Don’t know how many of you follow retail, but JC Penney just pulled the plug on one of the biggest experiments in pricing history—acknowledging it to be a colossal failure. In short, Ron Johnson, the architect of a move from constant couponing to simple “fair” pricing is out. And expect coupons to be back in.

I was skeptical when he was hired and announced his plans less than 2 years ago on two grounds:  1) Walmart kind of owns the “every day low price” model (plus it’s not clear that “everyday fair pricing” has an authentic ring to it anyway) and 2) more often than not, I find people like to feel they’re getting a deal. In other words, discounting sends a psychological signal that is more powerful than “simple” pricing.

How is this relevant to multi-family housing, you may ask? I’ve been amused that implementation of revenue management systems like LRO and YieldStar have been accompanied by a belief that they make us get rid of concessions—and that this is a good thing. Both systems allow folks to use concessions—they calculate the recommended effective rent and then mark up the asking rent accordingly. Except for ultra-luxury product (where no discounting signals quality), discounts (which is what we should call concessions) are a great tool for conveying value. JC Penney should have realized it and is now paying the price (note: JC Penney was already struggling, so it’s no guarantee that they wouldn’t have ultimately failed chasing the old way but I’m pretty sure they wouldn’t have sales down 32% fourth quarter).

Discounts and coupons may be gimmicky, but they keep people coming through the store—my wife loves Kohl’s; aside from various timed discounts, Kohl’s gives every customer Kohl’s cash which is a coupon for a percentage of each sale with the catch that it’s only good for a week from the sale date—i.e. you have to come back into the store in 1-2 weeks to use it.

Anyway, they’ll be writing case studies and post mortems on this for a long while. In the meantime, here’s my favorite comment post from someone named Bruce who read the article in the link above:

This whole episode was WHACKO on the part of JCP. People would rather be "fooled" into thinking they're getting a better deal in a "sale", than to think they are getting a "low, regular price". Chalk it up the the (sic) incredible naiveté of the American shopper!

Come save 50% on the prices we just marked up 50%!!!

I agree with him that people do often prefer a “sale” to a “low, regular price.” And I got a chuckle at him proving at least his own math incompetence, if not actual naiveté. Hopefully by the time you read this sentence, you’ve figured out that 50% off a 50% marked up price would still be a 25% discount. Numeracy is an issue—even with people who look down on the general public and it’s general lack of numeracy :)