Sad News for JCPenney
Early this February, I posted an article on the new marketing strategy being taken by JCPenney. In an effort to revive a dying business, Ron Johnson, the then new CEO of JCPenney, released a new marketing strategy aimed to differentiate JCPenney in the marketplace. Johnson’s plan centered “fair and square” prices. While JCPenney previously sold most of its inventory at discounted prices, studies had shown that many shoppers began realize that a sale wasn’t really a sale. As a result, shoppers would wait until final clearance times to actually make a purchase, thus severely cutting down on the department store’s profit margins.
John had hoped to change this by releasing pricing that made sense. Products were given lower “full price” prices, and each month saw a new promotional mark down on certain items. While the market was full of buzz as this strategy rolled out, apparently shoppers weren’t ready for the new pricing structure. Since the strategy released, revenue dropped 20% for the first quarter compared to last year (from a profit of $64 million to a loss of $163 million).Traffic in the stores fell almost 10%.
These numbers are staggering, and to me as a marketer, are quite disappointing. I was very excited to see a struggling business make a bold move in their marketing strategy, and it looks like this move was a bit too bold. It appears that the shoppers who used to shop at JCPenney shopped there because of the sales. Once these sales left, they were gone, too.
What is JCPenney to do? In my eyes, they have two different options. The first is to forgo their current strategy. Consumers want value no matter what something is actually worth. For example, take a shirt that is actually worth $20 at fair market value. Consumers would rather pay $22 for this shirt if it was ticketed by the company at $30 than pay $20 for this same shirt if it was ticked by the company at $20. Why? Consumers believe that they are gaining $8 in value. Obviously, the truth is they’re really not. The second option JCPenney has is low prices slightly more and completely rebrand themselves to reach new consumers who are sales finders. A great example of a business doing this is Target. Many items at Target are never placed on promotion. Consumers at Target expect okay-made products at affordable prices. The current JCPenney consumers are looking for okay-made products at extremely cheap prices. The consumer is there, JCPenney just has to change their cheapened brand image to become more modern, more youthful, and more catered to young families and young professionals.
It is a sad lesson for JCPenney, and a sad lesson for marketers. I really enjoy seeing businesses think outside the box, but alas, business is anything but fair and square.
- Bryan Nagy
I agree with your take on JCP’s challenges and only hope Mr Johnson sticks it out. It’s a merely a matter of training the customer and improving the quality. I for one think the new advertising and catalogues are a massive improvement, reminicent of Apple style – simple, clean, attractive and focused. But that style of marketing, as well as the simple pricing strategy, appeals to a better educated audience. I hate to say it, but it’s easy to fool uneducated people with phony discounting. These are the people you can fool all of the time, they are less educated, usually with less discretionary income to spend on fashion, and hold out for sales. I think the truth behind JCP strategy is dump those customers and move up to a better class – one with bigger budgets to spend more per transaction. They probably just don’t want to admit to this nad have it leak out and cuase a massive PR black eye.
So JCP needs to allow time for their new, wealthier, and more desirable customer to discover them and they must surprise these new customers with better quality and stylish items. They have they right strategy, they just need to give it time to develop the new audience. That’s my 2 bits
MY 2 cents
They started too soon. Should have started out by moving out all the inventory you didnt want moving forward. Make your announcement and all that but wait to do all the re-pricing until you are either ready to start or have already started to put in the new “shops”. This way customers would see something new along with the price changes rather than just be confused.
The way they did it was make an announcement change prices but in their advertising didnt focus to much on it, wait for 6 months. This made for a big fail.