Katlyn Whelan

11/3/2015
JC Penney “Square Trade” Case Analysis

Evaluate the overall effectiveness of the “Fair and Square” repositioning strategy. How well
or poorly do all of the elements work together or work at odds with one another to deliver a
coherent whole? What elements are missing?
The “Fair and Square” repositioning strategy is a value-based proposition, where J.C. Penney
(JCP) is attempting to capture more value through everyday low prices (EDLP) and alter the
perception of customers to see JCP as an everyday shopping experience versus a store that
thrives on deals and promotions. This issue that JCP is running into is price is not a way to
create value, it is a strategy to capture value. A company strategy that is focused on price
neglects the value creating elements of the marketing mix that really create long-term value
and success of the overall strategy.
Neglecting to conduct market research to assess customers’ current perception of JCP
and their thoughts on the pricing change was the first critical mistake. In terms of performance,
JCP knows they are positioned between price-oriented mass merchandisers, such as Wal-Mart
and Target and higher end department stores like Macy’s and Nordstrom. However, the lack of
information about customer perception before making brand/company-changing strategy
decisions almost seems foolish. Without clear information about customer’s perception of the
brand, it is difficult to know “where you are going” without knowing “where you stand.”
JCP’s seemingly secondary efforts to create value along with this pricing strategy
included a new logo, spokesperson, store design, and sales structure. The new logo and store
design work well to promote the new “Fair and Square” pricing strategy in the visual depiction;
essentially they are literally square. However, with the addition of more high-end brands and
more upscale/specialty store layout it seems a little confusing for customers to increase the
value of the products in the store but keep prices “fairly” low – it lowers the perceived value of
those products for the customers. The change in sales structure also seemed to miss the mark,
as communicating the strategy to the sales team and explaining their critical role as “product
experts” in the overall plan should have been the first step – versus just taking away their
commissions. Without the communication to the sales team, it is sending a message that they
are valued less when in reality the strategy is relying on them more.
The almost non-existent component of the strategy’s marketing mix is promotion in the
form of a spokesperson. Ellen DeGeneres brings a fresh face to the brand, but without the
market research knowledge of their customers – it is difficult to say whether JCP customers
identified, connected with, or trusted Ellen DeGeneres enough to buy into the new JCP. Though
the spokesperson may have been a great fit, the advertising campaign missed the mark by
communicating why customers should dislike and discontinue participating in the complex high-
low pricing models and failing to communicate and educate how their new pricing structure
created value. This lack of communication probably caused the bulk of customer confusion and
perceptions of lower value-perception, higher prices, and less bargains.
Pricing, the largest and most critical change in the repositioning strategy, focused on
three tiers – “Everyday Fair and Square”, “Month Long Values Event”, and “Best Price Fridays.”
With this element being the biggest change (and purpose behind the strategy) it seems foolish
that again, market research wasn’t conducted to determine how JCP customers would react
and there wasn’t more communication about these tiers to customers. Though JCP argues that
high-low pricing is confusing with one price slashed to be on sale, having 3 different pricing
structures in just one store can be extremely confusing for customers. Though this new pricing
structure creates a path for long-term success for retailers like JCP and eliminates all the price
games, the lack of communication and coherence with other marketing mix elements to create
value for customers inhibits its success.

What do the first and second quarter results indicate about the “Fair and Square” strategy?
Are the first two quarters of results enough to validate or invalidate the changes? How would
you respond to them?
First and second quarter results indicate that the “Fair and Square” strategy had a substantial
negative impact on JCP. The quickest change, noted in Exhibit 8, was the switch for adult
women to shop for their clothing at Macy’s versus at JCP – the switch occurred right after the
“Fair and Square” launch in February 2012. Secondly, the change caused shoppers to do the
exact opposite of the repositioning strategy in terms of purchase prices. According to Exhibit 9,
Revenue Earned from Products Sold at Everyday/Month Long Value Prices (the new staple in
the pricing strategy) dropped from 86.5% in 6-Months Ended 2011 to 84% in 6-Months Ended
2012. In addition the Revenue Earned from Products Sold on Clearance (the enemy in “Fair and
Square”) increased from 13.5% in 6-Months Ended 2011 to 16% in 6-Months Ended 2012.
The first two quarters of results do show a very negative reaction to the “Fair and
Square” strategy; though, as discussed in the first question, there are a lot of
miscommunication and holes in the repositions strategy. The results are enough to invalidate
the changes in the short-term based on plan commenced in February 2012. However, based on
the investments made in the spokesperson, logo changes, and everything else involved in the
plan I would push the strategy forward with an aggressive promotional to educate customers
on why this new pricing model and the experience-based shopping brings them the most value.
Marketing expenses actually dropped from $2,850 Million in 6-Months Ended 2011 to $2,599
Million in 6-Months Ended 2012 – meaning enough money was not spent to completely change
the positioning of JCP in the minds of consumers in 6 months. Essentially, other than the Ellen
advertisements, they have no idea why they should purchase at an EDLP versus a discount.

