Ron Johnson took over the helm of JC Penney.He moved quickly to change the branding elements – name, logo, and slogan – and to say that he plans to model JCP Stores on Apple stores, and offer everyday low prices.
Even though this mostly struck me as wrong at the time, I kept quiet (except for telling my students) because I felt that Johnson’s stellar reputation at Target and Apple earned him the right for some time and space to show that his new strategy works.
Well, just-released first quarter results suggest it doesn’t work. The numbers are disastrous. Total sales were down 20%. Same store sales declined 19%. Gross margins tumbled to 37.6% from 40.5%. And foot traffic (the number that the new strategy was supposed to boost) declined 10%. Compared with a $64 million profit during the same quarter last year, JCP had a first-quarter loss of $163 million. This bad news sent shares tumbling 19.7%, and management announced that it is withdrawing its annual guidance for 2012, which translates to a lack of confidence.
The entire marketing mix seems to be out of synch with the JCP target audience. From the start, it appeared to be a strategy that came out of the mind of Mr. Johnson rather than JCP’s customer base. Successful companies think outside-in rather than inside-out. They focus on the needs and wants of customers rather than assuming that they know and understand those needs and wants better than customers do. More specifically, the hits and misses in the marketing mix are provided below.
Changing the name from JC Penney to JCP is not a problem. The initials of the company may, in fact, work better. They signify that the company is evolving and growing, much the same way International Business Machines became IBM. At the same time, the initials connect the company to its rich history that goes back to 1902.
On the other hand, the logo is problematic. Putting the new name in the upper left corner of a square in lower case letters makes the logo appear off-balance. Centering it would be a better call. It may work for a modern art or architecture firm where off-balance is considered hip and cool. It is not likely to appeal to the middle class, middle-America segment that comprises the bulk of the JCP audience. This group tends to be more down to earth rather than hip and cool.
The slogan “fair and square” is good in that it fits with the square element of the logo and the upcoming redesign of the stores that will have a square in the middle. The square is likely to also appeal to the target audience since it is a balanced shape that fits in with traditional middle-class American values of stability and honesty.
JC Penney merchandise is very far from the products that Apple sells. It appears that Mr. Johnson is applying the product strategy that he knows rather than the one that will fit in this particular case. People have to wear clothes. They do not have to buy Apple products. Apple products are unique and proprietary. JCP products are not – except for some private label and captive brands. The idea of 100 separate boutiques within the JCP store may work, but is sort of a “me too” strategy that follows what many other retailers are doing. There is nothing new or novel that will provide a compelling reason for the target audience to visit JCP stores.
While the idea of offering everyday low prices may make sense, it does not seem to be a unique or sustainable advantage that would be important to the target audience. After all, didn’t Wal-Mart use always low prices as a slogan for 19 years? It is hard to compete with Wal-Mart’s high-volume, economies of scale cost structure. Also, does “everyday low prices” square with the idea of in-store boutiques? Usually boutique prices are higher. Most importantly, taking away the “deals” (aka sales promotion) may be a good idea in principle, but it may not fit with the desires of the target audience that have been trained by retailers to shop for deals – especially after the economy turned down late in 2008.
Target positions with “expect more-pay less,” but they have not eliminated sales, discounts, coupons and other deals. High-end retailers with unique positioning are more likely to offer “no deal” pricing (Nordstrom’s has sales only two times a year). This is not a strategy that is likely to work for “everyday low price” retailers. Lastly, the dropping of most significant digit pricing ($9.99 instead of $10.00) is also a mistake since buyer brains process pricing information in a way that defies logic, and there is nothing JCP can do to change that.
As discussed above, applying the Apple model won’t work since Apple mostly sells its own proprietary products. JCP is distributing a wide variety of brands – many of which can be found in competitor’s stores and Web sites. Unless the re-designed stores are going provide a more convenient, unique and compelling shopping experience, there does not appear to be any special reason for buyers to visit JCP stores.
It is bad enough that “low prices everyday” is the focus of the JCP strategy. What’s worse is that the commercials that tried to communicate this strategy were annoying, confusing, and in many ways, difficult to watch (click here for an example). The “most popular” comment that follows this commercial on YouTube is very telling. It received 22 likes, and is listed below.
“I’m sorry but I have watched this commercial a few times and still don’t get it whats with all the screaming? Is it because the sale is ending? Or they can’t use their coupons? “Enough is enough”. Enough of what? being a day late and missing the bargains? Confusing price tags? Too much junk mail? What? Can anyone enlighten me because I just don’t get it.”
Marketing Information System
The worst mistake of all, which is related to all the others, is that Ron Johnson did not listen to JCP’s loyal customer base. He approached his new position of CEO from an inside-out perspective. To help insure success, you have to talk with customers, run your ideas by them, get ideas from them, and listen to what they say. From the strategies chosen and the disappointing first-quarter results, this apparently did not happen. Perhaps he thought he was his ex-boss (Steve Jobs) who fooled people into thinking he could read the minds of customers before they could read their own. Even if one believes that he could, Steve Jobs is not the one running JCP.
Where does JCP go from here?
JCP has to decide what it is and what it wants to be. Once it does, all the marketing components have to fit together. Like the off-balance logo, the pieces don’t seem to fit right now. From all accounts, Ron Johnson is a very nice guy that has had a lot of success in his previous positions. He is CEO now, and if he really wants to turn around JCP, he really needs to get inside the heads of JCP’s customers and find out what they want that they are not getting from Target, Macy’s, Wal-Mart, and JCP’s other competitors. Once he takes this outside-in approach, he will be in a much better position to determine where JCP needs to go and what it needs to do to become the successful company that it can be. JCP stockholders hope he can figure it out quickly. So do I.
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