating the more consistent everyday low prices, the JC Penney customers have seen the move as taking away their opportunity to purchase goods on promotional offers. The result has been significant, in the first quarter alone the company saw revenue drop by 20%, with the firm losing 10% of their customers (Bickle, 2012). The strategies continue to struggle, with the 2012 revenues amounting $17,260 million, compared to $17,759 million in 2011, the result of 2012 was the lowest revenue in the last five years (Morning Star, 2013). This has had an undeniable negative impact on the company stock, following an initial gain of the strategy was announced, the firm has struggled, and the share price has shown an almost continual fall with a few peaks and troughs, as seen in figure 1