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Ron Johnson, Penney's CEO, said last week that "coupons were a drug."

He should know because he saw first hand the results of cutting out coupons to market JC Penney only a few months ago.

One thing Penney's understood was that those coupons let customers feel smart and not "overpay" the full price markup. JC Penney said as much by admitting, "No more 'fake prices.'"

The trouble with drugs, besides their addiction, is that some day, somehow the addiction has to end. Either there is an intervention or a death.

While you may have read "7 Reasons Coupons Don't Work For Marketing," you might have thought, "Yeah well, since coupons bring customers come in, I'll keep using them to market my retail shop."

That's what the management team of JC Penney must've thought for the past many years, as the lackluster brand seemed stuck with their marketing; JC Penney held 590 promotions last year, mainly through coupons.

CEO Johnson's made Penney's customers go cold turkey.

At the same time, JC Penney switched to Every Day Low Prices (EDLP). They reduced prices to the level where most of its actual sales occurred anyway (about 40% less.) They launched a big ad campaign to explain that every day you would now get "the deal."

In essence, every day customers could now get the coupon price, without the paper coupon.

The media heralded the news, the stock jumped and the new ads ran. Only one thing was missing: JC Penney's loyal customers.

Last week Penney's shared the shocking results of their coupon-intervention:

  • Traffic down 9% during the week.
  • Foot traffic down 12% on the weekends.
  • Sales down 20% from the previous year.
  • 28% decline in Internet sales.
  • Loss of $163 million for first quarter versus $64 million profit same time last year.

Johnson's explanation? Our customer just doesn't understand our pricing.

Like, "If they just understood they are getting the same high," they'd be happy. Except, there's no high in EDLP.

For many years, Penney customers were trained that the price marked on an item was just the starting point to establish the value of their coupon. Their couponing habits fundamentally altered their customer's reality.

Even though JC Penney has lowered their prices, customers still feel the price is the starting point.

Without the coupon to give them their fix, there is no immediacy to come into the store. There is no high to paying what the price tag says. There is no bliss provided by a brand that would turn its back on their loyal customers.

From the JC Penney Facebook page: "Now, not only can I not keep track of 'Best prices,' 'Everyday prices' or whatever, but there is no incentive to come in because there is no chance to save?"

Hence the sales tanking.

Macy's and Sears both tried EDLP many years back and quickly realized it was not how the department store customer expects to be treated after becoming addicted to special sales, coupons and other discounts.

You wanted them to come back in? You needed to at least provide the illusion of a discount.

And here's my point to all retailers...

Yes you can offer a coupon or other discount and get people in, but when you continue to use them as "proof" your marketing worked, you are getting sucked into the same game Penney's has played for decades.

With Penney's new plan, instead of getting people in four times a year, they hoped to get them in once a month. The thinking was that if they were successful in that, they'd triple their business from promotions.

Except of course, loyal customers apparently didn't even come in once.

Customers are saying they are spending with Kohl's or Macy's; other suppliers for their fix of coupons.

Of course, every retailer is talking about smartphones and how they can be used to improve their business. In an article on showrooming, Suzy Sandberg suggested the best way to avoid showrooming was pushing coupons using a mobile app or bid by location on Google to offer discounts or coupons.

Same drug, different needle.

How To Know If You're Addicted To Offering Coupons

It's important to know coupon-offering addiction didn't suddenly happen. It takes time to convince yourself the high is worth it.

But when it is full blown, a retailer won't be able to resist the urge to sign a contract with a deal provider like Groupon, use their email list to discount their store or enter into any promotion that gives the retailer the illusion of (gaining loyal customers) (building profitable sales later) (increased exposure.)

The coupon addiction means:

  • You're hooked and have to "give in" to offering them to demanding customers.
  • You have an illusion of a successful business.
  • The withdrawal, as JC Penney has found, is staggeringly swift and costly.

Summary

When you aren't making money couponing and discounting and decide to cut it out, you'll find those customers you have courted with coupons simply won't be back.

And then that cushion you've had underneath you will deflate giving you a bleak reality to confront.

As customers openly revolt and stay away, you're in a high stakes gamble they will return – or discover your competition.

This is a condensed version from Marketing With Coupons: Do You Need a JC Penney Drug Intervention.

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User Comments – Give us your opinion!
  • Mike Wittenstein
    60119720
    I think that the results would have been different had JCP introduced its new store changes (MarketSpace) closer to the coupon discontinuation. They, using the metaphor of this post, the addicts (customers) could just switch drugs (what incentivizes them) instead of going cold turkey!
  • Dale Furtwengler
    60112654
    I find Johnson's comment "Our customer just doesn't understand our pricing." interesting. In that one statement Mr. Johnson has answered his own question about why customers aren't returning.

