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.
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?