Took Away the Bargain

In New York, Ron Johnson announced everyday low prices without coupons or weekend sales. It was January 2012. JCPenney shoppers would no longer have to wait for a sale.

Johnson had run Apple's retail stores. He had become JCPenney's chief executive on November 1, 2011. Now he was replacing a system that had produced, in his words, "590 unique promotions in one year."

The new system was called Fair and Square. It offered everyday low prices, month-long values, and best prices on the first and third Fridays. It would take effect on February 1.

A shopper could come in without a coupon and pay the everyday low price. The savings would be there without the work of finding them.

You can see why that made sense. People could pay less without planning around a promotion. A sound reason to buy can still leave people cold.

On March 6, 2012, Michael Dubin put another low-price offer on YouTube. Dollar Shave Club's co-founder and chief executive delivered it from the company's warehouse in Gardena, California.

The video took one day to shoot and cost $4,500 to make. It opened with Dubin explaining the service: "for $1 a month, we send high-quality razors right to your door."

The price came before the warehouse slapstick. Dubin asked whether the blades were any good, answered no, then stood beside a sign declaring their greatness. A man in a bear costume appeared later.

The jokes kept selling. Dubin asked viewers whether they liked spending $20 a month on brand-name razors, joking that nineteen went to Roger Federer. The joke gave the low price something familiar to push against.

Dubin later described most of the video as price, convenience, and quality. He wasn't hiding the offer until people had laughed enough.

The video went live at 6 a.m. Pacific time. By 7:30, the site had crashed. It stayed down for about twenty-four hours.

In the first forty-eight hours, the company received 12,000 orders.

Both companies led with a low price. Only one made the price feel like something its audience already wanted.

JCPenney's fiscal 2012 revenue fell from $17.26 billion to about $12.99 billion, roughly a quarter. Its net loss reached $985 million. Johnson was fired on April 8, 2013.

A razor subscription and a department store are not a controlled test. JCPenney changed much more than its prices. Seventeen months is a short clock for a retail overhaul.

Nor can a video take all the credit for Unilever's purchase of Dollar Shave Club in July 2016, for a reported $1 billion.

But Johnson's own reversal matters. He began bringing sales back in late January 2013, before he lost his job. In February, he told investors: "But we learned she prefers a sale."

Johnson had thought customers were tired of coupons. He later admitted that his core shoppers enjoyed them more than he understood. Johnson's plan made sense in the room it was written in, but his shoppers heard that their sales and coupons were gone.

For those shoppers, a sale helped make the price attractive. Johnson treated it as clutter around the offer. Dubin made the frustration with expensive razors part of his offer.

That is what I look for in what stands between an offer and its buyers. The message can be clear while its delivery removes something the buyer values.

A price announcement is not proof that it changed a buying decision. Johnson's return to sales acknowledged that gap.

His shoppers had not needed a clearer explanation of everyday pricing. They had wanted the sale he removed.

He offered an everyday low price and took away the bargain.

The notes I send by email follow what happens when an offer meets people.

Part of The Perception Engine