Personal Preference Bias

I’ve read and heard a fair amount from critics of JC Penney’s disastrous everyday-low-price strategy. But, much of it is too simple.

Critics speak of JC Penney’s customers as if they are all the same. I’ve read things like maybe they liked sales prices or JCP has to attract a new customer base to replace the old one.

While JCP sales were down considerably, they were still doing 75% of the volume they did the previous year. That is a huge decline for a retailer, but the sales didn’t go to zero and that says something. Three-fourths of customers didn’t mind the change.

In my experience with consumers and retailing, it is not uncommon for about 25% of sales volumes to come from promotions and coupon offers such as the sales JCP use to run. A fair part of that percentage are folks in whatever product category that are bargain hunters. Another chunk are from folks who are not typical bargain hunters — they may shop on value — but they may just come across a deal too good to pass up. I was recently perusing Kohl’s and saw a griddle for half the price I’ve seen elsewhere. I’m not a typical bargain hunter, but I popped on it.

There’s no reason JCP can’t satisfy value shoppers and bargain hunters alike. Other retailers have figured out how.

Even low-price leaders Walmart has “Rolbacks” in the aisle. Target has a dollar section near the front. Old Navy has clearance racks hidden in the back. Banana Republic has its mall based-locations, carrying higher priced, in-season fashion. But, they too have limited clearance sale space in the back. They also have separate Factory Stores where you don’t get the latest, but you get good stuff at sales prices.

Management at these companies recognize that not everybody is the same and they try to find ways to satisfy varying consumer preferences in creative ways that don’t detract from the experience of others. That’s typical retailing.

In my opinion, that’s the key insight that escapes JCP CEO Ron Johnson — everyone is different.

Johnson was in charge of retailing at Apple. Certainly, many folks rave about the Apple store experience. But most of these ravers have very similar preferences when it comes to electronics — they love Apple!

So, Johnson didn’t have very tall task in delivering a retail experience that satisfied a relatively narrow consumer segment. He made a store for Apple devotees.

Ask yourself this. Does Apple need a store? Not really. Apple products would sell with or without their stores.

Johnson is remaking JCP to satisfy a segment of consumer that is smaller and more narrow — a group that he likely sees himself in — than the group that JCP was satisfying before he arrived, which is not usually a successful strategy.

I call this personal preference bias. Successful managers usually find ways to overcome their own personal preferences and give more weight to the varying preferences of their customers.

It’s an easy mistake to make. Ron Johnson probably thinks he learned from his former boss, Steve Jobs, that designing things to meet your personal preference is good. And, there might be something to that when you are trying to innovate from ground zero.

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