You may think offering discounts is the easiest way to attract new customers, retain existing ones, and clear old stock from your shelves.
But if you approach it that way, you’re leaving money on the table. Why?
Without understanding pricing psychology, you can’t get your discounts right. They might feel generic or worse, attract only customers who buy from you because of the discount.
And the moment you stop offering them, they’ll disappear.
In 2012, JCPenney’s new CEO, Ron Johnson, decided to scrap all forms of coupons and discounts by introducing a “Fair and Square” pricing model. As a result, sales dropped by 25% — even though product prices were kept transparent.
Before:
A shirt priced at $40 would often be put “on sale” for $24 (40% off).
Customers felt like they were getting a great deal, even though $24 was often the true market value.
After (the “Fair and Square” model):
Ron Johnson removed all coupons, markdowns, and limited-time offers.
The same shirt was now permanently priced at $24 — no discounts, no promotions, just honesty.
The problem?
Customers missed the emotional “I saved $16!” moment.
Without that psychological reward, shopping felt less exciting — and sales plunged.
Lesson:
“Fair and Square” prices were often equal to or even lower than the old sale prices.
But without visible discounts, customers perceived them as more expensive — proving that discounts work through psychology, not just math.
JCPenney failed to understand the financial and emotional impact of removing discounts — a costly mistake that hit the bottom line hard.
Finally they have reversed their policy because of heavy backlash from the customers.
cc: JCPenny