Friday, August 10, 2012

Understanding your customers, or failing to

What constantly surprises me is how little large companies invest in understanding their customers, and how often large companies are shocked to discover that their customers are unhappy or angry about new products or new shifts in strategy.  I write today about JC Penney, once an icon and anchor for many shopping malls, and now a retailer adrift in the "in betweens".

JC Penney is struggling.  Like Sears, another broad range retailer, Penney has seen its market share erode, due to a wide range of factors.  Some of those factors include shopping patterns (fewer people going to malls), shifts in fashion and foot traffic, the length and depth of the recession, online versus retail shopping, and many more.  Sears and Penney's, along with some other venerated retailers who in many ways founded the way Americans shop, seem increasingly out of touch and irrelevant.

What is most telling is that Penneys has, or should have, a wealth of data about their loyal customers, but they've managed to anger them by eliminating coupons and promotions.  The new CEO's strategy is to shift to everyday low prices, but that has confused and angered the existing Penney's shopper.  Here's how Forbes puts it:  Johnson admitted he misjudged how customers would react to the change. “We failed at that,” he says.  What?  Your most important strategic decision and you "failed" at helping customers understand the change, or understanding if and when the decision was necessary?

Penney's management either decided that existing customers weren't valuable, or decided that they wanted new customers who weren't shopping at Penneys.  The problem with their strategy is that they shut off the spigit of current cash flow from existing customers, who are confused by the lack of promotions and coupons, but haven't ramped up a new segment of customers who want everyday low prices.  Or, do these second customers exist?  It's not clear that Penney's understand their existing customers needs and wants, or what their potential customers needs and wants are.

This scenario is what blocks innovation in many organizations.  Management is terrified that a new innovation will kill the golden goose of current earnings, without attracting enough new business to create new earning streams.  The worst possible outcome is to confuse or distract existing customers and simultaneously fail to win significant numbers of profitable new customers. 

I wasn't present at the conception of the one low price strategy at Penney's, but I have to believe it was driven from the top down, and the inside out.  New products, services and business models are successful when they meet real needs, whether those needs are clearly identified or still unarticulated.  I think the Penney's executive team believes people want one low price, but it's clear that they failed to investigate what their existing customers want and need, and whether they believed that the promotions were more work than otherwise.  Also, its not clear that Penney's has identified prospective customers and their wants and needs.  So existing customers are angry and confused, and potential customers are uncertain what Penney's offer.  A Twofer!

There's a lesson here for innovators.  You may love your idea.  You may think it offers better value, better benefits for your customers than what exists.  Your opinion does not matter.  You need to solve a need that customers have, a need that is relevant and valuable to them.  And, you need to understand how wedded they are to current solutions, benefits and characteristics.  Change is difficult and inertia is strong.  Yes, Jobs argued that customers didn't know what they wanted, but he often gave them things that didn't exist.  When comparable alternatives exist, and customers have longevity with usage, understanding their needs, the relevancy and urgency of their needs matters.  It's inexcusable that Penney's doesn't understand that and "failed" to do so.  The same is true with any innovator who assumes his or her solution meets the needs or offers important value to customers.

Get out of your office.  Meet your potential customers.  Find out how valuable the existing solution is, what's wrong with it and how valuable new solutions would be.  As Woody Allen once said, 80% of success is just showing up.  In innovation, much of success is in finding a valuable and important need and filling it.  Just show up where your customers are, listen with an open mind. Don't impose a solution.
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posted by Jeffrey Phillips at 8:28 AM


Blogger Unknown said...

I'm not an expert in business strategy or consumer satisfaction, but I've mentioned this article to several people I know who ARE current JCP customers, and they all said they definitely DO prefer a one-low-price strategy vs "jumping through hoops" with coupons, etc.
So I think that you are drastically oversimplifying the problem here. JCPenney's most likely did huge amounts of market research and many customer surveys. Most likely customers overwhelmingly said that they would prefer simpler low-price system. The problem here is just that customers themselves don't really know what it is that motivates them to shop at a particular store. When they stop receiving the promotions, They simply no longer have the The time-limited motivation or incentive to get to One particular store as they would've they had received a coupon.

To me this has nothing to do with asking your customers what they would like or understanding the customers needs, But much more to do with understanding the psychological factors that drive consumerism.

7:54 AM  
Blogger Sanjiv Karani said...

The unknown response above pretty much nails the issue on its head. I analyzed this very issue and why simpler-better pricing is not working for Penney in my June blogpost which you can refer to here

11:49 AM  
Blogger Hatim Kesuri said...

Jeffrey article is well articulated & gives a simple message of "Failing to understand customers real need, likes, dislikes & priorities, which ultimately drives loyalty & consumerism", but also I feel, its important to understand "How well have you communicated change, which aimed at enhanced customer service or better solution to customers pain ?"...

6:16 PM  

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