Strategic Analysis : Case Study of Target Corp
(325o words)
INTRODUCTION
In a profit making business, the business organization obviously has to try and achieve this level of customer satisfaction as a way of staying ahead of the competition and making a profit (1994). Considering Target Corp. as one of the leading retail industries in the U.S, it is imperative to identify its weapon in maintaining its competitive edge among other operating business in the same spectrum (see Appendix).Every business is subject to factors that affect its function as a whole. These factors are the ones attributed for the success or even the failure of a business (1997). In lieu, there are certain ways or techniques that can be considered in order to emerge and continue to be competitive within the marketplace in terms of marketing.
TARGET CORP. PORTER’S 5 FORCES ANALYSIS
Analyzing the external environment of Target Corp. is also a significant part of a business analysis. For this purpose, Porter’s five forces model will be used. Michael Porter and his five forces model concentrates on the threat of entry, power of the buyers, power of the suppliers, threat of substitutes and competitive rivalry (1980). Below is the application of this business analysis tool to Target Corporation.
Rivalry/Competition
Rivalry and competition is considered as the strongest among all other forces in the model. The strength of rivalry or competition is determined if rivals are aggressively employing various means of overcoming competition as well as means of acquiring bigger sales and stronger market position. In the case of Target Corp., competition is intense. A number of factors that support this judgment such as the presence of several businesses that operates in the retailing industry and targeting similar audience. The main rivals of Target Corp. or even the strongest include Wal-Mart Stores, Inc., The Home Depot, Kroger, Kmart Corp., and Costco Wholesale Corp. All of these competitors produce similar products as well as offer same services to consumers.
To combat competition, Target Corp. ventured in online-based actions using their own website, internet advertising, partnership, and even merger and acquisition. From www.target.com as corporate domain concentrated in e-commerce, the corporation maintains a team called Target.direct who owns and oversees the e-commerce (online marketing) initiatives. Using this as their official corporate website, the corporation’s current position to the online marketplace is comparatively competitive. Its performance specifically to the online marketing is high. Today, research studies ascertained that online shopping was perceived to be more time saving than other traditional approaches of shopping by customers 2003; 2002; 2001; 1999). (2003) extenuated that Internet shopping helps to support the needs of busy working people as it is convenient for them to shop online. As a result of the stiff competition among the retailers in the U.S., Target Corp. implemented several expansions of its store outlets (in Alabama, Arizona, Texas, Ohio, California, etc.) (2006) and distribution centers (Rialto, California) (2006) to extend the corporation’s marketing.
Partnership, merging and acquisition are among the strategic actions that the management is taking into practice to fight competition. This is a way to expand their market and distributional coverage. Among the partnership and cooperation engagements that they had are American Online on strategic alliance and Amazon.com in customer service. In June 2000, AOL and Target Corp. rollout marketing campaign and established the multi-year strategic alliance and joint marketing and promotion initiatives. It features a “special edition CD-ROM of the AOL service with co-branded features and packaging” being offered in more than 900 Target Corp. outlets nationwide. In the same manner, AOL members who avail the service in any Target Corp. outlet is entitled to a 10% discount year-round on products bought via target.com (2000). Further, target.com was made available in the Shop@AOL online shopping destinations and other areas across AOL, AOL.COM, Compuserve, Netscape Netcenter, and AOL Digital City (2000). While in 2002, Target Corp. created a partnership with Amazon.com in providing order fulfillment and guest services. As of now, Target’s e-commerce site uses Amazon.com’s e-commerce system’ 2002). The two engaged into business-to-business (B2B) marketing strategy. According to the news releases accessible in their corporate website, the partnership that Target Corp. and Amazon.com had on e-commerce was extended until 2010 (2006). With the collection of products available in Amazon.com, online marketers can just use the one-click-process to see their preferred items.
