The spectacular marketing fail of JC Penney

 
May 24, 2012 | by Bob Phibbs

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.


Topics: Consumer Behavior , Customer Experience , Loyalty Programs , Marketing


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.
www View Bob Phibbs's profile on LinkedIn

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