Once you start discounting, you can never stop.  Just ask JC Penney.  For those unfamiliar with JC Penney’s recent disaster, they replaced the old CEO with Ron Johnson – the Apple retailing guru who designed their retail stores and helped turn consumer electronics into high-end style vs. the dull, price-centric world of Best Buy.  One of his first decisions was to eliminate discounting — no more sales, no more price matching, nothing.  If we’re trying to elevate the brand, we need to act like an elevated brand.

Big mistake.

The problem was that Mr. Johnson broke the biggest cardinal rule – don’t mess with existing customers when going after new ones (remember New Coke?).  Loyal, repeat customers represent the bulk of any retailer’s business.  For JC Penney customers, pricing deals was one of their core reasons for shopping there.  Once discounting was discontinued, their price-sensitive customers were forced to discover Macy’s, Kohl’s and other retailers.  Customers plummeted, revenues plummeted, the stock plummeted, and Mr. Johnson was out – replaced by the CEO he had just replaced, Mike Ullman.

With that in mind, Whole Foods is currently facing a discounting dilemma.  Do we stick with our current pricing structure or get into pricing wars with the less fancy grocers that are expanding their organic offerings at lower prices? http://on.wsj.com/19McbIz.

It’s a tricky question for sure and one that cannot be taken lightly.  To me, discounted pricing is a bad idea for Whole Foods.  Once you enter into a discounting war, you start teaching loyal, price-insensitive consumers to consider price when shopping for food.  Once that happens, they’ll happily realize that Kroger’s expanded line of organic products is a perfectly good source of natural foods at a far lower price.

Rather, expand your loyalty program.  Loyal customers deserve a pricing break, not new ones.  Improve the shopping experience to drive value (granted, the experience is pretty good already).  Expand viral efforts to build intrigue.  Offer high-end non-food products like coffee machines and cooking equipment.  Think Starbucks.  Plus, recessionary pressures are easing up.  So a renewed tolerance for higher priced foods will occur.

The “Whole Paycheck” moniker is not a bad one.  It connotes high-end.  The more folks can attain Whole Foods, the better for Whole Foods as they maintain margins and retain leadership of the high-end grocery segment.