Today, Target Corp. is highly competitive and striving to go along with its competitors regardless of external conditions like the world economy. The management continuously create innovative marketing solutions that may be perfect in its online shopping operation. These innovations are always directed to satisfactory, convenient, and customer-oriented service. However, the greatest threat among worldwide retailers today is the action of Wal-Mart to go on organic products (2006). With this introduction, Target and all other retail distributors must take antidotal engagement. Thus, IT solutions are needed so as to alleviate the emerging and following aftermaths.
Entrants
The entrant factor of the model is dependent on the barrier of entry. A barrier to entry pertains to a factor that can lower the market share potential of entrants upon entering a certain industry. Thus, if the barriers of entry are high, the threat on new business entrants is low. Government regulations, trade restrictions and access to distribution channels are some examples of barriers to entry. In the retailing industry, Target Corp. as well as other retailing outlets are protected by a number of barriers to entry, which makes it difficult for new business entrants to rise and compete. One of these important barriers present in Target Corp. is the large capital necessary to operate a retail company with various branches and considerable number of employees. In order to acquire the right workforce, supplies and distribution channels, the starting company must have a high initial capital. This barrier to entry then prevents other firms to compete effectively with other global companies such as Target Corp.
Another barrier is the difficulty of accessing distribution channels abroad. In order to carry out this important aspect of the retailing business, the corporation must have an effective globalization strategy and applies the right international practices. These important strategies on the other hand, take years to develop. Moreover, in order to acquire an international connection with foreign companies, certain requirements like business stability, market and revenue must be met. Thus, not all retailers are able to distribute their products abroad and acquire large international markets.
Buyers
This factor of the five forces model refers to the power of the buyers over the company or manufacturer. The threat derived from the buyers is gained when buyer power is high. In the case of the retailing industry, the buyer power is high. There are a number of factors that support this claim. For instance, buyer power is high as many substitutes are made available to the market. With this source of buyer power, buyers tend to have a greater control over the manufacturers. Target Corp. is considered as the retail store that caters to the younger and more educated and well-off clientele as to compare with its rival. In a survey conducted, Target Corp. shoppers fall on a 46 years old age median, mostly female, have children at home, and attended or completed college (2006). Thus, the target market is perceived to be sophisticated and posses a strong power.
Suppliers
The power of the supplier is also an important aspect of the five forces model. Similar to buyer power, if the supplier concentration is high, the supplier power cannot be considered as a threat. In Target’s case, prime suppliers are used for its production and increase of product line. Through these suppliers, Target Corp. is able to offer products that are of high standards. Although there are a number of suppliers, a corporation like Target must have an established of high quality chain of suppliers so as not to affect its production. Considering that there are other similar businesses, suppliers will not be greatly affected if they drop a customer. Moreover, the supplies offered by the supplier are diverse; this means, suppliers are able to give supplies to an even greater number of companies or manufacturers. In response to restocking problems attributed to rapid growth, Target in late 1999 realigned its logistics capabilities and began working more closely with vendors to improve inventory flow (1999). However, it should also be considered that Target Corp. can find other suppliers that can provide its supply needs. Thus, the power of the suppliers in the industry is then counterbalanced by the availability of substitutes. With this, the degree of supplier power for Target Corp. is relatively fair.
Substitutes
Substitute pertains to the availability of alternative products in the markets. Naturally, if the degree of substitutes is high, the threat of this factor is high as well. For retail companies, it was mentioned that there a considerable number of competitors operating within this industry. This implies that consumers are exposed to a significant amount of product choices and options. The high rate of substitutes for products is then considered a threat for Target Corp. In addition, there are many major retailers and other global companies operating within the industry, making brand preference and loyalty a matter of concern. However, Target Corp. has certain features that could address the threat on substitutes, namely pricing strategy (the discount department store), more upscale and trend-forward merchandise.
TARGET CORP. SWOT ANALYSIS
In order to determine the different resources and capabilities of Target Corp., a SWOT analysis is appropriate. This specifically analyzes the strengths, weaknesses, opportunities and threats of a corporation.
