• This article discusses the impact of pricing strategy employed by the new JC Penney management team.

  When will the penny finally drop for J.C. Penney's Ron Johnson?

  Tags: Consumer Behavior, Department Stores, Marketing
  August 15, 2012

By Robert Passikoff
J.C. Penney showed a big 2-Q 2012 loss, down another 23 percent, which is much bigger than expected. Oh, and they've given up any profit outlook for the year. So it looks as if the fair-and-square-fewer-price-promotions-more-celebrity-and-any-high-tech-we-can-get approach of Mr. Johnson, ex of Apple's retail division, isn't quite working out the way he had planned, which is exactly what our loyalty and engagement metrics predicted last January.
Back then, the brand and marketing strategy was promulgated on a simpler system of price promotions, which was either the wrong question to have asked consumers (who probably shrugged and then said "zowie, yes!") or more probably just Ron Johnson moving all those promotion dollars to the bottom line while he planned the gabillion dollar just-like-Apple redesign of the 110-year old department store chain. The long and short-term strategies indicated the re-configuration of all stores divided into boutiques. The transformation, according to Mr. Johnson, "is a marathon, not a sprint," and ultimately promises "a new class of department store." Or one plastered with "Going Out Of Business" signs.
Penney's January pricing-shift confused customers who already had everyday low prices from Walmart, monthly specials from competitors like Kohl's, and clearance prices from like, well, every other single retailer on the planet! So Penney's made other pricing changes. And then cancelled advertising while they rethought strategy. Now, they're making permanent cuts throughout the store and are jettisoning the month-long bursts of sales in what Mr. Johnson has characterized as simplifying pricing, which kind of makes you wonder what the "fair-and-square" stuff was all about to begin with, beyond funny commercials.
Anyway, Mr. Johnson had a call with analysts, where he was quoted as saying,"Early response to these efforts have been very encouraging." But one can only suppose that's true if you define "encouraging" as same-store sales not being down 30 percent!
Could this failure have been anticipated? We weren't guessing back in January, when we had our newly minted 2012 Customer Loyalty and Engagement measures to inform us. If you don't measure, attend to, and develop strategy off what drives behavior in the marketplace and real customer expectations, you shouldn't anticipate success no matter how optimistic or highly paid you are. Consumers have pretty much been in control of the marketplace since the late '90s, and that was before computers, the Internet, and consumers talking to each other before they talk to brands.
The penny finally did drop for Mr. Johnson, who finally noted, "it is very clear that withdrawing from our promotional model to a more everyday model has been harder than we anticipated," urging investors to keep the faith.
But you know what they say about that. While faith makes all things possible, it's engagement that makes all things profitable.
Robert Passikoff is president of consultancy Brand Keys.