JC Penney CEO Failing Because He Used Gut and Not Data

Ron Johnson, CEO of JC Penney, is in the hot seat due to a $552 million reported Q4 2012 loss and the company’s core customers taking flight into the arms of competitors. Sales were down during the crucial holiday season by 28% year-over-year.

In 2011, Johnson rode in on his white horse from Apple, set to completely revamp the stagnant Penney brand. He worked under Jobs as the SVP of Retail Operations where he pioneered the experience of the Apple retail store and the Genius Bar. Before that, Johnson was vice president of merchandising for Target and responsible for the booming success of the Michael Graves line of housewares.

Johnson was no stranger to making risky decisions based on gut and he previously belittled testing as hampering creativity and innovation.

At Target, with the Michael Graves line, Johnson believed it would be a big hit. So rather than stocking just a few to start, he gambled on 140 Graves-designed products and placed them at the front and back of each aisle. “The math was simple,” he says. “If I didn’t sell one piece but people looked differently at the other 96% of products, we’d win. It’s always about mindshare, not market share.” (Fortune, 2012)

JC Penney CEO Failing Because He Used Gut and Not Data image Ron Johnson genius bar 300x200Ron Johnson genius bar

Image: wwd.com

As the visionary behind the Apple Genius Bar in the company’s retail stores, Johnson even admits that if you looked at the data after a year and a half, the Genius Bar should have been removed, but “it was something [he] believed in with every bone in [his] body.” However, at Apple, Johnson represented a very small piece of the (apple) pie. His reliance on gut and instinct over analytics would not make-or-break the company.

His perseverance, drive, and creativity is to be commended but his downplay of the importance of data and testing in making marketing decisions may just be the reason for JC Penney’s demise.

When Johnson first took the reins at Penney, and a colleague suggested testing his no discount strategy at a few stores before rolling it out to all 1,100, Johnson bristled “We didn’t test at Apple.

Johnson made some critical errors and showed that even though his gut steered him right in previous endeavors, in this case it was wrong; in this, he completely missed the mark and, unfortunately, the stakes are large.

Sadly, Johnson is not alone in his “gut instinct” approach to marketing. A study by Columbia Business School BRITE in 2012 found that 28% of CMOs admitted to making decisions based mainly on gut instinct.

JC Penney CEO Failing Because He Used Gut and Not Data image jc penney new store 300x168Jonathan Adler

Photo from new JC Penney display from Jonathan Adler. Image: dispatch.com

What can marketers learn from Johnson’s “gut instinct” blunder?

Small spend, fast learn. This is a mantra at OttoPilot and is one of the best ways to allow your organization to be extremely creative without losing its shirt. By testing a hypothesis on a small subset, and seeing if there is even a slight move of needle, companies can feel more comfortable in allocating more resources to a specific campaign or initiative. In the Penney case, this did not even have to be higher store sales but could have even looked at online sentiment analytics for the areas of roll out to see if the idea had any legs. Any testing and metrics would have shown early what the results would be.

Assuming that one buyer is the same as the next. By believing that JC Penney customers would behave in the same way that Apple customers behaved, Johnson doomed the company. JC Penney customers were used to interacting with JC Penney offline (in the store) but Apple customers did not have any point of reference. When you’re changing a current customer experience, it’s important to understand what motivates the current customers, what they respond to, and what is not broken. Similarly, if you look at an online user experience, a digital marketer must first understand how a user uses the old system to make an even better experience or he will risk alienating the current customer. Don’t throw it all out before you know what actually works with the old system.

Messaging alignment. Even though JC Penney’s ads made the company look new and fresh, when a buyer actually walked into the store, they were not greeted with the same brand messaging. This left potential buyers confused–never a good sign, online or offline. As a digital marketer, this reminds me of companies that use a very compelling call-to-action button or online ad, and then when you actually get to the landing page, it’s not at all what you were led there with. Can someone say high bounce rate? And that’s just what JC Penney prospects did in the store, without bags in their hands.

What do you think? Do you think that JC Penney will be able to turn it around?

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