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Revenue management lessons learned from J.C. Penney

The science behind revenue management is vital to many industries, not just retail. How to set the price of a product or service and extract as much profit as possible applies to many industries, including hospitality, airline, transportation, oil and gas, and advertising. It’s the pricing strategy of the retail industry, however, that has made news recently.

In November 2011, J.C. Penney brought in a new CEO—former Apple executive Ron Johnson—to make changes to the brand and its operations. Laura Heller, a contributor to Forbes even called her story on the changes, “Why J.C. Penney Will Be the Most Interesting Retailer of 2012.

Under Johnson’s leadership, the retailer implemented a simplified, three-tiered pricing strategy that slashed the prices of popular merchandise by at least 40 percent, offered “Month-Long Value” discounts on select items, and promoted clearance deals during the first and the third Friday of every month (when many shoppers get paid).

The idea was “to keep prices low on the basics shoppers look for frequently and introduce new merchandise on a routine schedule.” Forbes referred to this strategy as “a shocking move for any retailer, let alone a department store where hi-low pricing and promotions have long been the norm.”

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