I love the way you lie

Whether you stumbled upon Richard Chang’s excellent article “Outlets may not be the bargain you think“–or happen to remember my post from 3 years ago entitled “Faux clearance: Do outlet customers really care”–you may already know that the vast majority of merchandise sold through outlet and off-price channels is made specifically for those stores. Moreover, most of the purported discounts are entirely made up.

With few exceptions, much of the product sold through “regular” channels–department stores, specialty stores, e-commerce–is sold at a discount, and often a substantial one. Open today’s newspaper, or go on-line, and you will see tons of product discounted 20-50%. If you are a Joseph A. Bank customer you can often get a “Buy 1, Get 2 Free” deal. Take advantage of an additional savings coupon, or use your store credit card at many retailers, and you’re likely to reap at least another 10% discount.

While, arguably, we have seen an uptick in promotional intensity in recent years, the notion of marking something up to be able to then claim big savings has been a core component of most brands’ playbooks for at least as long as I’ve been in retail–and that’s over 20 years. For many retailers, the concept of “regular” price is purely fictional.

An essential part of Ron Johnson’s attempt at transforming JC Penney was the concept of every day, “fair and square” pricing. Surely–his left brain must have told him–customers would understand that $40 every day is better than $60 some days and $40 only on the days we happened to be running a sale. No more smoke and mirrors! No more waiting for a sale! No more wasted costs on advertising and store expenses to manage this expensive con job!

Well, we all know how that turned out.

My hope is that brands will be far more transparent in their pricing and discounting strategy. But barring legislative action, my experience tells me that holding my breath for this wish will only turn my face blue.

Whether it’s out of customer ignorance or some weird twist in evolutionary biology, the reality is we’re all part of a grand delusion.

We love the way you lie. And more, apparently, is better.

 

JC Penney: Gloat edition

What’s the difference between God and Ron Johnson?

God never thought he was Ron Johnson.

In the wake of Ron Johnson’s ouster as JC Penney CEO there’s been plenty of gloating.

In fact, nearly all of Johnson’s tenure saw myriad industry analysts, pundits and denizens of the 24 hour news cycle become practically giddy in pointing out the perceived failings of his transformation strategy and his seeming lack of self-awareness.

When he finally got the axe, the sheer volume of “I told you so” and “it’s about time” tweets made me think that Twitter was going to launch a sister site named schadenfreude.com

Now regular readers of this blog will surely recall that I have written multiple posts, as early as March of 2012, challenging Johnson’s strategy and predicting its failure. Frankly, having been the head of strategy at two Fortune 500 department store retailers–and now being in the business of peddling strategic advice to the retail industry–I believed I had both the relevant experience and the marketing need to be out there as a vocal critic.

But I do think it’s entirely fair to say that, at times, I did go overboard. As an ego addict in recovery, I find that this still happens from time to time.

I hope that any of us who may have taken perverse pleasure in pointing out the foolishness of the Johnson regime come to accept at least three important realities.

First, that their mis-steps have resulted in real pain for many, many people, primarily through significant job losses.

Second, that the new team has to quickly catch the proverbial falling knife, stabilize a rickety ship and sort out a compelling strategy from the ruins of a woefully misguided one.

Third, that the job of the new team will be even tougher than the one Johnson assumed.

So let’s get the jokes, the gloating and the schadenfreude out of our system. There is important work to be done.

 

 

 

Humblr.

If we’ve learned anything from Ron Johnson’s 17 month tenure at the helm of JC Penney, it’s that he and his new team could have benefited mightily from demonstrating greater humility.

All too often when conflict emerges among nations, families, teams or individuals, it’s a visceral need to be right that stands in the way of progress and compassionate connection.

If I’ve learned anything from my own journey during the past few years, it’s that I am at my absolute worst when I let my ego run the show. Defensiveness and self-righteousness are my enemies, not the solution.

Kindr.

Gentlr.

Humblr.

A new way to connect.

It might be worth a try.

In gut we trust

A couple of weeks ago I had the opportunity to hear Ron Johnson–JC Penney’s new CEO–present an outline of his transformational strategy. Short version: take a heaping tablespoon of Apple, add a dash of Target, fire the deadwood, stir, and then… a miracle happens.

To be fair, there were plenty of bold, inspiring new ideas presented–and I absolutely agree that Penney’s needs much more than a modest upgrade.

But the scariest thing was Johnson’s insistence that it was sensible to do zero consumer research and eschew any real customer analysis (in fact, one of the first things he did when he took the helm was to blow up both the strategy and the customer relationship management groups). He glibly mentioned the collective experience of his new hires and said that was sufficient to decide on the new strategy.

While reporting dismal quarterly results yesterday, Johnson and team said they were surprised how hard it has been for their new strategies to take hold and by the degree of the corresponding sales decline. Really? They were only surprised because they failed to do the analysis before they boldly swung for the fences.

