Rule #1 in trying to generate a successful business is to realize you need a unique and appealing benefit for the customer. Ideally, the benefit is supported by a sustainable advantage that delivers superior value versus your competition.
Sometimes the advantage comes from the product itself. Advantage can also be generated via ease-of-use or accessibility. Additionally, there are times when the advantage is created via the image of the brand; not necessarily the product (e.g., high-end cosmetics and clothing).
We’ve had a recent example of a leader of a high-profile organization who obviously ignored a lot of this kind of thinking. For a very long time, up until a year ago, JCPenney was known as a retail outlet that offered merchandise that was a cut above the mass merchandisers like Walmart but provided real value and supported that benefit promise by very frequent sales of items of good quality. Among department stores, its uniqueness was that it was positioned below Macy’s in terms of status, but above the mass merchandisers so it occupied a very appealing position over the years.
On the other hand, JCPenney stagnated in the 2009-2011 period with competition closing in on them; Target from below and Macy’s from above. Hence, the board decided to bring in a new CEO, Ron Johnson, previously of Apple.
At Apple, Johnson’s claim to fame was being the father of the Apple retail outlets which were a raging success, selling leading-edge, premium priced products in a very simple but contemporary setting. Unfortunately, when he arrived at JCPenney, he immediately concluded he needed to turn JCPenney stores into something akin to an Apple store. He eliminated all notion of a sale and secondly, began forming independent boutique’s within each JCPenney store. Each of these boutiques was focused on a fairly well-known name brand such as Levi’s.
This rapid and dramatic change at JCPenney totally baffled JCPenney’s loyal customers. He was trying to take JCPenney upscale while their shoppers wanted a respectable but low-price alternative that offered some terrific deals each and every week.
As you’ve been reading, the results have been a major catastrophe for JCPenney. Sales are down over $4.0 billion versus a year ago and the stock price is off 55%. While the holiday season is typically a major boost for retailers, for JCPenney, same-store sales for the recent holiday season declined 32% versus a year ago.
Believe it or not, Johnson continues to believe his strategy makes great intellectual sense. While he has recently moved to reinstate some couponing and weekly sales, he remains committed to the in-store boutiques. Rumors are now circulating that the JCPenney board may be on the verge of firing Johnson.
So what’s the learning from all of this? There are three key points that I take away:
1. Your strategic benefit needs to be unique and appealing.
There is no doubt that a year ago, JCPenney was in trouble. Since retailing is a business where you can isolate a few stores in a small geography and test your way to a successful new benefit that provides uniqueness and appeal, it is dead obvious that Johnson should have tested his ideas. He risked everything by immediately launching a national plan that made no sense to consumers.
2. Changing strategy on an established brand is very risky.
No matter what the category, if your current strategy is well known to consumers, it is a delicate job to move those consumers to a new way of thinking about your proposition. Ideas need to be tested thoroughly and most importantly, you need to investigate the potential loss of consumers just as importantly as you test for the gain of picking up new consumers. Obviously you want to minimize your losses and maximize your gains.
3. Keep it simple.
Strong strategy/benefit statements are one sentence and describe very clearly the advantages you will provide that distinguishes you from your competition. The benefit needs to be unique and appealing, and very simple. In the case of our JCPenney example, it’s not quite clear what the new consumer benefit was that Johnson thought he was delivering to consumers.
The principles above are not complicated. On the other hand, what is hard is to realize that with each new business you need to humbly start at ground zero and objectively apply these principles to the new situation.
—Bob Herbold is a retired chief operating officer of Microsoft and managing director of The Herbold Group, and author of "What's Holding You Back? Ten Bold Steps That Define Gutsy Leaders" (Wiley/Jossey-Bass). Bob blogs about leadership at bobherbold.com.
[Image: Flickr user Nick Wheeler]