Creator: Daniel Acker | Credit: Bloomberg News Service
Copyright: © 2018 Bloomberg Finance LP
In the fall of 2011, Ron Johnson was appointed not just as CEO of JC Penney, but as the savior responsible for breathing new life into one of the antiquated dinosaurs in American retail. Many people thought that if anyone could accomplish the seemingly impossible radical invention of the JC Penney brand, it was Johnson. Afterall, he was the retail superstar credited for making Target hip and turning the Apple Store into a giant success story. Seventeen months, and many, many mistakes, later, he’s out of a job. JC Penney has not been able to pick up the sales since then, and in 2020, the 118-year-old giant retailer had to file for bankruptcy. What happened?
He Misread What Shoppers Want
In early 2012, Johnson announced a major overhaul of the way JC Penney does business, with a new “fair and square” everyday low pricing scheme to replace the “fake prices” used commonly in the past. The idea sounded great, in theory. Didn’t everyone hate those “fake prices,” which were inflated only so that discounts would seem tempting?
The reality, as it turned out, was no. Johnson thought it made sense to list realistic prices from the beginning and forego nonstop sales. However, shoppers are not purely logical people. They are often drawn to stores not by the promise of fair pricing, but by the lure of hunting for deals via coupons and price markdowns. It is a game that shoppers are accustomed to playing, and that many, whether conscious or nonconscious, like playing, with the “How Much You Saved” line at the bottom of the receipt serving as a score.
It didn’t take long for people to note that Johnson’s no-coupons, no-sales experiment was failing to attract shoppers. Sales collapsed through early 2012, and by the summer, even Johnson acknowledged the stores had made a big mistake.
He Didn’t Test Ideas in Advance
And why didn’t Johnson understand what JC Penney’s core customers enjoyed? One reason is that he did not bother to really ask them. When Johnson carried out plans for the chain’s radical transformation, he was asked about the possibility of trying the new pricing strategies on a limited test basis. Johnson reportedly shot down the idea of testing, responding that, “We didn’t test at Apple.”
The fact that JC Penney’s longest-standing customers loved coupons and the prospect of finding “steals” via rounds of markdowns should have never come as a surprise to the company’s CEO. Various research had continued to identify the Penney core customer as traditional, middle-class, older mothers, who tend to be price-sensitive.
A continued sales slump forced Johnson to realize the error of his ways. JC Penney rolled out some half-hearted discounts on Black Friday 2012, which were deemed to be mostly underwhelming compared to 80% off deals in other stores.
The takeaway from JC Penney’s failure is simple yet crucial: Understand your audience. Understand what they expect. Give them what they expect. Always provide what they want to create value. Be consistent.
Understanding how, when, and why people are interacting with a brand is critical information that leads to success in sales and customer retention.
In today's competitive retail landscape, understanding why your customers behave in the way they do and leveraging the knowledge to nudge your customers into making choices that you want them to make is the key to survival.
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