Consumer research and robust customer data analytics are not the be all, end all.  As the name of this blog suggests: customer-centricity is both an art and a science.

Of course, history shows us that consumers are often not very helpful in reacting to innovative new products or programs. But history also shows us that some of the most successful brands have embraced deep customer insight and competing on analytics not only as a foundational element of their strategy, but as a major source of competitive advantage.

You may be able to thrive on gut feel when you have a superior product line, little direct competition and a simple operating model. But in most businesses, customer-centricity means developing deep customer insight, robust analytic capabilities, actionable segmentation schemes and a commitment to treat different customers differently.

For Penney’s leadership it’s time to get humble, admit you have a problem and take the steps to get back on track.

 

JC Penney swings for the fences (Part 1)

New CEO Ron Johnson’s first big move to re-invent JC Penney was to eliminate their intensely promotional high/low pricing strategy. The key elements are:

  • Moving most products to “fair and square” every day pricing
  • Establishing month-long themed value pricing for certain key items
  • Simplifying and creating regular break dates for permanent markdowns.

To break-through the sea of sameness that envelops the slow growth moderate department stores space, Penney’s clearly needs to take bold action. And any student of retail knows that other needed changes to product assortments, in-store experience and digital strategy will take multiple years to fully implement. So what should we make of this “radical” new pricing initiative?

First, anyone who knows retail knows how foolish a high/low pricing strategy seems. The amount of money spent advertising events in weekly circulars and various broadcast media is enormous (and increasingly ineffective). The payroll and collateral costs of constantly changing in-store signing is a major line item. And “forcing” consumers to wait for a sale or have a coupon or get your store credit card to obtain the best price is seemingly a big customer dissatisfier.

So going to “fair and square” everyday pricing would seem to be a win for the consumer and a major improvement to any retailer’s earnings. Why not emulate Nordstrom and get both great Net Promoter scores and have an advertising to sales ratio that is the envy of the competition? It’s a slam dunk, right?

Well, not so fast Skippy.

First of all, unlike Nordstrom, every promotional retailer like Penney’s (and Sears and Macy’s and Bed, Bath & Beyond, etc.) has taught their customers–over many, many years–that their “regular” price is a sucker price. Reversing this perception will not happen quickly, no matter how creative your new ad campaign is and no matter how much money you throw at it in the first few months.

Second, every retailer has a customer segment that is intensely deal driven. This group refuses to buy unless they are convinced they have gotten the best possible price. And they believe they can ferret that out. They love the thrill of the hunt. Buying something without some special incentive is an anathema to them.

History shows–whether you are Sears, Macy’s or Saks–that when you pull back on promotions this segment’s business drops like a rock. If they are a tiny fraction (or an unprofitable piece) of your sales, it’s not a big issue. If, as I suspect is the case at JCP, they are a meaningful profit contributor, the short-term hit is significant and they will be hard to win back.

Third, like it or not, promotional marketing creates urgency to buy. Major events with limited time offers drive traffic. In-store messages that shout a great deal increase conversion. Over time hopefully Penney’s can teach their consumers that every day is a good day to check out their store and that there is no reason to shop around for a better deal. In the immediate term sales will suffer.

Lastly, and perhaps most importantly, the math on everyday pricing is tough. While it is true that most consumers buy at the lowest promotional price, it is also true that there are plenty of customers who pay full price (or receive a lesser discount). To achieve the same gross margin percentage would mean setting an everyday “fair and square” price that is above the lowest historical promotional price. But by doing that, you will be uncompetitive with your direct competitors.

An informal price check I did yesterday (at the mall closest to Penney’s corporate headquarters) revealed that Penney’s price on several key national brands was several dollars higher than Macy’s and Sears. For consumers that pay attention to such things, this will undermine JCP’s pricing integrity and cost them business. This also creates an opportunity for Penney’s competitors to attack them directly on the one major initial plank of their new strategy.

The other alternative is to set prices to be consistently competitive day in and day out. Doing so will drive Penney’s gross margin rates down, which will require a very significant increase in sales just to maintain the gross margin dollar productivity at last year’s levels–which weren’t at all impressive.

Penney’s has acknowledged that they expect to take a near-term sales hit as they implement their new pricing strategy. And everyone recognizes that pricing is just one piece of a multi-faceted, multi-year transformation.

My fear is that this pricing change is much more of a swing for the fences move then the new management team realizes and that the first few innings of this new game will be far more brutal than expected.

While unconfirmed, initial reports are that sales having taken a bigger hit than management anticipated, which could lead to inventory issues and a huge loss of momentum for the new leadership at Penney’s.

I applaud Ron Johnson’s willingness to go big and bold. However, I expect his credibility and tenacity will soon be tested.

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In Part 2 I explore what else Penney’s new strategy must entail.