Misbehaving: The Making of Behavioral Economics

by Richard H. Thaler

JC Penney similarly eschewed coupons for a brief period in 2012 in pursuit of an everyday low price strategy. Noting that less than 1% of revenues came from full-price transactions, CEO Ron Johnson in a surprisingly candid press release announced an end to what he dubbed “fake prices”—the mythical suggested retail price—and the start of a simpler pricing scheme. In addition to abolishing traditional sales via coupons, the new scheme did away with prices ending in .99, rounding them up to the nearest dollar. JC Penney claimed the end price consumers paid was effectively the same, after all these changes. It might well be true that consumers were not paying any more under the new regime, but they were missing out on lots of transaction utility. They even lost that tiny pleasure of paying just “under” a given dollar amount, e.g., $9.99 rather than $10. The experiment was a flop. JC Penney’s sales and stock price plummeted as the changes took effect in 2012.