Retail icon JC Penney (make that JCP) is under scrutiny by investors and the retail industry as it attempts to pull off a radical makeover. CEO Ron Johnson’s vision for JCP is to create a totally new shopping experience in stores. A major element in his marketing strategy was to introduce “fair and square” pricing. The plan called for substantial reductions in promotional pricing and accompanying newspaper advertising. Instead, shoppers would be able to buy products at everyday low prices. The response has been less than enthusiastic as evidenced by same-store sales declining 22% and Internet sales plunging 33% in the second quarter. Ouch!
JCP’s actions are curious in that management seems to have taken an either-or approach to marketing. The first months of Mr. Johnson’s tenure as CEO saw a pronounced shift toward brand building. The emphasis was on shaping perceptions and image of JCP. This emphasis occurred at the expense of tactics that were effective for generating store traffic. The result was a redefined brand but fewer shoppers in JCP stores. Now, the pendulum is swinging back the other way as business building is pushed to the forefront.
Now to address the question in the headline – should marketers focus on building their business? Yes. Should they focus on building their brands? Yes. It is unnecessary to choose one emphasis over the other. Such an approach will prove to be disastrous long-term. Different people in your target market are at different points in their relationship with you. Brand building is needed for customer acquisition, attracting new buyers to your products or services. Business building is important for retaining customers. JCP assumed its existing customers would stay with them after implementing the new pricing program, but many of them failed to see adequate value compared to the previous promotion-oriented pricing model. Thus, a dual focus is needed for marketing to concurrently build business and the brand.
Advertising Age – “JC Penney Looks to Newspapers in Revamped Marketing Push”
Retail icon JC Penney is at a crossroads. Declining sales, upheaval in pricing and promotion strategies, and turnover at the top of the organization.create an uncertain future for the company. In an effort to define the JCP brand and become relevant again with consumers, the company has announced a cause support program called JCP Cares. Shoppers will have the option to round up their purchases to the next dollar, with the change going to a cause designated by the company. A unique feature of JCP Cares is that a different cause will be supported each month.
A “flavor of the month” strategy might work for selling ice cream, but it is not the approach a business should take for engaging in strategic philanthropy. Cause marketing is far more than a platform for raising donations; it should be used to articulate a brand’s values and meaning. Selecting causes should focus on one or a select few causes that resonate with a brand’s target market. One to three initiatives (general issues or causes) should be identified as priorities. Then, the marketing and human resources a firm possesses can be used for good to provide support.
JC Penney’s intentions are admirable. Among the causes it plans to support through JCP Cares are USO, Boys &Girls Clubs, and The Breast Cancer Research Foundation. The causes JCP Cares have selected are not the issue; the number of causes supported spreads the resources of JC Penney too thinly. Also, it will be difficult for the brand to be associated with the various causes because of the short-term nature of the cause promotions. Also, with such a large number of causes supported, consumers could be confused about which causes JC Penney supports.
Cause marketing should not be viewed as a sales promotion that can create short-term sales gains. Instead, cause marketing is a means for a company to involve its customers in supporting a nonprofit or charity whose mission and values represent priorities for all involved. JC Penney – figure out what is important to your customers, then marshal your resources to create spectacular cause marketing programs. Your customers will admire you, and the “cause of the month” can be replaced by an ongoing commitment to strategic philanthropy.
Marketing Daily – “Penney Reaches Out to the Right”
When attempting to navigate the rocky road that is department store retailing, maintaining status quo is not a viable strategy. The department store sector has been challenged for years by greater merchandise assortments of specialty stores and lower prices of mass merchandise discounters. One company caught in the fight for relevance has been JC Penney. Sales in 2010 were $17.8 billion, down from $19.9 billion in 2006. In addition to declining sales, the company faced a brand image problem as it was perceived as old and stale.
The response to the challenges faced by JC Penney was laid out this week by new CEO Ron Johnson, an Apple disciple. The boldest strategy change is a radical shift in pricing and promotion. The company is ditching the traditional high-low pricing model. Instead of frequent sales and discounts, a three-tier pricing strategy will be used. Products will be at an everyday low price, monthly values, and best price Fridays on first and third Fridays each month. Analysis of transactions revealed that only one in 500 items was sold at regular price, so the move to streamline the dizzying number of promotions (nearly 600 a year) to a more straightforward pricing approach is logical.
Let’s jump to the most important question: Will this strategy work for JC Penney? The key to its success will be convincing shoppers that the value-based pricing approach is better for them than sales featuring hot prices and coupon offers for additional discounts. A rational analysis of the pricing approaches would point to value pricing as a better deal for buyers. However, we do not always make rational buying decisions. The psychology of a sale suggests to shoppers that a bargain may be realized when a product’s price is temporarily reduced. Add an incentive like a coupon on top of the sale price, and buyers have been trained to expect value delivered in this way from retailers.
JC Penney desperately seeks to carve out a distinctive brand position. If it cannot position through products, service, or brand image, perhaps price is the final frontier. If this strategy succeeds, JC Penney can re-establish its relevance. JCP (as it is branded via its new logo) must deliver a great shopping experience to go along with its simplified pricing. If it succeeds, JCP shoppers may just be singing “It’s the end of the sale as we know it, and I feel fine.”
AdAge – “JC Penney Reinvents Department-Store Retailing”