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At JCPenney’s Q1 earnings meeting, CEO Ron Johnson said that consumers were more addicted to coupons than he realised, and that its 3-level pricing strategy is just too complicated. Which is why JCPenney is bringing back the word “sale” in order to get consumers back into its stores.
But according to Bob Sullivan over at MSN, this isn’t going far enough. JCPenney’s consumers want coupons, and executives at the firm should get “familiar with the work of behavioural economist Xavier Gabaix and the concept of ‘shrouding'”:
All this price manipulation is really an information war, he says. Shoppers hunt for the tricks that let them save money. Stores hide booby traps that let them take money. It’s a bad system, one I’ve labelled “Gotcha Capitalism.” But it is the system we have now.
And it’s simply impossible, Gabaix argues, to be the one company that attempts to bridge this information gap. If a firm tries to educate consumers on tricks and traps, and tries to offer an honest product, a funny thing happens: Consumers say, “Thank you for the tips,” and go back to the tricky companies, where they exploit the new knowledge to get cheaper prices, leaving the “honest” firm in the dust.
Gabaix calls this the “curse of debiasing.” And it leads to this depressing conclusion: “Shrouding is the more profitable strategy.”
Today’s JCP announcement shows that Johnson understands consumers want to game — let’s see if he continues the shift.
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