Digital Thought Starter: What Brands can Learn from JCPenney

After an extremely turbulent time since Ron Johnson first took over as CEO last February, JCPenney is now picking up the pieces. For over a year, the company saw profits dwindle and stock prices crash. The cause: Johnson’s aspiration to turn around JCPenney.

Where it Began

JCPenney saw a drop in popularity since the 90s. The stores were becoming older and less in-tune with today’s modern moms. Competitors like Kohls, Macy’s, and  Target were stealing away customers, offering family-friendly prices and style. The result was decreasing revenues for the company and a fear by investors that it would become the next Sears or K Mart.

To make matters even more troubling, most of JCPenney’s sales were generated from products with extremely low profit margins. The company held nearly 600 sales a year, desperately hoping consumers would become customers just because of the sales. This meant potential profit was being lost at the expense of promotions. Consumers were apparently confused about all of the coupons and sales. Many never saw reason to purchase a product at full price, as they knew it would just go on sale soon.

Coming from Apple, Johnson saw this as an opportunity. There was still hope for JCPenny. It just required a big idea. Perhaps it was now Johnson’s moment to shine. Perhaps he could be remembered for turning a company around.

The Plan

Johnson’s plan was a big one. He wanted change to occur quickly, so he acted quickly.

Within weeks of becoming CEO, gone were the 600 yearly sales, replaced by monthly promotions. These monthly promotions centered around specific products, such as shorts during the summer.

To counteract the lower number of sales, Johnson dropped the regular prices on his merchandise. Previously, a shirt might have a price tag of $50. Frequent sales would place the product on racks for 10%  to 40% off, depending on the week. With the new strategy, this shirt was now a flat ticketed price of $35, unless it became a part of the monthly promotion. Johnson wanted this to ease the confusion consumers were having with their pricing and increase his profit margins.

Johnson also began updating his stores, modernizing the design. He took out bulky checkout counters, added more mannequins, created styling to his products, and developed mini-shops for different brands. He also took out unpopular brands from his stores, replacing them with fresh and better-known ones.

The changes were all released with a huge marketing campaign, centering around commercials specific to each monthly promotion. The updated strategy became a media frenzy, with cheers from investors and hope from consumers.

This was short-lived.

What Happened

To make things simple: consumers hated the new strategy. It turned out JCPenney’s consumers loved cutting coupons and keeping track of sales. Though shoppers were paying the exact amount for a product as they were before, they didn’t get the new pricing. Many no longer saw the items as a value, and instead were expecting them to go on sale. They waited. And they never did.

Consumers also got confused in the new store designs. Where were the checkouts? How could they get around all of the mannequins placed everywhere? Where did their favorite brands go?

It was all too confusing for the JCPenney consumer. They felt betrayed and decided to shop at other stores like Kohls, where they could use their coupons and buy items on sale.

What Brands can Learn

1. Marketing is about human behavior

This is the number one issue here and essentially the definition of marketing. Before undertaking a huge strategy change, get to know your customer. Marketing is about understanding a customer’s behaviors: their needs, desires, quirks, and view on the world.

Looking at their customer base, JCPenney would likely have found that their customers want value. They want to know they are purchasing a $60 product for 40% off, even if the product was always sold at this sale price and was never intended to sell at $60. They like looking at their receipts for savings amounts and  bragging to their friends or husband about everything they bought for $100 at JCPenney. They enjoy spending their Sunday mornings clipping coupons and reading circular ads. They don’t do full price.

2. Consumer adjustment takes time

Johnson was hoping new customers would flock to JCPenney with its more modern look and updated atmosphere. This likely would help , but it takes time. Revamping your image takes longer than a year. Consumers have to change their entire perception of the brand- something that they may have grown up with.

3. Less is more

Don’t go overboard with your changes. It won’t change your consumers’ behaviors for the better; instead, it will surprise them. Changing prices, stopping sales, and updating your store across all of your merchandise is too much too soon. JCPenney needed to slowly roll out the changes. They could have started with select merchandise categories (like jeans) for a specific customer base (like Juniors or Young Men), and gradually made these changes over several quarters. Consumers need to adjust to the changes. It also allows companies to react in the event these changes don’t prove positive.

4. Sometimes being reserved is better than making a splash

Would there have been so much public outcry against JCPenney if they hadn’t been so loud about their changes? Probably not. Some consumers complained and they never even shopped at JCPenney to begin with. As soon as you have a group of people speaking about your brand negatively comes the waterfall effect. Many marketers like to make things splashy, but sometimes it’s not the right situation or time, and this is one such example.

What has come out of this failure? JCPenney’s apologetic campaign, released today, that begs consumers to come back to their stores.

– Bryan Nagy

Advertisements