John Lewis hollow price promise

Ive always had a soft spot for John Lewis. For years, it was my first port of call default option of shopping, offering an unbeatable combination of a good quality product, excellent price and advice you could trust. Its staff were polite and amazingly well informed, and that seemed to connect with the decent, human values that seemed to permeate everything it did (contrasting starkly with the cynical ruthlessness you see so much elsewhere). The fact that it was owned by its staff and sometimes seemed a little slow and cautious was OK. It was quaint. Perhaps it was the price of all the good things that really were so valuable.

I’ve always had a soft spot for John Lewis. For years, it was my first port of call default option of shopping, offering an unbeatable combination of a good quality product, excellent price and advice you could trust. Its staff were polite and amazingly well informed, and that seemed to connect with the decent, human values that seemed to permeate everything it did (contrasting starkly with the cynical ruthlessness you see so much elsewhere). The fact that it was owned by its staff and sometimes seemed a little slow and cautious was OK. It was quaint. Perhaps it was the price of all the good things that really were so valuable.

So why is it that, as a once loyal customer, my disenchantment with the John Lewis Partnership has been growing steadily, year by year?

It started many years ago when it turned its store card into a credit card. I didn’t object. In fact, I thought “Great! Perhaps John Lewis can transfer some of its excellent values to the financial services industry”. But it quickly became apparent this was another case of lipstick-on-the-gorilla branding. The Partnership card was just white-labelling a Mastercard operation that treated me just as badly as it treats every other customer. One example of this was its insistence that I ring up in advance every time I want to use their card abroad. Which makes having such a card close to useless. Thanks.

Then came the spam. John Lewis got hold of my postal address (was it from the credit card?) and the junk mail started arriving. John Lewis also managed to get hold of both my email address and my wife’s. From being a reserved, respectful organisation, John Lewis became one of the biggest spammers in our household.

No doubt the financial metrics its marketers pore over prove just how successful these direct marketing operations have been. But that’s the problem with such metrics. They don’t measure value from the customer’s perspective – in this case, the drip, drip, drip of irritation and resentment.

Then, over time, its prices appeared to creep ever higher, while the advice element seemed to slip away. Last time I tried to buy a vacuum cleaner, the sales assistant turned out to be a Dyson salesman. But how could John Lewis lose its competitive edge, given its famous policy of “never knowingly undersold”?

First thing to note is that the “never knowingly undersold” strategy is not half as customer friendly as it seems. On the face of it, it’s a brilliant strategy. Customers know they’ll get better or equal value staying here, so there’s no point in shopping around. This generates a secure, loyal customer base for the retailer. A fantastic win-win.

However, viewed from the perspective of game theory, “never knowingly undersold” can also be a signal for informal price collusion. How? The “never knowingly undersold” retailer sends out a message that effectively says: “You know that if you reduce your prices to compete with me, I will respond with equal measure and we will both lose out. So, far better that you do not compete on price. In fact, if you let your prices drift up a little, so will I. Then we both win.”

In this way, the counter-intuitive effect of a locally dominant player applying a “never knowingly undersold” strategy may be to reduce price competition. I’m not suggesting this was a deliberate strategy on the part of John Lewis, but it can happen almost automatically and unconsciously, as a simple byproduct of the strategy itself.

There are other ways to play the “never knowingly undersold” game. Take a fictional product, say a Sony plasma TV product code number X56-a. With “never knowingly undersold”, you promise “if you can find a Sony plasma X56-a anywhere else at a lower price, we will refund the difference”.

But it just so happens that no one will ever find an X56-a anywhere else because that product code was invented solely for that outlet. In other outlets, exactly the same product sells as the Y27-b, or the D43-x. In this way a manufacturer, a retailer, or the two together can quietly work around any price comparison promises they may make. Again, I’m not suggesting that John Lewis has ever played such games. But there is always a danger that someone, somewhere will be tempted.

Most importantly for John Lewis, however, is that you can only apply “never knowingly undersold” to the products you sell. If you drive your product range upmarket, that’s what you make the comparison against. That way, you can push prices up too – without ever contradicting your “value” promise. That’s particularly easy to do when, thanks to the location of your stores, a high proportion of your clientele are living off the proceeds of a financial bubble and have come to believe that worrying about prices is beneath them.

What it ignores are people like my mother-in-law, who shopped at Peter Jones for 40 years but stopped a while ago, saying she could no longer afford it. It’s one of the pitfalls of customer focus. If you focus only on the customers you’ve got, you end up ignoring the customers you’ve lost, along with the ones you were never able to attract in the first place. Sometimes that can be fatal.

The Promise Corporation Index measures how well customers think brands are keeping their promises. Its latest poll, conducted before the credit crunch, shows John Lewis as one of the top ten fallers over the past year.

But the last straw for me came with a newspaper ad for John Lewis that appeared last weekend and trumpeted its “never knowingly undersold” promise. But it was the small print that shouted loudest – the little bit excluding “the internet” as a valid comparison.

Oh dear. Who does John Lewis think it is kidding? Its marketing executives may be defining their “market” as high street stores, but in the modern world that’s a spectacular fantasy of Canute-like proportions. “The market” – the place where comparisons matter – is where consumers search for value. If consumers are searching for value on the internet, that’s what they will make comparisons with, whether John Lewis marketers like it or not.

John Lewis has been a great British institution. But sadly what those weekend ads really advertised was the fact that its underlying business model has passed its sell-by date. The recession is now exposing this for all to see. A return to “business as usual” isn’t really possible. The one thing it’s got for going for it? It’s not alone.         

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