The Baby, the Bathwater and the Consumer (On Consumers)

Nothing succeeds like success. And part of the recipe for success in the retail world comes from knowing your customers and understanding their expectations. Let us explain using a recent real-world example.

If you've been reading "On Consumers," you'll recall our piece in April about consistency and JCPenney's new pricing and marketing strategy. As we reported last spring, the century-old department store embarked on an attempt to reinvigorate its brand by positioning itself as a one-stop shop with everyday low prices. Its pricing approach to help achieve a new focus on consistency abandoned the hundreds of sales the retailer promoted on an annual basis for a three-tiered pricing strategy of daily low prices, monthlong promotional sales and seasonal clearance sales. Simple and straightforward, right? Pricing you can count on month in and month out. Got it?

Well, it seems that JCPenney either did not adequately test the new strategy through focus group research or didn't effectively execute and communicate to its customers the features of the new strategy and the resulting consumer benefits. In a word, the customer became confused. At the end of the second quarter, business headlines screamed such indictments as "Penney sales decline again" and "Analysts blame new pricing, marketing strategies."

What we opined in April about the change was that "... we're simply not sure about the new ‘fair and square' pricing strategy in the department store category." We all understand everyday low prices in the discount store model. But at department stores? We weren't sure then and we're not sure now.

Ron Johnson, the relatively new CEO of JCPenney, whose experience comes from heading Target stores, put it clearly in interviews when he stated he believes customers are offended by department stores' usual high prices followed by quick markdowns. As we said in our previous report, Johnson thought this traditional pricing strategy was off-putting, as customers were wise to wait until items are discounted. This may be true of the Target or Wal-Mart shopper, but apparently not of the department store shopper who appears to be perfectly content to ebb and flow his or her shopping experience as inventory is introduced, hyped and promoted, marked down and moved out - in a consistent, expected cycle.

Mistakes were made, Johnson admits. The Associated Press reported that in May, the company's stock plunged 20 percent as revenue dropped in the first quarter by more than 20 percent. Business continued to plummet in the second quarter, while the store canceled advertising as it regrouped and tried to figure out a new game plan.

Now in addition to pricing, JCPenney is also attempting to transform the stores from the predictable racks and displays to brand shops, or stores within a store, that specialize in lifestyle marketing and experience selling. If the pricing model can be worked out, perhaps the new store layout and positioning could work to attract a new type of department store shopper and ultimately increase sales. We'll see.

What is important to understand in this example is that consumers desire consistency matched with their expectations. They pigeonhole types of stores into what they expect the store to offer and how they expect the merchandise to be priced. Just as Wal-Mart was less than successful in promoting well-known brands instead of sticking with discount merchandise, department stores like JCPenney will be hard-pressed to jump the divide between everyday low prices and markdowns, discounts and sales, as it attempts to create a hybrid.

The branded store within a store concept may have merit. However, the pricing strategy that drives a store's position in the marketplace need not be tinkered with in order for the revamped store experience to succeed.

It seems JCPenney is learning an important lesson about the baby and the bathwater: Instead of throwing everything out, first understand the customer's expectations and test new concepts against those expectations before launching a whole new approach to pricing and marketing. We'll continue to stay tuned.

(Craig Douglass is an advertising agency owner and partner with Zoe and Ernie Oakleaf in InFocus LLC, a Little Rock focus group research company.)