MGT 498-Section 006

JCPenney Mini-Case

1. What strategy was the new CEO at JCPenney seeking to implement given the
generic strategies found in Chapter 4?

The New JCPenney CEO was seeking to implement the cost

leadership/differentiation strategy that aimed to provide quality, differentiated products
while maintaining a low cost. This strategy focuses on cost and differentiation as two
sources of competitive advantage, increasing the number of primary value-chain
activities and support functions. Johnson attempted to follow this by getting rid of the
promotion-based strategy that offered customers frequent discounts and coupons, an
aspect that many customers had known JCPenney for, and instead decreased the prices of
products by up to 40%, so that the price listed could not receive further discounting but
was still cost-effective. This strategy’s goal is to provide a flexible skill set among the
firm; They wanted to implement this in order to grow and attract a new customer base but
failed to accurately target either side of the market. This left the firm with a significant
loss in stock price, customers, and sales.

2. What was the result of change in strategy implemented?

The result of change in strategy implemented was that JCPenney was no longer
satisfying its old customer base and focusing too heavily on attracting the new customer.
However, they also were not successfully gaining the attention of a new customer base.
The company saw a $4.28 billion loss in Total Sales from 2011 to 2012, and its stock
price decreased by 55% in that year as well. By failing to retain its current customers,
JCPenney lost those customers to competitors while also failing to attract many new
ones, because these customers were already satisfied in this market. Altogether, this
change in strategy did not accurately serve either target market that JCPenney was
attempting to satisfy. The firm found themselves “caught in the middle” between
competition among upscale competitors that they failed to compete with, and low-cost
leaders who also won over JCPenney’s customer base.

2. Why was this strategy a disaster for JCPenney?

This strategy was not the most effective one to implement because JCPenney was
unable to compete with their low-cost competitors (Walmart, Dollar General) but also
unable to compete with their more upscale competitors (Macy’s, Target). The “old”
JCPenney had a strong focus on promotion-based selling and this is what its customers
were looking for and what kept them returning to the store. When the switch in strategy
occurred, these customers did not feel that they were getting from JCPenney what they
originally intended, which was a promotion-based selling of discounted, but quality
products. This pushed customers away to various other discounted retailers, since
JCPenney had suddenly steered away from this. It also failed to attract new customers
because these shoppers typically preferred either the upscale competitors or the low-cost
competitors. JCPenney had found themselves in between the competition, unable to
satisfy the needs of either customer base it was targeting for.