On Second Thought - JCPenney Brings Back Sales

Attention shoppers, a JCPenney sale will be coming to a store near you soon! 

That's right, nearly one year after announcing it was phasing out its traditional sales promotion strategy, JCPenney has done an about-face and will now significantly increase its pricing discounting strategy.  This step is aimed at increasing traffic by making the chain appear more price competitive to its peer set.

By killing traditional promotions, JCP severely damaged its value perception.  In an effort to further battle negative consumer value perceptions, JCP will also introducing price tags that include also show what competitors are charging for the same merchandise.  The big question is it too little, too late given JCP same store sales declined over 25% in 2012?

JCP's major mistake was thinking they could retrain consumer behavior - that is train consumers to move from shopping a high/low strategy to an everyday low price mindset - consumers love a value treasure hunt. Needless to say this would be an extremely difficult task for even the strongest brand to take on (e.g., Apple), but it proved to be an impossible for a merely average brand with limited equity and loyalty.  Sorry CEO Ron Johnson, you cannot turn a JCP into Apple overnight.

The sad thing is that much of Ron Johnson's transformation turnaround plan is right on - building a portfolio of exclusive brands, dramatically revolutionizing the JCP shopping experience and re-staging the brand image.  If he had only been more patient and executed these strategic elements prior to changing the promotion strategy as opposed to trying to move simultaneously, he may have successfully increased consumer traction, loyalty and advocacy.  This would have then given him more permission to then cut back the level of promotion.

JC Penney Changing Course?

After only 8 months on the job and in the midst of JC Penney's rebranding/turnaround efforts, Michael Francis, president, responsible for merchandising, marketing, planning and allocation, product development and sourcing has "resigned". Francis who was handpicked by CEO Ron Johnson based on their experience working together at Target had been Target's Chief Marketing officer prior to moving to JC Penney.

As President at JC Penney, Francis was technically responsible for the marketing of a controversial new pricing plan that aims to get rid of hundreds of sales events, as well as, merchandising and product development. However, many outsiders claim it was actually CEO Ron Johnson who was the architect of the new pricing plan. With the turnaround under performing expectations and JCP backtracking on a portion of their strategy, the resignation appears to be a way to buy time with investors - although shares did drop 6% after the news of the resignation became public. In the same press release, Johnson announced he will take direct responsibility and oversight of the company’s marketing and merchandising.

Three things pop to mind with this latest twist in the JCP saga:

(1) Turnarounds/brand restages are never quick and easy, business results usually get worse as a company invests in the future and consumers adjust their habits/practices. Being a public company sometimes creates a barrier to delivering long-term sustainable change because of this short-term pain.  JCP should expect at least 3-4 quarters of pain at minimum assuming they're doing everything right, and a lot longer if they are mis-firing on their strategy.

(2) Turnarounds must be based on significant consumer insights and must pivot off of a solid brand foundation as opposed to try to leap to a totally new brand equity - in other words the best brand restages are evolutionary not revolutionary. Additionally, the relaunch need to be communicated in a manner that consumers understand and in a fashion that's consistent with the consumer insights its based on. It appears to me that JCP is trying to leap too far too quickly and would be better served making a series of pivots.

(3) The CEO is not usually the best person to lead a consumer driven marketing strategy because they are usually the person in the organization farthest removed from the actual consumer.  Here's to hoping that Johnson relies on people closer to the consumer to help guide the strategy and commercialization.

The JCP turnaround efforts will be a fascinating story to continue to follow as its likely to be a long/winding rode for the near future

JC Penney offers "A Not So Square Deal"

As part of JC Penney's turnaround strategy they launched a new "Fair and Square" pricing plan at the beginning of 2012. The chain that for decades relied on multiple promotions, percent-off sales, and coupons to drive incremental consumption, has decided to put an end to all of those promotional vehicles in an effort to become less reliant on trade activity. 


This new strategy seemed to make sense given they ran 590 distinct sales in 2011 and drove 70% of its revenue from products sold at least 50% off full retail price. Rather than slowly peel back on the number of promotions, JC Penney decided to go cold turkey and rip the band-aid off with its "Fair and Square" plan, which simplifies their pricing strategy around three levels: "Every Day", "Month Long Value", and "Best Price". The "Every Day" or EDLP price was also lowered 40% vs. the prior traditional high-low pricing strategy.


The only problem is somebody forgot that consumer habits are hard to break and consumers, especially consumers of brands with weak equity and low consumer loyalty, also have very low brand engagement. The low engagement means that consumers are unlikely to realize you changed your pricing strategy in store or in your tv ads, but they will notice you no longer have sales or coupons.  Therefore, even if the absolute price in store is the same or lower, the consumers perception of the price point may actually be higher or they may not be motivated to visit your store without the promotional stimuli.


Hence, nobody should have been surprised when JC Penney announced its latest sales figures: "Comparable store sales for the first quarter declined 18.9 percent. Total sales decreased 20.1 percent, which includes the effects of the Company’s exit from its outlet business. Internet sales through jcp.com were $271 million in the first quarter, decreasing 27.9 percent from last year."


CEO Ron Johnson reacted to results by telling investors “We have work to do to educate the customer on our pricing strategy and to drive more traffic to our stores”.  Anytime a business leader or market says we have to "educate consumers" that should be an immediate red flag. I'm not a believer that consumers can be "educated", and even if they could, its going to be extremely expensive. 


If a new product or retail customer experience aspect isn't intuitive enough for consumers to figure out in a 10 seconds glance, then its not going to sell very well to mainstream mass market. This is why any good new product or brand building strategy has to start with a strong consumer insight and be brought to life in a simple manner that is intuitive.


Now, just months after the launch of the new pricing strategy, Johnson is admitting JC Penney made some mistakes. First, they layered back in 5 extra best priced Friday events, and second, announced that "We're moving away from the word 'month-long value' because no one really understood that, to calling it what we intended to do, a sale . . . Our marketing isn't doing the work . . . We've got to get our pricing across"


While this moves will likely help some, I for one am doubtful this will fix all the woes. As coupons and deals, spur incremental purchase not only because of the low price, but also because they make consumers feel like they are outsmarting their peers and adding time limitations drives consumers to act versus month-long promotions that don't feel as special.