Strengths
Target Corp. has been known as one of the largest and most competitive retail company in the U.S. It has been depicted as “the discount store with attitude – where department store customers feel very comfortable shopping” (2000). One of its strength is its ability to anticipate the demands of the customers and its ability to provide upscale, trend-forward, high-quality and innovative products which in return make their customers become loyal of availing all their services and products. It has been able to implement a strategy that suits the needs to provide quality services and continually make the business become a tough competitor among its rival. Furthermore, Target Corp. possesses the sophisticated and able technology that can cater to the fast changing global marketing management trends. It has core competence in its use of information technology that can support its management and marketing operations. E-marketing is a powerful tool used by its management. Its IT supports competent procurement of goods in e-marketing or online shopping aspect. It holds a competitive practice in maintaining its human resources. In addition, of the Target’s strength is its strong environmental commitment. It imposed an environmental management system which includes community consultation, proactive planning, compliance, sustainable development and auditing for continuous development. Target’s strength is also in line with the willingness of the management to adhere to the regulations and policies imposed by the government. Moreover, being open-minded to the suggestions of other helpful groups that know what will be the best for the whole company within the operating area can also be attributed as one of the strengths. The continued focus on controlling costs and increasing efficiency can also be noted as one of Target’s strengths to maintain is annual profit growth. Lastly, its programs and activities that concerns socio-economic and humanitarian development serves as a reinforcing agent that will attract people – regular clientele and new as well – to continue patronizing and emancipating their decision to try their services/products.
Weaknesses
One of the weaknesses of the company is the inability of the management to anticipate price increases which affects their operations. In addition, the company is also lacking the capacity to carefully manage their business because of the large entities and separated units of the business. The company is faced with different unsolved issues because of lack of strategic decision making in several areas of HR like low hourly wage, opposition to labor unions, and its contribution to urban sprawl (2005). Due to the extensive coverage of products and services offered, the company may not allocate specific attention in the flexibility of some of its persistent rivals in the market. Considering its IT advantage, Target Corp. may not excel in some areas because of its vast coverage of control.
Opportunities
With the management system of the company and the strengths that it has, Target Corp. has bigger opportunities to still dominate and catch up with the competition in the American retail industry in terms of providing more quality and less price products and services to its clients or even have an opportunity to be the number one retail company in the whole region after its eventual application of its proposed plans in the future. Another opportunity that can be attached to the company is it would gain more customers if the company would be able to determine the latest trends for products to meet the demands of their target market. With the continuous innovation of Target Corp. and the support that it shows to different managerial and environmental, and more importantly societal and humanitarian issues and concerns, the company can gain loyalty from their customers to make them more competitive in the marketplace. The continuous initiatives of the company in diversification of its revenue resources also open new opportunities to make the business become stronger to outgrow all its rival companies. Such opportunities will include e-business development by strategic alliances among global retailers as well as suppliers, leveraging the company’s investment in the World Class Customer Satisfaction Systems, and other business opportunities in both non-core and core areas.
Threats
Operating in the most competitive marketplace especially in the retail industry, Target Corp. is faced with the inevitable threat of stiff competition. For an enterprise to succeed in global competition there is a continuous plan to develop new products with higher quality than its competitors. (1995) analyzes that new product and new business development must be highly effective and efficient, however that alone will not ensure its competitiveness. The expansion of its operations to other areas means adjusting to the trade policies and political problems of the locality. The dynamic needs and demands of customers served to be a challenge to the management. Furthermore, consumer behavior and satisfaction with regards to the product/service procurement is also a risk. If the company will continue to be a vertically integrated corporation, the company may fail in terms of management ability. The division of the company may tend to have internal complexity. In terms of production and manufacturing, Target Corp. may encounter cost inefficiency in its procedures. Large retailers like Target Corp. is faced with the considerable pressure of keeping their prices low due to competition and the demands of price-conscious consumers (2002). Additionally, fast paced technological advancement may be a threat to Target Corp. as a whole. In terms of the competitors, the company should be able to provide unique and more technologically advanced services to be able to survive in the stiff competition in the U.S. retail industry.
