After successful stretches at Target and Apple, it seemed as though Ron Johnson was a master marketer. But things went sour quickly after JC Penney hired him as its CEO. Johnson’s attempt to reinvent JC Penney’s brand, change its pricing strategy, and overhaul the way the company did business all fell flat. In fact, during Johnson’s 17-month tenure, JC Penney’s sales fell quickly, loyal customers deserted the company, and employee morale hit an all-time low. JC Penney hired Johnson in June 2011. The idea was to bring in a marketing whiz to revitalize the tired brand. Johnson seemed to have all the right credentials. At Target, he served as vice president of merchandising, where he was responsible for launching the Michael Graves line of consumer products that enhanced Target’s image. His most recent job prior to joining JC Penney was senior vice president of retail operations at Apple, where he was largely responsible for the sleek look and solid success of Apple stores. Johnson hit the ground running at JC Penney with bold plans. His goal was to revitalize the firm by breathing new life into its stores and brand. When he was brought in, JC Penney was an unremarkable but solid chain of 1,100 stores serving “middle” America. Founded in 1902 by James Cash Penney in Kemmerer, Wyoming, the firm’s annual sales approximated \($17.5\) billion when Johnson joined the company. When he left, sales had plummeted to \($13\) billion on an annual basis and it was running low on cash. What went wrong? Many analysts and observers believe that Johnson made three primary mistakes during his stint. The mistakes involve various facets of marketing, and they are mistakes that yield important lessons for startups.

Mistake #1—

Fair and Square Pricing. In early 2012, Johnson announced that JC Penney would no longer offer merchandise on “sale.” Instead, the company would offer “fair and square” everyday low pricing. The idea was to offer a fair price from the get-go, rather than marking a product high and then cutting the price several times before eventually getting to the fair price. This revised approach to pricing in JC Penney stores did not work. It turns out that shoppers like looking for bargains. It is somewhat of a game—shoppers see a new shirt or blouse priced at \($50\) and then wait for it to go on “sale” for \($35\) before buying. None of the shirts or blouses sell for \($50,\) so Johnson figured why play games, just list the shirt or blouse for \($35\) from the outset. But it turns out that shoppers liked playing the game. There is a certain satisfaction in “saving” \($15\) on a shirt or blouse that a shopper does not get paying the same price initially. As a result, loyal JC Penney shoppers left in droves for T.J. Maxx, Kohl’s, and Macy’s, where the game was ongoing. Terminology was also a problem. As part of fair and square pricing, for a while JC Penney had two tiers of pricing: red tickets indicated that the items were “everyday” merchandise pricing, and clearance items had blue stickers indicating “best price.” The result was widespread customer confusion. Shoppers did not understand the terms’ meaning. This was another reason to abandon JC Penney and go to a different store. In fairness to Johnson, fair and square pricing did work at Apple. Apple does not price computers, iPhones, or iPads at one price and then slash the price and offer the product on sale. The mistake Johnson made was to equate the way people buy technology products with the way people buy clothing and other products available from JC Penney. Consumers are familiar with the process of paying full freight for technology products but not for clothing. By the time JC Penney tried to reverse its pricing strategy, significant damage had been done.

Mistake #2—

No Testing of Ideas in Advance. The reason Johnson did not anticipate the negative response to fair and square pricing is because the firm did not test the new pricing approach in advance. When Johnson proposed his bold new strategy, some asked about the possibility of trying it out on a limited test basis. According to several published reports, Johnson shot down the idea by saying that he did not test at Apple.
Imagine what the firm could learn had it chosen to test fair and square pricing at a handful of stores before rolling it out system-wide. The fact is that JC Penney’s loyal customers loved sales and the prospect of finding a “steal” via rounds of markdowns. Also, a simple trial period should have revealed the type of confusion resulting from the new terminology the firm chose to use.

Mistake #3—

A Total Misread of JC Penney’s Brand. Perhaps the most damaging mistake was a total misread of JC Penney’s brand. Johnson envisioned JC Penney stores having “stores within the stores,” which would be boutiques where people could buy specialty merchandise or get their nails done. He wanted JC Penney to be Americans’ “favorite place to shop.” His goal was for people to show up and hang out at JC Penney stores, like people hang out at Apple stores, and gladly pay a full but fair price. This did not happen, however. JC Penney’s core clientele was thrift-minded shoppers who brought impatient kids into the store to buy school clothes. The tendency for these customers was to move through the stores quickly when shopping. The consensus view is that Johnson wanted JC Penney shoppers to be something they were not. He wanted them to be more like Apple shoppers. Instead, there was more overlap with T.J. Maxx or even Walmart customers.....

Discussion Questions:

1. How does a startup establish a “brand”? What do we learn from JC Penney’s miscues about the importance of branding?
2. We do not mention the concept of selecting a target market and establishing a unique position within that market specifically in this feature. Nonetheless, what do we learn about these two topics from JC Penney’s miscues?

3. What type of testing should a startup complete to ensure that its initial customers see its brand in the way the company intended?
4. Do a little Internet or gumshoe research on JC Penney today beyond what appears in the feature’s last paragraph. Where does the company stand in terms of how it prices its products? What does the company’s brand mean to consumers today?