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J.C. Penney Company, Inc. (JCP), Microsoft Corporation (MSFT): Does Fessing Up Work?

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A company publicly admitting a mistake is a rare thing. But two companies, J.C. Penney Company, Inc. (NYSE:JCP) and Microsoft Corporation (NASDAQ:MSFT), have recently done just that. J.C. Penney, after a failed turnaround attempt and a fired CEO, released a TV spot basically begging customers to come back to the store. And Microsoft Corporation (NASDAQ:MSFT), after a slower than expected launch of Windows 8 and complaints about a steep learning curve with the new operating system, admitted to a series of mistakes and vowed to make significant changes to the OS. Admitting mistakes may seem like a sign of weakness, but there’s at least one instance of this strategy working wonders in the past few years.

J.C. Penney Company, Inc. (NYSE:JCP)

Comparing your product to cardboard

Back at the end of 2009 Domino’s Pizza, Inc. (NYSE:DPZ), the fast-food pizza chain, did something radical. The company released a series of ads that showed real negative feedback from focus groups. The most common feedback was, apparently, that the crust tasted like cardboard. Here’s a long-form version of the ad:

Domino’s Pizza, Inc. (NYSE:DPZ) admitted that its product was terrible. They didn’t have to, but they did. The company completely re-booted its pizza – new sauce, new dough, new everything – and the difference is night and day.

There’s no doubt that this ad, however negative it was, caused curious customers to try the new pizza. Any publicity is good publicity, and Domino’s Pizza, Inc. (NYSE:DPZ) really hit it out of the park with this one. Annual revenue peaked in 2005 and then began a slow decline lasting through 2009. In 2010 the company grew revenue by 11.9%, and it has grown the revenue each year ever since. I suspect that the ad campaign was the driving force behind this recovery.

Along with the revenue increase, both the gross margin and the operating margin increased well above the average from the past decade, and profits reached an all-time high in 2012. Domino’s ability to admit its mistakes and fix them has put the company in a much stronger position.

Will begging work for J.C. Penney?

In 2011 J.C. Penney Company, Inc. (NYSE:JCP) hired Ron Johnson, former senior vice president of retail operations at Apple Inc. (NASDAQ:AAPL), as the company’s new CEO. Johnson embarked on an ambitions campaign to remake the company, focusing on everyday low prices instead of coupons and deals. A store-within-a-store concept was quickly adopted and many stores were remodeled. As this was happening, however, sales plummeted. In fiscal 2012 sales dropped a staggering 25% and an enormous net loss was recorded. Earlier this year, Ron Johnson resigned as CEO.

Just a few days ago J.C. Penney Company, Inc. (NYSE:JCP) released an ad that essentially apologized for the changes made under Johnson’s tenure and begged costumers to return to the stores. Here’s an excerpt:

It’s no secret, recently J.C. Penney changed. Some changes you liked and some you didn’t, but what matters with mistakes is what we learn. We learned a very simple thing — to listen to you, to hear what you need, to make your life more beautiful. Come back to J.C. Penney. We heard you.

Will this apology drive customers back to J.C. Penney Company, Inc. (NYSE:JCP)? Possibly. But it’s likely too little too late for the retailer. At the end of April the company needed to secure a $1.75 billion loan from Goldman Sachs to ensure that it could fund its operations for the next few years. But if the $1.3 billion loss from 2012 repeats itself this year then the company will soon run out of both time and money.

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