The behavioural economics of branding

Apr 24 2013

I’ve been intrigued reading about the J.C. Penney debacle. While I think there is a lesson to be learnt about the communication of promotions, I don’t believe the lesson is that simplicity does not work. In fact, J.C. Penney’s strategy of simplifying shopper decision making failed in two fundamental ways. Firstly, the communication of the new strategy was ineffective, making the store proposition more complicated rather than less. Secondly, in many other ways, J.C. Penney made shoppers’ lives more complicated by losing the focus of their brand identity and sending mixed messages to customers about what they stand for.

J.C. Penney’s communication of their new strategy of ‘fair and square’ failed to send a clear and simple message about their pricing proposition. ‘Fair and square’ in itself holds very little meaning. The communication of three price levels that was used by J.C.Penney was confusing and unclear. What are ‘everyday’, ‘monthly value’ and ‘best prices’ intended to mean, and with reference to what? There is no frame of reference to understand what these price points actually mean.

As the Brainjuicer blog pointed out, asking shoppers to do the math for themselves (see the advert below), is unlikely to work a. “People don’t like doing math … seeing that something is marked down, then being able to hand over the coupon to save … It’s a rush.” They point to the emotional nature of discounting strategies as being more important than the need for simplicity.

I agree that emotions are key to decision making - a decision has to “feel right” to the customer. And maybe there is more to “feeling right” than simplicity or discounting?

TapestryWorks use the SNAPP framework to understand the triggers and barriers to human decision making. We have identified five key themes in SNAPP decision making. Simplicity, Norms, Availability, Personalisation and Patterns (see below). These are particularly important for companies who rely on price at point-of-sale as a driver of sales.  J.C. Penney appear to have focused on Simplicity, with one (or is that three) low price points. While this is a simple proposition, why should the customer believe J.C. Penney? We will come back to this later, but first let’s review their strategy against Norms, Availability, Personal and Patterns.

Norms reflects that humans like to copy the behaviours and beliefs of others. Do J.C. Penney reference in-group behaviours, authority figures or  social proof in driving customer behaviour? Are they building on customer rituals and habits to trigger sales? The  answer to the first question is no (from what I have seen). And the answer to the second is most definitely no, as in some ways J.C. Penney broke with the past and interrupted existing habits around bargain seeking and coupon collection. In some respects, they had broken down the ‘rituals’ that customers had developed around shopping at the store.

Availability is the tendency for all of us to focus on immediate benefits and short-term wins. In many ways, J.C.Penney’s old strategy was focused on availability with immediate discounts which had a short and fixed life span. This played directly to the ‘scarcity bias’ which influences all of us, as Robert Cialdini wrote in his classic sales book Influence: The Psychology of Persuasion. Scarcity bias strongly drives impulsivity at point of sale, whereas the knowledge that you can come back in one week or one month’s time and still get the same price does not.

Scarcity bias also plays to loss aversion and the importance of Personal triggers which help us maintain a positive self-image. When we have something to lose (time, money, status, effort, guarantee of price) we are much more motivated to take a decision. We value losses more than gains, but again when pricing is guaranteed forever then there is less to lose at the point of purchase (or non-purchase).

Above all we seek Patterns in the world, which makes context and frame of reference very important. J.C. Penney’s new strategy gave no frame of reference to customers about their new pricing strategy and what it actually meant in terms of what they would save (versus standard pricing or another shop’s price). Without such context it is difficult to know if a price is ‘good’ or ‘bad’ and therefore difficult to “feel good” about a purchase decision.

Patterns are also important in building brands. In some ways, J.C.Penney were emulating companies like Walmart, but without the heritage and history or the consistency of delivering a value proposition across multiple touchpoints. Customers can believe Walmart when they say they have everyday low pricing because they have been doing it for years based on a clear and simple philosophy and the economics of scale. They reinforce this through consistent communication and by pricing some everyday items at cost or below to build the trust of customers and drive footfall. If you see items in the store at a lower price than anywhere else on a consistent basis, there is more basis to believe it might be real. There is even more reason when Walmart compare the prices of their offerings with other retail outlets.

Similarly, IKEA, who have a similar positioning (the Everyman archetype), reinforce the pricing strategy in the way stores are designed, and in the way products are packaged and displayed (among other things).

J.C. Penney, at the same time as introducing a ‘fair and square’ policy, were introducing a range of boutique branded stores into their outlets. Is this consistent with the ‘fair and square’ strategy or a case of mixed messages? And let’s not forget that they had three different logos within a four year span.

J.C. Penney’s failure is about the power of emotions in decision making. Discounting is a powerful motivator, but it needs to be part of an overall brand vision and a clear understanding of how the strategy can be leveraged throughout the customer experience and using multiple behavioural levers. J.C. Penney’s mistake was to rely on one single lever, and then fail to support it with a consistent strategy which matched their customer’s goals.

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