Reference no: EM131721201

Case Scenario: What Start-ups Can Learn About Marketing from Missteps at JCPenney

After successful stretches at Target and Apple, it seemed as though Ron Johnson was a master marketer. But things went sour quickly after JCPenney hired Johnson as its CEO. Johnson's attempt to reinvent JCPenney's brand, change its pricing strategy, and overhaul the way the company did business all fell flat. In fact, during Johnson's 17-month tenure, JCPenney's sales fell quickly, loyal customers deserted the company, and employee morale hit an all-time low. JCPenney hired Johnson in June 2011. The idea was to bring in a marketing wiz to revitalize JCPenney's tired brand. Johnson seemed to have all the right credentials. At Target, Johnson was vice president of merchandising, where he was responsible for launching the Michael graves line of consumer products that enhanced Target's image. his most recent job was senior vice president of retail operations at Apple, where he was largely responsible for the sleek look and solid success of Apple stores. Johnson hit the ground running at JCPenney with bold plans. his goal was to revitalize JCPenney by breathing new life into its stores and brand. When he was brought in, JCPenney was an unremarkable but solid chain of 1,100 stores serving middle America. Sales were around $17.5 billion a year. When he left sales had plummeted to $13 billion and JCPenney was running low on cash. What went wrong? According to a general consensus, Johnson made three primary mistakes during his stint at JCPenney. The mistakes involve various facets of marketing, and they are mistakes that start-ups can learn from. Mistake #1-Fair and Square Pricing. In early 2012, Johnson announced that JCPenney would no longer offer merchandise on "sale." Instead, the company would offer "fair and square" everyday low pricing. The idea was to offer a fair price from the get-go, rather than marking a product high and then cutting the price several times before eventually getting to the fair price.

The strategy didn't work. It turns out shoppers like looking for bargains. It's somewhat of a game-shoppers see a new shirt or blouse priced at $50, and then wait for it to go on "sale" for $35 before buying. none of the shirts or blouses sell for $50, so Johnson figured why play games, just list the shirt or blouse for $35 from the outset. But it turns out that shoppers are accustomed to and like playing the game. There is a certain satisfaction in "saving" $15 on a shirt or blouse that a shopper doesn't get paying the same price initially. As a result, loyal JCPenney shoppers left in droves for T.J.Maxx, Kohl's, and Macy's, where the game was ongoing. Terminology was also a problem. As part of fair and square pricing, JCPenney had two tiers of pricing for a period of time: red tickets indicated that the items were "everyday" merchandise pricing, and clearance items had blue stickers that designated "best price." The result was widespread customer confusion. Shoppers didn't understand what the terms meant. It was another reason to abandon JCPenney and go to a different store. In fairness to Johnson, fair and square pricing had worked at Apple. Apple doesn't price computers, iPhones, or iPads at one price and then slash the price and offer the product on sale. The mistake Johnson made was to equate the way people buy technology products with the way people buy clothing and other products sold at JCPenney. Consumers are accustomed to paying full freight for technology products, but not for clothing. By the time JCPenney tried to reverse its pricing strategy, significant damage had been done. Mistake #2-no Testing of Ideas in Advance.

The reason Johnson wasn't able to anticipate the negative response to fair and square pricing is because it wasn't tested in advance. When Johnson proposed his bold new strategy, he was asked about the possibility of trying it out on a limited test basis. According to several published reports, Johnson shot down the idea by saying that he didn't test at Apple. Imagine what could have been learned by simply testing fair and square pricing at a handful of stores before rolling it out system-wide. Surely, much would have been learned. The fact is that JCPenney's loyal customers loved sales and the prospect of finding a "steal" via rounds of markdowns. Also, a simple trial period should have revealed the type of confusion resulting from the new terminology that was put in use. Mistake #3-A Total Misread of JCPenney's Brand. Perhaps the most damaging mistake was a total misread of JCPenney's brand. Johnson envisioned JCPenney stores having "stores within the stores," which would be boutiques were people could buy specialty merchandise or get their nails done. he wanted JCPenney to be Americans' "favorite place to shop." his goal was for people to show up and hang out at JCPenney stores, like people hang out at Apple stores, and gladly pay a full but fair price. It never happened. JCPenney's core clientele was thrift-minded shoppers who brought impatient kids into the store to buy school clothes. They also tended to move through the stores quickly when shopping alone. The consensus view is that Johnson wanted JCPenney shoppers to be something they weren't. he wanted them to be more like Apple shoppers. Instead, there was more overlap with T.J.Maxx or even Walmart. The Ron Johnson era ended in January 2013, just 17 months after it began. he was replaced by his predecessor, Mike ullman.

Questions for Critical Thinking

1. how does a start-up establish a "brand"? What do we learn from JCPenney's miscues about the importance of branding?

2. Although the concept of selecting a target market and establishing a unique position is not specifically mentioned in the feature, what do we learn about these two topics from JCPenney's miscues?

3. What type of testing should a start-up do to ensure that its initial customers see its brand in the way that the company intended?

4. Do a little Internet or gumshoe research on JCPenney today. Where does the company stand in terms of how it prices its products? What does the company's brand mean to consumers today?