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

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.

J.C. Penney Company, Inc. (NYSE:JCP) managed to alienate many of its existing customers without attracting very many new ones, and gaining back their loyalty will be difficult if not impossible. The odds are against J.C. Penney Company, Inc. (NYSE:JCP).

Microsoft admits Windows 8 mistakes

While Windows 8 is selling reasonably well, with about 100 million licenses sold so far, users have not been thrilled with many of the changes introduced in the new operating system. The desktop, long the bread and butter of Windows, was relegated to “just an app” in Windows 8, and this seemed to confuse users. In a recent interview Microsoft Corporation (NASDAQ:MSFT)’s Chief Marketing Officer Tami Reller admitted that the company had made some mistakes with Windows 8. She said:

The learning curve is real and needs to be addressed.

This is a common complaint with Windows 8, that it’s far more difficult to use out of the box than previous versions of Windows. A handful of shortcut keys makes using the OS much simpler, but the average user isn’t used to needing to learn things in order to use Windows. Another complaint, regarding the desktop, was also addressed:

We started talking about the desktop as an app. But in reality, for PC buyers, the desktop is important.

Reller went on to say that the company was changing how sales associates were trained so that they emphasize that the desktop is still a central part of the OS. Originally the new tile-based interface was pushed as being more important than the desktop “app,” but this just managed to confuse people.

Later this year Microsoft Corporation (NASDAQ:MSFT) will be releasing an update to Windows 8, dubbed Windows Blue. Releasing big updates yearly is a change for Microsoft Corporation (NASDAQ:MSFT) , with the company having traditionally released new operating systems every few years without major updates in between. But Windows Blue promises to fix many of the perceived problems with Windows 8, including bringing back the start button and allowing users to boot directly into the desktop instead of the the tile-based interface.

I think Microsoft Corporation (NASDAQ:MSFT) admitting its missteps and vowing to correct them sooner rather than later is a big step for the company. The first time I used Windows 8 on a laptop it took me a few minutes to understand exactly how it worked. Until I discovered some useful shortcut keys the OS seemed extremely cumbersome and annoying to use. There is absolutely a learning curve, and Microsoft did a terrible job explaining how to effectively use the OS. But it seems that the company knows this and is working to correct it. And in the end, I think Windows 8 will be a success.

The bottom line

A company apologizing for a mistake means nothing if the mistake is not aggressively corrected. Domino’s Pizza, Inc. (NYSE:DPZ) re-developed its pizza from the ground up and saw great success after admitting that its food was terrible. J.C. Penney, on the other hand, seems to have no clear plan after apologizing for the Ron Johnson era. The company appears to be going back to what sort-of worked before the turnaround effort, but it’s unclear whether customers will return. And Microsoft, after months of touting the new tile-based interface, seems to have realized that people still like the desktop and is on the path to fixing it. We’ll have to wait until the release of Windows Blue to see if Microsoft fully got the message, but all signs seem to suggest that it did.

The article Windows Companies Admitting Mistakes: Does It Work? originally appeared on Fool.com and is written by Timothy Green.

Timothy Green owns shares of Microsoft. The Motley Fool owns shares of Microsoft.