Johnson's Cost-Leadership Strategy: J. C. Penney
J.C. Penney had a disappointing 2012 and CEO Ron Johnson was facing a difficult task of turning around one of America’s most historic and prominent retailers. Cash balances had declined steadily over the past three years and he must now find the best solution to increase funds in order for the company to continue its transformation that will improve the company’s long-term growth and profitability. J.C. Penney was founded by a man named James Cash Penney in 1902 when he was only 26 years old. The initial $500 from his savings allowed him to open his first store in a one-room building in Kemmerer, Wyoming. His first clients were the mining and farming families in the area but his store became well known for the variety of merchandise and excellent
Based on the Threat of New Entrants completive forces J. C. Penney implemented lowering their prices by 40 percent. By doing this Penney is trying to discourage others that department stores from opening. Based on the bargaining power of supplies, Penney decided to reduce the number of private label products and only have a few key products. By doing this Penney is reducing the number of suppliers they must have contact with. Based on the bargaining power of buyers Penney will have select products on sale for a month.
Cost-Focus Strategy : Keeping Costs & Prices for a Narrow Market is what C.E.O Ron Johnson focused on while trying desperately to change the image and marketing strategy for J.C Penny. J.C Penny is suffering due to tough competition from their competitors. Johnson knows that the only way to keep J.C Penny afloat is to become much stricter on below market priced items to make space for new ideas, and new ways to keep stores cost efficient. J.C Penny C.E.O know that to make more changes to the inside of the stores by lowering inventory cost and bringing in exclusive items will give this company a better shot at finding new customers and getting feedback on what the public really wants.
I think the Cost-Leadership Strategy (Kinicki & Williams, 2013) is the competitive strategy that Ron Johnson embraced while under his new leadership at J.C. Penney. I think this because J.C. Penney is a well known company throughout the United States, and their sales are mostly based on their merchandise and products that are sold at clearance or discounted prices. According to Kinicki and Williams (2013) “the cost-leadership strategy is to keep the costs, and hence prices, of a product or service below those of competitors and to target a wide market.” This helps to enforce sales for J.C. Penney by making the cost of their product to the customer lower and more affordable, while the quality of the merchandise they sell stays the same or increases in its standard of excellence.
Mr. Johnson had an idea that many thought was just ludicrous, but the way he saw it was he had no other choice. His plan was to make the store more appealing by highlighting the brand names, and gaining more control over pricing. To do this he would turn this quite and
Having products that are different in benefits and price aids in product competition (Ferrell & Hartline, 2014). New combos could give Long John Silver’s a generic competitors edge over McDonald’s and Burger Kings fish sandwiches (Ferrell & Hartline, 2014). Adding to offers like mentioned, discounts and coupons could help Long John Silver’s with economic growth (Ferrell & Hartline, 2014). Especially since product cost continues to rise, even though, incomes are not (Ferrell & Hartline, 2014). The discounts and coupons will help with the total budget competition when competing for the same consumer financial resources as Captain D’s
This strategy requires low costs reflected through low prices because customers expect significant savings when they buy from Costco. Wal-mart also uses cost leadership generic competitive strategy. To distinguish a part from the Wal-mart’s cost leadership strategy, Costco partly employs broad differentiation as its secondary generic strategy. The secondary generic strategy make the business stand out based on value and quality by using Kirkland Signature, which known as house brand (m.koreatimes.co.kr).
Costco’s sales strategy also plays a role in its business model. In the article it states, “They only sell a limited number of brands and, as a result, they are able to increase sale volumes...” This allows the company to buy in bulk and receive
With Johnson at the helm, a major overhaul in marketing, re-branding, and re-designing all JCP stores across the United States was accomplished within a matter of months. Market Testing Undoubtedly, Johnson was able to transform JCP’s image quickly since he did not deem it necessary to market test his ideas. “Seasoned J. C. Penney executives urged Johnson to test his strategy on a smaller scale before going whole hog. His reply was ‘we didn't do that at Apple, and we're not doing it here’ (Tuttle, 2013)”
That is a big assumption because he had no evidence, it was just what a small group of people (most of them had just joined JC Penney) that believed in the idea and where sure customer will love it. I don’t disagree with the fact that customer would love it, the question is, would JC Penney’s customers love the strategy. They had no evidence, because Johnson refused to do any type of testing on customer he knew nothing about and based on untested assumptions.
Penney did not want to have a chain of stores, but rather a chain of good men and Penney always hired people he thought were honest and hardworking like himself ( J.C. Penney 1875-1971). In 1912, the Golden Rule store had sales of over $2 million and in 1913 the name of the store changed to the “J.C. Penney Company” (J.C. Penney 1875-1971). By this time the J.C. Penney company had 48 stores and Penney moved the headquarters to New York City in 1914 ( J.C. Penney Facts). Penney ran the company under two ideas, one was the company motto which was “ Honor, Confidence, Service and Cooperation” and the other was smart advertising with good treatment of customers and good products at affordable prices would make a business successful (J.C. Penney 1875-1971). By the time J.C Penney stepped down as president of the company in 1917 and became chairman of the board of directors, there were nearly 200 J.C. Penney's in America (J.C. Penney Facts).
Risks Associated with Recommendations • Low growth industry means there are fewer growth opportunities, so, J. C. Penney should not be overly optimistic about achieving greater growth in near future. • Change in strategy could alienate the customers, which may result in sales declines as what happened during previous strategy realignment. • Focusing on niche market could have severe financial consequences if niche market strategy fails. Revenue
In the case study titled "J. C. Penney is Changing Its Competitive Strategy" Ron Johnson the new C. E. O. implemented a combination of Porter's Five Competitive Forces to overcome competition. In the next few paragraphs I will identify the strategies that he use in his attempt to change J. C. Penney dowdy image and low sales. In 2011 J. C. Penney's CEO Ron Johnson implemented his Fair and Square plan to turn the company around. This plan had many of Porter's Five Competitive Forces.
Competencies: Walmart’s ability in procurement is very strong. Keeping prices low, and even matching competitors’ prices are ways that helped them become the common choice retailer for any ordinary households. By employing marketing tactics and heavy advertising, they make sure consumers receive the best price for their items and are well aware of it. They also possess sustained supply chain relationships that save them capital for developing new stores and improving their online presence and e-commerce, all of which add to their sustainability. JCPenny Company,
A firm that utilized cost leadership is Costco. Since Costco is able to purchase in bulk, they can in return pass on the savings to the consumers. With this strategy, they have positioned themselves well according to Porter’s five forces. Rivalry among current competitors: LOW
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