Ron Johnson joined JCPenney as chief executive in late 2011, from building Apple’s retail stores. Early in 2012 he announced a new pricing plan, “fair and square”: lower everyday prices instead of inflated list prices, a small number of planned monthly values, and an end to the constant coupons and sales the store had run for decades.

It was, on paper, more honest. Shoppers would pay about what they’d been paying on sale, without clipping anything. It failed faster than almost anyone expected.

The numbers

Comparable-store sales fell 25.2% for the year and 31.7% in the fourth quarter, the holiday quarter when a department store makes its year. The company lost $985 million. Johnson was replaced in April 2013 by his predecessor, and the coupons came back.

What the customers were buying

JCPenney’s shoppers weren’t buying shirts at a price. They were buying the feeling of beating the price. The coupon, the red tag and the struck-through number were part of the product. Remove them and a $20 shirt that used to be “$40, now $20” became just a $20 shirt, with nothing to compare it to and nothing to win.

That’s the decoy idea from chapter 3 at the scale of a whole store. The inflated list price was a decoy. It made the sale price feel like a win. Honest pricing took the decoy away, and with it the reason to come in.

The coupon was part of the product. Remove it and the product changed.

What it means for a DTC brand

A DTC brand doesn’t run a department store’s coupon calendar, but the mechanism is the same at any size. Every offer teaches a customer what your price means. A welcome discount teaches “never pay full price the first time.” A monthly sitewide sale teaches “never pay full price.” Anderson and Simester measured the second lesson in chapter 4: deeper discounts made established customers buy less afterwards.

Once taught, the lesson is expensive to unteach. JCPenney tried to do it in one year with its whole customer base, and paid about $4.3 billion in lost annual sales for the attempt (derived from the two results above). A brand that wants to wean customers off discounts has three safer options:

1. Never teach it to new customersIf the first offer answers the real objection without a price cut (chapter 10), new cohorts arrive without the lesson. The discount-trained customers age out of the file over time.
2. Replace the discount with a different winPoints, early access, a gift, a limited drop. The customer still gets to feel clever; your margin doesn’t pay for it the same way (chapter 17).
3. Make sales rarer and planned, not absentA few dated events a year, told in advance, teach “wait for the event” instead of “wait for next week.” That’s a smaller lesson and a cheaper one (chapter 19).

Do this

• Count how many days last year a discount of 15% or more was available to anyone. Include welcome codes, popups, sales and affiliate codes.
• If it’s more than a third of the year, your full price is a decoy. Plan the change over quarters, starting with new customers, not over one season.