5 Gamification Lessons From J.C. Penney’s Epic Sales Failure

Lessons Learned from J.C. Penney’s Last CEO

Imagine if retailers decide that it will treat its customers fairly and honestly. There would be no more deceptions, no more tricks. Any item that was made and sold would be priced non-deceptively. Surely a well informed, objective customer would gladly embrace this honest approach to pricing if it makes shopping better for everyone, right? As J.C. Penney (JCP) and recently ousted CEO goes to show, this was unfortunately not meant to be.

In June 2011, J.C. Penney announced that they will bring aboard former Senior VP of Apple’s retail operations, Ron Johnson as their new CEO. During his time at Apple, Johnson was responsible for revolutionizing Apple’s retail strategy with the introduction of the now ubiquitous Apple Retail Stores and Genius Bar. J.C. Penney was now hoping Johnson could likewise help reinvigorate the company’s image and performance.

In early 2012, Johnson declared J.C. Penney’s bold new strategy. His ambitious plan centered around reworking the company’s image which involved changing the layout of existing stores, a new logo, rework the retail website and sign on well known brands such as Martha Stewart. Most importantly, Johnson’s plan was centered around its new pricing strategy known as “fair and square pricing”. This bold concept surprised many observers as it went against long held practices which fuels the retail industry. It involved getting rid the concept of sales, every retail item would be listed at their “true” retail price and remove deceptive pricing (instead of $9.99, it becomes $10). All this were to be accomplished with the wide-eyed assumption that J.C. Penney customers are trustworthy and well informed.

Fast forward to 2013, J.C. Penney was doing no better when it started out with the new initiative. Over that period of time, it has been estimated that the departmental store lost nearly 1.5 million customers and $700 million dollars. It became apparent that Johnson’s audacious pricing strategy had failed disastrously in reaching out to its target audience. With JCP’s stock value plummeted in April 2013, it was the last straw for the executive board. Johnson was soon replaced and J.C. Penney has since been in damage control mode in addressing the disastrous move. (Writers note: at the time of publication, J.C. Penney’s stock prices fell a new low since 2001).

So, what does the gamification industry have to do with the failed initiative of a retail department’s store? It may seem unintuitive that the gamification industry could learn something from a entirely different field. However, through the gamification lens, we are able to delve into key lessons of the gamification process.

1) Demonstrate Perceived Value vs Real Value

Objectively, customers would have been better off with the new fair and square pricing strategy. Yet, customers did not “feel” it was better as they were observing the real value with no perceived value as a reference point. This is why sales work so effectively as it provides context of a product. For example, purchasing a pair of jeans at the real price of $20, would not be as psychological satisfying as buying the same pair of jeans at $20 for a stated value of $30. It goes to show how perceived value outweighs objective value. This same can be said for gamification reward systems. The use of extrinsic rewards such as monetary rewards and gifts to incentivize user productivity may work initially but intrinsic rewards such as providing positive feedback and celebrating milestones are more effective.

2) Content Is Everything

Central to JCP’s fair and square pricing strategy was the assumption that customers were motivated by prices alone. With its new honest pricing, products being sold would definitely be more appealing. However, there lies a major flaw in that assumption. What if the products were not attractive in the first place? An recent survey revealed that JCP’s new product lines were unappealing to its older shoppers while failing to attract a younger audience to replace its declining customer base. Although the removal of sales and coupons may have played a role in putting off customers, JCP’s merchandise could possibly be the primary fault for JCP’s woes. Gamification is akin to the new pricing strategy. It has its purposes and may help to improve certain preexisting processes. However, if the gamified system is a part of an inherently non-functional core structure, its purpose is meaningless.

3) Tailor Content For Your Target Audience

As Johnson made Apple appealing to a wide range of consumers, he was aiming to do the same for JCP. However, in the process of revamping JCP’s image, the former CEO inadvertently alienated its loyal shoppers. New pricing terminologies serve to only confuse customers while its redesigned shopping space overshadowed older sections. The presumption by Johnson that both Apple and JCP consumers would be appealed similarly did not pan out. It goes to show how different parties have different demands even though they may share some similarities which in JCP’s case was general consumers. Likewise, the common assumption for gamification is that it is a one size fit all solution for everyone. On the contrary, its key strength lies in customizing the available tools and mechanics to cater to individual goals and objectives.

4) Do Field Testing

Prior to rolling out the “fair and square” pricing strategy to its 1100 stores, J.C. Penney had consciously decided against extensive testing of the new format. When former CEO Johnson was suggested to field test it in a few stores, he derided the thought. Had Johnson followed through, the company could have better understood its customer’s reactions and avoided their current debacle. As mentioned earlier, understanding your user’s demands is the first step to successful gamified implementation. Nevertheless, humans are complex creatures. The real world application of a gamified system may differ from theoretical assumptions which may result in unintended consequences. Thus, it is why much emphasis is placed on analyzing user feedback while allowing room for future reiteration to suit changing needs. To ensure the longevity of a gamified system, gamification is not a one-time project but rather a long haul effort.

5) Have a Real Strategy

Although the factors mentioned above may have played a role J.C. Penney’s debacle, it is imperative to point out that the underlying cause of the company’s failure was their overall strategic approach. Rather than focusing on the underlying problems of the company, JCP’s board of directors hoped that bringing onboard the former star employee of Apple could help turnover the company. It was purely a strategy for betterment, trying to improve what was previously done before rather than a strategy on winning. A Harvard Business Review article aptly summarized:

“JCP doesn’t need someone who can “execute” successfully, get back to basics, or any such thing. Just as it needed two, five or ten years ago, JCP needs a strategy. It needs to decide where it is going to play — with what set of shoppers, in what range of merchandise, through what physical and digital spaces. And it needs to decide how is it going to provide a superior value proposition to competitive alternatives in that chosen space”

Gamification platforms can be easily implemented as a singular entity within an organization. Nonetheless, in order for gamification to play an effective role, it requires careful deliberation from both decision makers and users. Both parties need to understand the pros and cons of having a gamification system, the best practices to utilize the platform as well as how the system can help to achieve the organization’s strategic goals. To put it simply, investments in improvements without a clear definition of strategy are simply a waste.

Gamification and retail seem to involve two entirely different entities but hopefully we are now able to see how J.C. Penney’s recent debacle has left plenty of lessons for the gamification industry to learn from. In theory, gamification seems to be the wonder fix for any problem. Nevertheless, applying it in a real world scenario produces complex outcomes where either the system can either succeed or fail to help achieve its targeted objectives. That is why it cannot be emphasized enough on the importance of understanding the goals and purpose for the implementation of a gamification system. This is not to say that gradual implementation and field testing has no importance when putting a gamification system in place. Nevertheless, without having a strategic vision for the future, the whole plan would all be for naught.

Flickr Image by Brandon Grasley