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Sticker Shock

Earlier this year, JC Penney unveiled a rebranding and a new strategy that eliminated discounts and coupons in favor of an ‘everyday’ low pricing structure along the lines of Walmart and Target. The shift didn’t necessarily come as a huge surprise, after former Michael Francis, a former Target Executive, took the reigns as president in October of 2011. The results, however, have been shocking – shockingly bad.

Francis lasted only eight months, leaving the company as revenues have fallen more than 20% since the announcement of the change in strategy with big-dollar advertisements during the Oscars.  The disaster is attributable to a major flaw in the strategy that the company undertook. As brilliant as it may have seemed on paper, the campaign was missing the point from the get-go.

Despite the forward-thinking nature of the move, Francis and his team failed to recognize that JC Penney consumers had, over the years, become strongly conditioned to look for sales and seek out discounts as a motivating factor when making purchase decisions. The company offered as many as 600 ‘sale events’ a year, running print coupons and in-store promotional pricing, attracting legions of loyal customers who perceived a good value. Moving to lower, more consistent prices caused problems due to the perceptions of the company’s competitors in the everyday value pricing category. In addition to Walmart and Target, Kohl’s also offers consistently low prices, and even mixes in coupons and a solid rewards program. The market was already oversaturated, not leaving JC Penney enough room to convert new customers with its rebrand.

Seemingly, the coupons passing through JC Penney cash registers each week didn’t provide enough data on consumer behaviors, or did it? As the data now proves that there is a correlation between the company’s revenues and the cycle of sales and discount events. The minds behind the shift in strategy simply failed to acknowledge the real wants of the consumer, and the consequences have been severe.

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