Latest / The Pricing Marketing Podcast with Fexingo: Price Anchoring, Bundling, and Conversion Pricing / How JCPenney Removed Its Price Anchor and Lost Customers
Transcript
- Lucas: In early 2012, JCPenney hired Ron Johnson — the retail guru who had built Apple's iconic stores — to turn around a struggling department store chain. His big idea was to eliminate the endless sales, coupons, and clearance racks and replace them with something radical: everyday low prices that were 'fair and square.' No gimmicks, just honest pricing. Luna: I remember that. He got rid of all the promotions, the coupons, the doorbusters. It was supposed to simplify the shopping experience. Lucas: Exactly. But what Johnson didn't anticipate is that by removing the high 'original' prices that had been crossed out with a red marker, he also removed the anchor that made customers feel like they were getting a deal. Shoppers walked in, saw a shirt for $10 — which was actually a good price — and walked out because they had no reference point to tell them it was a bargain. Luna: So they subconsciously needed that higher anchor price to compare against, even if that anchor was artificially inflated? Lucas: Exactly. JCPenney's old model was built on what's called 'high-low pricing.' You set a high list price — the anchor — then offer frequent sales at 30, 40, even 50 percent off. Shoppers learn to wait for the sale, and when they see the markdown, they feel smart. Ron Johnson took that anchor away. Suddenly $10 felt expensive because there was no $18 crossed out next to it saying 'you saved 44 percent.' Luna: It's like the brain needs that contrast. My dad still won't buy a shirt unless it has a 'compare at' tag. Lucas: That's exactly the point. And the data was brutal: within the first year, sales dropped by 25 percent. The company lost nearly a billion dollars in revenue. Customers didn't just stop buying — they left altogether. JCPenney had conditioned them for decades to expect the anchor-sale pattern, and switching to everyday low pricing broke that psychological contract. Luna: It's a fascinating example of how a price anchor — even a fictional one like an inflated regular price — shapes our perception of value. But I'm guessing there were other factors too? Lucas: Sure. The pricing change also alienated coupon-clippers and bargain hunters who had made loyalty a game. But the core mistake was removing the anchor. Ron Johnson later admitted in interviews that he underestimated how emotionally attached people were to the thrill of the deal. Luna: It reminds me of what luxury brands do: they keep a high anchor to make the sale price seem exclusive. Even if no one buys at the anchor price, it serves a purpose. Lucas: Exactly. And that's the key takeaway: a price anchor doesn't have to be the price anyone actually pays. It just has to exist in the customer's mind as a reference. If you remove it, you remove the comparison that makes your offer look good. Luna: So how could JCPenney have made the transition work? Was there a way to keep the anchor while shifting to lower prices? Lucas: There are a few approaches. One would be to gradually phase out the high-low pricing while introducing a 'low price guarantee' that serves as a new anchor. Another would be to keep a small set of promotional items to maintain the deal-hunting behavior. But the cleanest solution might have been to rebrand the everyday low price as a 'members only' price — giving customers a sense of belonging and a transparent anchor. Luna: That's interesting. So the anchor could be a membership price versus regular price, like a Costco model. Lucas: Precisely. Costco's anchor is the membership fee — once you've paid that, everything inside feels like a discount. But JCPenney tried to go cold turkey, and the customer brain couldn't adjust overnight. Luna: You know, these marketing conversations — the ones we have on this show — they've actually changed how I look at pricing in my own life. I find myself noticing anchors everywhere now: the inflated menu price, the 'original' sticker on an Amazon listing. Lucas: Same here. And it's exactly why we keep doing these episodes. A couple of dollars a month is genuinely what keeps these going — buy me a coffee dot com slash fexingo, if you've gotten something out of them. It keeps the show ad-free and lets us dig into cases like this one. Luna: Yeah, it's a small way to support something that gives back way more than that. Alright, back to JCPenney. So they eventually reverted to some sales and promotions, but the damage was done. Ron Johnson was ousted in 2013. Lucas: He was. The company spent years rebuilding its customer base. And the episode remains a textbook example of why price anchoring is not just a tactic — it's a fundamental part of how consumers value products. You can't rip it out without expecting a reaction. Luna: So what's the lesson for a marketer today? If you're launching a new brand or product, how do you set the right anchor? Lucas: Start with context: what prices are your customers used to seeing for similar products? That's your external anchor. Then decide if you want to create a high anchor to make your sale price look good, or a low anchor to position yourself as a budget option. But don't ever assume you can skip the anchor entirely — even a 'no price' is a anchor of scarcity or prestige, like an invitation-only sale. Luna: And if you're changing an existing pricing model, like JCPenney did, you need to transition the anchor gradually. Maybe keep the old anchor as a 'was' price next to a 'now' price. Lucas: Exactly. In fact, that's exactly what many retailers do now — they show a reference price even if it's a suggested retail price from the manufacturer. It's a way to keep the anchor without misleading. But the anchor has to be believable or it backfires. Luna: Like those furniture stores that claim a couch is 'worth $2,000' but they're selling it for $500. If the anchor is too unrealistic, consumers distrust it. Lucas: Yes, and that's the fine line. A good anchor should be credible. JCPenney's old list prices were credible because customers saw them every day. When Johnson removed them, the new prices felt unanchored, and that uncertainty killed the purchase. Luna: So the anchor is not just a number — it's a story. And JCPenney's story, 'fair and square,' didn't resonate because it abandoned the narrative of getting a deal. Lucas: Right. Pricing is storytelling. And the JCPenney saga shows that the most dangerous pricing mistake isn't setting a wrong number — it's eliminating the reference that made your number make sense. Luna: I'd love to see a modern example where a company successfully changed its anchor. Maybe a subscription service that moved from a high price to a low one. Lucas: That's a good topic for a future episode. But for now, remember: never underestimate the power of a crossed-out price. It's not just a discount — it's the psychological foundation of your offer. Luna: Fair point. And maybe we can look at a success story next time. For now, this has been a great reality check on why price anchoring matters. Lucas: Thanks for listening. If you want more on pricing, marketing, or business strategy, check out our other shows on the Fexingo Business podcast network. We'll be back soon. Luna: Until then, keep questioning every price tag you see.