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Marketing With Coupons: Do You Need a JC Penney Drug Intervention?

“Coupons were a drug,” - Ron Johnson, JC Penney CEO

coupons are a drug

Beginning over ten years ago I was the lone voice saying coupons don’t work to market a profitable retail business in my first book, You Can Compete.

When Groupon and the rest came in a couple years ago, I shouted even louder.

Still a lone voice.

But were my fans listening?

Sadly, not all of them.

One of them complained to me a few months ago, “Customers just won’t come in unless we heavily discount.”  Today she told me that her store was starting the liquidation process and will soon be gone.

Could this same story happen to you?

The Drug of Coupons

Like some crack dealer in a dark alley, are you beckoning your customers into your store with coupons that bring immediate satisfaction, only had by “getting a deal?”

You gave them their first shot in the vein with a 10% off coupon, then more with 20% off, then even more with 40% off and the hybrid “Save 20% off our already 50% off discounted sale items.”

The urgent need to bring customers back led you to offer more and more coupons.

Just like the addict, you refused to realize your system could not survive with such an unhealthy habit.

But the curious came. And they shopped. And you told yourself they came back because of you.

But it was really the drug of the coupons.

And as you offered them more and more, customers used them again and again. They relied on those coupons to make them feel smart at not “overpaying” the full price markup.

In order to offer so many coupons, didn’t you increase your prices to offset the discounts?

JC Penney acknowledged they did by saying, “No more ‘fake prices.”

The trouble with drugs, besides their addiction, is that some day, somehow the addiction has to end. Either there is an intervention or a death.

JC Penney Reveals the Reality of Couponing

While you may have read my 7 Reasons Coupons Shouldn’t Be Used For Your Marketing, you might have thought, “Yeah well, since coupons bring customers come in, I’ll keep using them to market my retail shop.”

That’s what the management team of JC Penney must’ve thought for the past many years, as the lackluster brand seemed stuck with their coupon-based marketing.

That is until Ron Johnson came to JC Penney last year and found 590 promotions had been run for the brand, mainly through coupons.

Johnson’s bold idea was to make Penney’s customers go cold turkey, and he discontinued coupon use as their marketing tool.

His evidence seemed sound: Each promotion cost Penney’s around $2 million and only brought in an average customer four times a year. Before Johnson took the realm, nearly two-thirds of products were sold at a 50% discount.

Hence, turning off the steady spigot to coupon-addicted customers.

Instead, JC Penney would now be a chain with Every Day Low Prices (EDLP).  They reduced prices about 40% to the level where most of its couponed sales occurred anyway.  That’s because they realized they had essentially trained its shoppers to never buy anything at full price.

They launched a big ad campaign to explain that every day every customer could now get “the deal.”

In essence, every day you could get the coupon price, without the coupon.

The media heralded the news, the stock jumped and the new ads ran.

Only one thing was missing…. JC Penney’s loyal customers.

This past week Penney’s shared the shocking results of their coupon-intervention:

  • Traffic down 9% during the week.
  • Foot traffic down 12% on the weekends.
  • Sales down 20% from the previous year.
  • 28% decline in Internet sales.
  • Loss of $163 million for first quarter versus $64 million profit same time last year.

Ron Johnson’s explanation? Our customer just doesn’t understand our pricing.

And who’s fault was that?

Squarely JC Penney’s, that’s why Standard & Poor’s lowered the company’s corporate credit rating to “BB-” from “BB” and placed it and other Penney ratings on CreditWatch with negative implications.

Without the coupon to give them their fix, customers have no immediacy to come into the store. So they weren’t coming.

Hence the sales tanking.

And here’s my point to retailers…

You have to remember how much money you have to make up to offset coupoining .If you never make full price on your merchandise, there is no margin to support the business.

Something’s got to give.

How long could you last with your sales dropping 20%?

Looking at the merchandise in your store, could you reprice it to be 40% less? Would that attract enough people to stay in business? Would you be able to keep the quality of your inventory, your marketing and your employees?

Probably not. Something would have to give….

Listen to me, couponing is a dangerous drug. If you’re using them, wean yourself off and give customers reasons to shop your store for full price.

Stop now to avoid saying later, “They won’t come in unless I offer a coupon.” That’s the first step towards liquidation.

Don’t say I didn’t warn you…

To discover how to build your business without coupons, check out a free chapter from The Retail Doctor’s Guide to Growing Your Business (Wiley.)

What say you? Are you addicted to offering coupons? Using them? What would it take for you to pay full price?

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Posted by Bob Phibbs, the Retail Doctor on May 22, 2012.

This entry was posted in Retail Sales and tagged , , , , , , . Bookmark the permalink.

10 Responses to “Marketing With Coupons: Do You Need a JC Penney Drug Intervention?”

  1. Dave Smith says:

    I stopped using coupons about 12 years ago and will never return.
    I also do not hold sales events; I continually have specials which often are items we have had for some time (too long).
    Dave Smith

  2. Hartland says:

    We have used coupons and monthly circulars forever. The question is ‘Now What?’ Especially in the face of increased advertising from the chain retailers. We have also maintained EDLP with the top items (yes, even against Walmart). We are now at a point where even the coupons don’t work. Season long EDLP works sometimes for seasonal items.

    • In looking at your site, it appears you really emphasize price over everything else; your home page is nothing but coupons. Yet your Twitter post showed a shot of homemade fudge. I would suggest get away from screaming price price price – you’re only adding fuel to the fire of customers expecting you to discount.

  3. mprater says:

    Bob
    My competitors offer a sale every Wednesday with 20% off, every Monday is Senior day with 20% off, and only cash days on Friday with 20% off. It started with one store and before you know it all the consignment stores in the area are now doing this. Our shoppers come in and ask why we don’t do it? We price our items very fair and reasonable. The problem is our shoppers have been given these discounts and expect us to do the same. We can’t. I feel it’s hurting our business. How can we get past this?

    mprater

    • It’s kind of a game of chicken right? Who’ll go out first. Some retailers mark their items up higher then discount them on off days in an attempt to “get them to come in when we need them.” The danger is customers who see that, then come in on a busy Saturday will ask for that same discount. I just took a look at your website which says, “Everyday Is a Sale Day! …All items are marked down from it’s original price starting at 50% to 70% off. Nothing stays on the sales floor for more than 60 Days. Items are marked down 20% at 30 days.” If you want to get past it, stop making it all about price on your end. It is about the solution for the customer, not that you mark things down. It is an internal dialogue you need to have and leverage what you have in store.

      Take a look at this Youtube video I helped a consignment shop do in Maryland http://www.youtube.com/watch?v=qodTJMRJ-eY I recommended she do one each week to post on Youtube, her FB account and a blog to notify people what she has in store. I suggest you do something similar if you want to break the addiction before it breaks you. Thanks for commenting!

  4. Vderks says:

    I for one LOVE JCP’s new marketing and store redesign. It has me shopping there when I NEVER did before. It was a store my Mother-in-Law shopped at, not me. Now however, they have me excited and I have shopped there several times since the change over. I wonder if their numbers reflect the fact that they redesigned away from their base and they will need to wait a bit for their previous NON-CUSTOMERS to catch up.

  5. Thomas Huynh says:

    I bought shares of JCP after it crashed a few weeks ago expecting they’d stick to the strategy. The crash was to weed out the bad investors. But now the company is going back to its old games and margins will continue to suffer. This is frustrating for customers like myself who have come back and now the deadbeat customers who were never profitable are coming back. A horrible situation for JCP and I will be selling my shares soon.