Lessons in Market Strategy: JC Penney
Having an effective marketing strategy can be one of the most important things for any company, regardless of the industry. An effective marketing strategy will help clear up confusion on market objectives and can also be crucial in understanding the target market and customers. By having a detailed and concise market strategy, there will be little room for disconnect between executive management and customer profiling, ensuring that management has a clear understanding of their customers’ persona. The importance of this can be seen through JC Penney, as the downfall of their company can be seen from this tragic disconnect.
As a retail department store, JC Penney was in a field of many competitors such as Macy’s, Walmart and Target. However, JC Penney, now with plummeting stock prices and widespread store closures, is significantly underperforming due to their catastrophic pricing error. Typically, retail pricing combines a combination of psychological pricing strategies or tricks to trigger users to buy their products, thus reducing their sales cycle. These include promotional pricing, where prices are temporarily reduced to create a scarcity and increase the value of the product, price anchoring, where prices are listed higher to increase the perceived value, and different-value pricing, where two similar items are priced differently so the inexpensive one gets bought (leading to more net sales). For example, say there is a limited time coupon that will mark down the price for tank tops in the winter. The original anchor price of the shirt is 60 dollars, but it is being marked down to a price point of 20. Although it seems like a remarkable deal that no one would want to miss out on, the anchored price is inflated to increase the perceived value of the tank top, revealing that value to a customer is all about the way a product is framed. In retail, customers have been conditioned for hundreds of years to these gimmicks and huge discounts, regardless of the legitimacy of the starting price, as these are what grab their attention. Failing to understand the conditioning of their customers is what fundamentally killed JC Penney.
In January of 2012, JC Penney stopped using discounts, sales and coupons, but instead went for “fair and square everyday low prices”, where the end price of the products would be the same throughout the year. Logically, they believed that customers would come to their store more often because the prices were static and low (although customers valued them less because of the lower original price), so there would be no point in waiting for a sale. They strived to build the new JC Penney by appealing to a sense of transparency that relied on customers trusting the brand. A big reason this business decision occurred was due to their new CEO Ron Johnson. Johnson had previously come from Apple, where pricing was different compared to retail department stores. Apple not only was a classy product that had lots of hype and buzz, but was a brand that ultimately sold the product. Apple products were able to market themselves through this buzz and word of mouth, something that JC Penney inherently did not have. By trying to mimic Apple, Johnson failed to realize the difference in customer profiles between Apple and JC Penney, as Apple did not need discounts or sales to successfully sell their products. This infamous mistake showed that JC Penney’s decision makers were not aligned with their customers, as it was the perception of saving money not necessarily actually paying less that motivated customers.
So, what can we learn from JC Penney? Well first off, this tells us that it is essential for businesses to understand what motivates their customers and their entire customer persona. If your customer has been conditioned to doing something in your industry for years, it is difficult to get rid of the conditioning without losing sales, as it is almost like an addiction. Next, it is important to realize that it actually is okay to experiment with pricing as long as the customer persona is fully understood. For example, Everlane, an upscale clothing retailer, had a radical price change similar to JC Penney where they sell everything at a flat rate under $100. Unlike JC Penney, their brand was more upmarket, and they experienced success with the ethical and sustainable front for their clothing, as they understood that their customers were willing to pay more for the brand. Lastly, a lesson can be learned in the importance of communicating price changes to customers. By having a simple, easy-to-follow price strategies as you advertise, customers will likely follow. JC Penney heavily promoted a “fair and square pricing” but ended up complicating things by using color coded tags that each represented a specific value, and strategic sales days using a blue tag on the first and third Fridays of every month. Cluttering their promotional strategy and the lack of concision ended up driving customers away as well.
Here at GST we understand the significance of understanding customer portfolio. We strive for a complete alignment between our executive management and customer profiling, having experience in helping companies find potential disconnects between these two. Our expertise will help B2B SaaS founders recognize when it may be appropriate to use a product to lead growth, learning from the mistakes that JC Penney made.