When former Apple SVP of Retail Operations, Ron Johnson, took over as the CEO of American retail giant J.C. Penney, he had hoped to do for his new employer what he had done for Apple, where he led the development of the Apple Store and its Genius Bar.
Unfortunately for Johnson, the revolutionary tactic of ditching discounts and offering consumers straightforward low prices every single day of the year, turned out to be more disastrous than revolutionary.
The first quarter of 2012 was a train wreck for the retailer, and despite calls for patience from some observers, the rest of the year didn’t get any better.
Which wasn’t all that surprising. Consumers love a great deal, and as I noted last May, “J.C. Penney might be offering merchandise to customers at great prices, but they simply won’t recognize that they’re getting a good deal because, for better or worse, there’s no, well, ‘deal.'” That lack of deals led to disappointing sales and, even worse, a full-out alienation of a big portion of J.C. Penney’s customer base.
Discounting is dead, long live discounts
Johnson may have made a huge mistake in thinking that he could convince customers that they were getting a deal sans a discount, but apparently he’s no fool. So he’s doing the only thing that makes sense: he’s bringing sales back.
As reported by CBS Moneywatch, “The struggling department store chain this week is rolling out some of the hundreds of sales it ditched last year in hopes of luring back shoppers who were turned off when the discounts disappeared.” These sales will be on prominent display, with the retailer adding “new price tags or signs for more than half of its merchandise to show customers how much they’re saving.”
Not far enough?
Johnson insists that he hasn’t abandoned his original strategy. This is an “evolution” and J.C. Penney, he says, has seen the last of coupons.
But will that do the trick? Consumers love coupons, and while you can run a sale without coupons, there’s nothing quite like cutting out (or printing) a piece of paper that entitles you to a bargain. This may ring particularly true for J.C. Penney’s core customer base, so it remains to be seen whether Johnson is backtracking enough to win back the customers that have turned away from J.C. Penney in the past year.
If he isn’t, expect a return of coupons, and perhaps a new J.C. Penney CEO too.
Lessons for other companies
To be fair to Johnson, his plan wasn’t a bad one — in theory. His problem, however, was that it was too bold for J.C. Penney, which had relied on a discounting strategy for so long that its position in the marketplace was largely defined by it.
For other companies, particularly those that don’t have a brand synonymous with ‘discount’, there’s an important lesson here: if you live by the deal, you might just die by the deal.
There’s nothing inherently wrong with making discounts a focal point of your customer value proposition, so long as you can maintain your margins, but once the discount mentality is established with your customers, pivoting to a different value proposition may be all but impossible.