    It's not that they don't understand the pricing, it's that they don't see the value of that pricing. If Mr. Johnson and his marketing people would highlight the value of everyday prices to their buyers, those buyers could switch addictions.

    Instead JCP's ads continue to focus customers attention on price instead of value. It's like holding the drug in front of an addict and saying "Don't think about it."

    A simple change in their marketing message will allow JCP's strategy to flourish. As Bob said, the price buyers won't be back, but those who understand and appreciate the value of everyday prices will.

    Just an aside, if customers don't get something, as Mr. Johnson claims, whose fault is it? The seller's. We can't expect buyers to just 'get it.' It's not their job to figure out what the value is, it's our responsibility to communicate the value clearly so that they can quickly decide whether or not they value what we offer.
  • Brad Dawson
    60111126
    Here’s the thing, there customers are buying the deal, and the deal is tied to the coupon. In effect, they forced a change of behavior moving from a coupon deal base business model to everyday low pricing and that will, and did, alienate them from their customer. And, just think of all the word of mouth advertising they just threw away, customers who got the deal would have told there friends by word of mouth, via email, text facebook. So not only would they lose the initial sale but Halo sales as well and the numbers tell the story. What they might have considered, and to follow the theme, is to do with their customers as they do with addicts, provide a substitute to the coupons to ease those customers off the drug.
  • Bob Phibbs
    60110313
    Thanks for your thoughtful comments! Mike, I doubt the new marketplace will alter the addiction - it never was the products that excited them, it was the coupon. Dale, I would agree JCP continues to hold the drug in front of them which compounds the problem. Brad I think you are spot on but what is the methadone? Clearly not EDLP. Great dialogue everyone!
  • Brad Dawson
    60108326
    The fix for the addicts would be to work for the drug. This would accomplish two things, tap into the customer’s inherent need for the deal and dangle the carrot for even bigger deals. This way, not only are you using your addicts to get the word out but they are still getting the deal with not much effort. There needs to be unbalance coefficient with the reward vs. the work required or it will not work. For example, one option could be to use the power of social media, customers tell 5 friends and get 15%, tell 20 friends and get 20% off, tell 50 friends and all get 25% off. All the customer has to do is spread the word and get a reward. That is the first part of the equation. Second part is the more frequent/consistent a customer is with sharing the word they earn even higher rewards. Once you have that top group of social promoters the possibilities are endless, you could then target them with flash sales, send the elite group a coupon good for a specific time/day and product for them and a friend. Just an example of how to tap into the key motivators driving those customers. It is far easier to swim with the current then against it.
  • Bob Phibbs
    60108036
    Brad, so you're saying if you can't beat them, join them? I don't think that's my point or where retail needs to go. I think JCP was onto something to move away from discounting but their execution and strategies are flawed.
  • Cindy Chandler
    60105638
    I was working for Macy's when they implemented EDVP in the fine jewelry department. The lesson was learned quickly and the EDVP ended. The nightmare of changing price tags twice in 4 months still haunts me!
    Interesting conversation.
  • Brad Dawson
    60103321
    Bob, we both agree. The question was what is methadone, and that was what I was trying to answer. They do need to try and move away from the coupon environment but you just cannot go cold turkey as the results show what can happen, so you need to use what you have and work towards the change.
  • Cindy Chandler
    60064593
    Switching drugs makes sense.
  • Bob Phibbs
    59636922
    In the "told ya so" department tonight: Wall St. Cheat Sheet shared today at http://wallstcheatsheet.com/stocks/consumer-business-recap-j-c-penney-ceo-questioned-disneys-mobile-mission.html/ “It now seems that the company has all but completely reversed new CEO Ron Johnson’s questionable strategy of maintaining profitable ‘everyday’ prices by not having promotions (sales). The backtrack began on Memorial Day weekend, and plans are now afoot for several Black Friday events for later in 2012.”

    Again, once you’ve addicted customers, its next to impossible to hold on to them by going cold turkey – as I predicted about JCP.
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the Retail Doctor

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Bob Phibbs
Bob Phibbs, the Retail Doctor, is a popular motivational speaker and small business Consultant who has transformed thousands of businesses throughout the world with his straightforward, proven advice. His success at making over businesses has been featured on PBS Life & Times, in the Los Angeles Times, Entrepreneur magazine, and the New York Times.
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