OPTIMISTIC SCENARIOS
At present, Target Corp. continuously develops its traditional core values present in the management. The company’s mission to consistent delivers their “Expect More, Pay Less” promise to the American consumers and the creation a workplace environment that encourages and enhances the individuality of the staff and employees. In ten years span of operation, the company will become one of the most outstanding retail stores in the U.S. if it continuously proliferate its strategic marketing scheme. Target stores will significantly available to every urban area all throughout the region and even the worldwide retailing industry. With its excellent social and environmental strategy, the company will be a role model of environment friendliness and social responsibility.
PESSIMISTIC SCENARIOS
On the other hand, due to stiff global competition and numerous competitors, Target Corp. is faced with the challenge of staying alive in the market. If the management will not acknowledge human resources issues such as different unsolved issues because of lack of strategic decision making in several areas of HR like low hourly wage, opposition to labor unions, and its contribution to urban sprawl (2005), the operations will be affected. The company is also currently lacking the capacity to carefully manage their business because of the large entities and separated units of the business. Thus, the possibility of mismanagement is very high. There is a need of proper segmentation and strategic implementation of marketing and management principles.
SYNTHESIS
With the two scenarios, it could be deemed that either of them is likely to happen. The possibilities are equal in terms of level of probability. This is because the former is the opposite of the latter. The failure of one aspect corresponds to every area affected. However, it is imperative to say that the capability of Target Corp. management in implementing the most appropriate solutions to the managerial and marketing problems holds the future of the business and its underlying operations.
CONCLUSION
In order for the company to maximize its strengths and minimize or totally eliminate its weaknesses – both in the macro and micro set up, the company must be able to use or impose a strategic marketing management system that will help them enhance their operations. In addition, the company must not only focus on its strengths but must try to also pay attention to their weaknesses and find solution to solve such issues and maintain a competitive business operation and performances. All in all, with the given managerial implementation and strategic marketing management, Target’s marketing program will eventually take its highest peak of the corporate success ladder.
APPENDIX
Corporate Background: Target Corporation
Founded on the year 1962 in Minneapolis, MN, Target Corporation is the sixth largest retailer in the United States (2005), ranked 27th on the 2005 Fortune 500, third largest seller of music in the US (2005), and holds the identity as the retailer who sells more gift cards than any other store in the whole country. As of April 2006, Target Corp. operates 1,418 stores (including 159 SuperTarget stores in 47 states (2006; 2006). Its wide variety of products ranges from retail goods and groceries, clothing and garments, office and school supplies, automobile and pet supplies, foods and beverages, consumer electronics, house wares and other consumer product line such as furniture and appliances. Under the management of CEO and Chairman and other 338, 000 employees, Target Corp. revenue in 2005 is $52.620 billion (2006).
Based on the dated background of Target Corp., the company started as a discount-store and evolved as a successful retail business through the management’s initiation of industrial innovations. From the store name Goodfellows, a series of company names transpired before the company was finally called Target. From being the Dayton Dry Goods Company in 1903 to Dayton Company in 1910, the company was the first fully enclosed two-level shopping unit and opened the first official “target” discount store in Minnesota in 1962. Five years later, the business offered its stocks to the public, merged with J. L. Hudson Company and started its acquisition strategies to expand the enterprise as Dayton Hudson Corporation. The acquired companies included Mervyn’s, Gemco, and Marshall Field’s. By 2000, the corporation changed its name to Target and operated under Marshall Field’s, Hudson’s and Dayton’s brand names as single store units (2000). In 2004, upon the recommendations of the results of the selling study conducted by Goldman Sachs Group, Target Corporation sold Marshal Field’s and Mervyn’s stores. Other merger and acquisition strategies were considered by the company’s management in the two years that followed. At present, the main headquarter of the corporation is located in Minneapolis near the original Goodfellows store operating its main retail subsidiary, Target Stores, under the banner ‘Target’ along with other subsidiaries of the company namely Target Financial Services, Target Sourcing Services/Associated Merchandising Corporation, Target Commercial Interiors, Target Brands and target.direct (2006a).