Are the results due to a faulty strategy or to a faulty execution of a solid strategy? Would you
expect similar or dissimilar results if the changes had been implemented more slowly or in a
different timing sequence?
The results are due to both a faulty strategy and a faulty execution of a solid strategy. Overall,
JCP has great intentions to eliminate the customers’ reliance on discounts and return to an
EDLP pricing model, as high-low pricing can diminish the positioning and profitability of a brand
quickly. However, as discussed in the first question, elements of the strategy like the
spokesperson and the sales structure lacked the cohesiveness with the rest of the strategy to
really make it work company/store-wide. Likewise, the execution of the strategy was poor
specifically in regards to the promotion of the pricing and positioning change. There was very
limited promotion about the changes to bring awareness and value to the customer; customers
needed more than a new spokesperson to be made aware of the changes and why the changes
benefited them on a very large scale. Furthermore, I would expect similar results if the changes
had been implemented more slowly or in a different timing sequence. While the results may
have been marginally better in a slower manner, without the proper promotion the long-term
results would have been the same as customers would still have reacted negatively to the lack
of sales and full-prices.

Is J.C. Penney a brand that can be “Target-ized” or “Apple-ized”? Why or why not? In what
fundamental ways does J.C. Penney differ from these two brands? Does Johnson’s plan
address these differences in ways that make the success of J.C. Penney’s new strategy more
or less likely?
JCP can be “Target-ized”, as it would make sense for them to add higher-end brands to their
product mix to target customers who are willing to pay the EDLP to purchase more stylish yet
affordable products - as included in the “Fair and Square” strategy with Martha Stewart and
Sephora. Though JCP differs from Target because its goal is not to be on the lower end of the
market as a mass merchandizer. Johnson is addressing these differences by pairing logical high-
end brands with the dated private label brands to create a sales boosting environment with
new (and improved) product line.
JCP cannot be “Apple-ized”, as the products purchased at JCP do not require expert
advice or assistance. Though, in the same context, customer reviews and peer feedback has
become extremely important in the buying process. Therefore, using Apple-like technology to
integrate these customer decision factors and omnichannel marketing would be extremely
valuable for JCP. JCP’s fundamental difference from Apple is the product line breadth, target
market, and consumer purchase process. Johnson fails to address these differences, as expert
customer service reps aren’t critical to the buying process in clothing and the failure to
communicate value to the sales team (eliminate commissions) hurts the overall strategy efforts.

Do you agree with the changes Johnson is making to the pricing scheme that are set to take
effect August 1st? Are they enough to turn things around?
If the long-term goal of JCP is to move forward with the EDLP, then no I don’t agree with the
changes Johnson is making to the pricing scheme. He is bringing back the high-low pricing with
bumping promotional spend for back-to-school Fridays, eliminating a pricing tier that building
the “Fair and Square” pricing strategy, and completely eliminated “Fair and Square” all
together. With the elimination for “Fair and Square”, all previous promotional ads ran with
Ellen are now wasted, the new logo has lost its inherent meaning, and the value of .00 prices
and no discounts is lost. In addition, within 1 year, the pricing model has changed significantly
which can only create more confusion for customers.
If the goal in this change is to boost sales in Q3 and Q4, then moving back to more sales
is definitely an effective manner – though I can’t condone it as efficient in the long term. JCP in
these Q3 efforts will gain back some of its customers who left due to the confusion in pricing an
lack of sales; however, it might also create more confusion to customers who have stuck
around through the changes. Q3 will be a critical point in determining if the changes are
effective, as there aren’t a skewed number of shoppers like in Q4. I do not, however, think that
constantly changing a modifying the pricing and promotional strategies is a good strategy for
JCP; nor do I think it will be enough to turn things around after the roller coaster it has led its
customers on in the past 2 quarters.

What should Johnson do now? (Ignore what you know about what JCP actually did, going
forward; put yourself in Johnson’s shoes, as of Aug. 1, and tell me what you would do—
broadly—going forward.)
For the long-term health of the company I think Johnson has to move forward and push for
what he thinks is right - an experience-based retail store that focuses on everyday value and
convenience, and eliminate the customer reliance on deals and promotions. However, this
transition cannot be overnight. Positioning and perception takes time to change, and it is done
with a big promotional budget to educate and influence customers to agree with your new
strategy and passing the value along to them (i.e. focusing on convenience, no
gimmicks/games). Secondly, Johnson HAS to do some market research on the changes he is
making to predict the future without failing for two more quarters in a row.
 However, on the flip side, Johnson wants to keep his job. Unfortunately, CEOs and
managers are judged on the short-term and don’t always have the time to wait for customers
to see the value in the pricing changes. Therefore, moving forward he should continue to take
actions to make sales – run short-term promotions focused on seasons, simplify the pricing
model, educate customers on what “Fair and Square” really means – but keep striving forward
for the long-term goals associated with this repositioning strategy as it is truly in the best
interest of JCP as a company who hopes to be around a little longer.