Wednesday, March 25, 2015

How JC Penny Relates to our Readings



The reading Building Your Company’s Vision stressed creating a core ideology for your company. It stressed that a company’s core ideology should not change. Macys has followed this train of thought and has consistently throughout the years serviced middle income consumers. It has focused on merchandise that caters to its core customer base and has intensified its coupon selling campaigns, which create word of mouth buzz and attract its cost conscious consumers. By focusing on what it does best, Macys over the years has increased its operational effectiveness.

However, not all companies follow this credo and it can lead to poor performance. JC Penny started out as a low cost retailer that served middle income consumers. But, a few years ago JC Penny changed its strategy in order to differentiate itself from similar retailers. In doing so, the company alienated its consumer base. The CEO of JC Penny created unique boutiques within each store and added services to the center of the store, such as areas for people to get their nails done. Furthermore, he got rid of promotional pricing and instituted everyday low prices. However, many of JC Penny’s dedicated customers enjoy shopping for deals. Therefore, when JC Penny got rid of its coupons and sales, the company saw a severe decline in sales revenue. The company forgot that one of its core values and in fact its reason for existing was to provide low cost clothes to cost conscious consumers.

Clearly, had the CEO read The Balanced Scorecard he would have known that customer perspective is important. Had JC Penny asked the question, “How do customers see us?” They would have come to the conclusion that JC Penny is viewed as an affordable retailer that offers bargains and discounts. Instead, the CEO made the mistake of catering to a more affluent customer base that it did not have. It was also a consumer base that did not see JC Penny as a retailer for the affluent. Therefore, his strategy only served to alienate his current customers and spend large sums of money on a new customer demographic that was slow in becoming devoted new customers. Johnson’s tenure as CEO only demonstrated that he did not understand the JC Penny brand. He thought customers just needed to be educated in order to accept the new pricing strategy. However, it was his failure in understanding what customers wanted from JC Penny that was at the heart of the problem.

After Johnson stepped down as CEO, JC Penny returned to its old pricing strategy. Once the company brought that back they saw an uptick in sales. Its old customers were returning to the store. Therefore, it is clear that understanding your company’s reason for being is important for financial success.

Sources:

http://www.forbes.com/sites/hbsworkingknowledge/2013/08/21/what-went-wrong-at-j-c-penney/

http://business.time.com/2013/04/09/the-5-big-mistakes-that-led-to-ron-johnsons-ouster-at-jc-penney/

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