In the fall of 2011 the famous designer of Apple stores, Ron Johnson, was named CEO of the American discount retail chain, JC Penny. What ensued can only be described as a nuclear meltdown.
Upon being named CEO, Mr. Johnson determined that over 50% of JC Penny’s merchandise was being sold at a discount and his first order of business was to declare a “Fair and Square Pricing” policy which was code for there would be no more coupons and no more discounts. Next he proceeded to further alienate his cost conscious customers by creating separate, upscale, brand specific shopping boutiques within the stores.
For those unfamiliar with JC Penny suffice to say it’s known as somewhere working class parents take their kids to buy underwear and socks; not where hip Moms and Dads take their kids to buy a new iPod! Mr. Johnson’s plan was executed well but his strategy of trying to transform cost conscious customers into upscale purchasers was a disaster of Zeppelin like proportions.
Planning is about managing the things you control – the number of stores, how they’re designed, couponing and discount policies are all examples of things you plan. Strategy is about things you don’t control – creating new opportunities and customer experiences that will profitably grow the business. Understanding customers’ needs and then designing stores and sourcing products that can bring them real value – that’s strategy and good strategies are a rare phenomena in today’s business world!
Since creating new business opportunities is about predicting future customer behavior it’s usually not a good idea to “bet the farm” on any one idea but rather create a portfolio of options. Did Mr. Johnson ever consider the option of trying out his idea in a few stores first? Any so-called strategy that ignores your target customers isn’t a good one and is doomed from the get go. Perhaps some of Ron Johnson’s ideas were appropriate for a different customer segment but did he really believe that by changing JC Penny into giant Apple stores he could change the purchase habits of millions of cost conscious customers overnight? ‘Mr. Johnson never isolated the central reason for being nor did he provide anything to make JC Penny stand out from the pack.’1 With plummeting sales and cash running out Mr. Johnson was jettisoned after 17 months.
Here are some questions author Roger Martin2 suggests you answer to help build your strategy:
- What business should you be in? Clearly, JC Penny was a discount retailer.
- How do you add value to your business? Not by adding upscale boutiques
- Who are the target customers? JC Penny targeted working class value seekers
- What is your value proposition to those customers? This wasn’t clear for JC Penny
- What capabilities are essential to differentiating your value proposition from your competition?
Mark Cohen, the former CEO of Sears Canada, perhaps described it best by saying, “JC Penney had been run into a ditch when he (Ron Johnson) took it over. But, rather than getting it back on the road, he’s essentially set it on fire.” 3 A business strategy is never about what you want to do. It’s always about creating value for your target customers. Create value – develop a strategy!
1. The 5 Big Mistakes That Led to Ron Johnson’s Ouster at JC Penney | TIME.comhttp://business.time.com/2013/04/09
2. The Big Lie about Strategic Planning, Roger Martin, HBR Jan/Feb 2014 p78
3. Quote found in Same as 1