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Target Corporation’s Business Strategy & Recommendations

Executive Summary

Target operates under a very competitive and challenging market environment characterized by aggressive and advanced competitors. Although it has a strong brand image, the company is lagging behind its key competitors. During the fiscal year 2020, Target had total assets amounting to $42,779 billion, while Walmart and Amazon had $236,495 billion and $321,195 billion, respectively (“Walmart Total Assets”). New players within the marketplace, such as the Dollar store and Kroger Inc., have grown to become Target’s serious competitors. Given that the company faces stiff competition on multiple fronts, effective strategies are critical to its survival.

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Three strategic issues impact Target’s business operations: first, the company’s market is characterized by stiff competition with little opportunity to compete on prices. Its competitors have similar product offerings, yet Target’s stores are always out of stock. The second issue relates to its operational management; the company sources most of its products from China, which is problematic considering the current turbulent American-Chinese business relationship. The final issue relates to the company’s damaged reputation caused by the recent legal violations. We look at how this negative publicity may affect the business and how it can revamp its image. We also recommend various strategies the company can implement to become the industry’s market leader.

The paper is divided into three parts: the first section provides a comprehensive discussion of Target’s market environment and the approach it needs to implement to become a market leader. The second segment highlights the company’s operational management and the potential for acquisitions and strategic alliances in revamping its business. The last part discusses the organization’s brand image and how it can exploit it to boost its market position.

Introduction

Strategic plans are crucial in creating a roadmap for a company to align its functional organizational activities and practices to achieve its strategic goals. It guides decision-making and resource allocation, thus improving a company’s operational efficiency. This report analyses Target Corporation’s current business practices and provides strategic recommendations on improving its competitive advantage and market position. The paper offers suggestions in three key areas: its market, operational management, and brand image.

Market

Competition

Target operates under a very competitive and challenging market environment characterized by aggressive and advanced competitors. Some of these competitors offer equally good products and are also deliberately attacking Target’s market segments to make huge profits. While Target has opened only eight neighborhood stores (Target’s niche) since 2015, Walmart has opened approximately 270 to 300 such stores within the same timeframe (“SWOT Analysis of Target Corporation”). Amazon has a more substantial reputation in eCommerce, while Walmart is a low-cost provider. Other competitors such as Kroger Inc. have identical product offerings as Target, but its prices often undercut or match Targets’.

A close analysis of the company’s main competitors shows that most, if not all, discount retailers in the country have similar product offerings and cost strategies. Target competes in this environment mainly through focused differentiation and innovation. It primarily focuses on its core customer segments instead of trying to be “everything to everyone.” This strategy has given it a competitive edge over its competitors. A detailed SWOT analysis reveals that the company has a strong brand image and loyalty as its core competencies. Unlike its competitors that are viewed as low-class, Target is considered hip, trendy, and appealing, especially to young customer populations.

The company should leverage these core competencies as a preemptive strike against its rivals. According to Tabish et al., a strong brand image can give the company a sustainable competitive advantage and profitability (153). Accordingly, it is natural to argue that Target’s brand name will influence its offensive strategies against its competitors. In line with this argument, the company should invest in products and activities that accentuate its image as a classy and hip retailer store to become a leading competitor in the market.

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Cost/Prices

Costco and Walmart are cost leaders in the retail industry; they appeal to customers by selling products at low prices. Target’s cost strategy is different from these companies, and it should remain so because being a second or third lowest cost provider is not always the best strategy. According to Thompson, low-cost strategies are only advantageous under two conditions: if market competitors do not counter-respond with their price cuts and if the profits in unit sales can offset the impacts of thinner profit margin per unit sold. While Target’s prices are higher than its competitors, its best-cost strategy has helped it keep overhead costs low (“SWOT Analysis of Target Corporation”). Therefore, the company should avoid competing based on prices and focus on other strategies to give it a competitive advantage.

There is minimal opportunity for Target to compete on prices considering that prices are usually the main selling points for discount retailers. This characteristic calls for “guerilla warfare strategies” to grab customers from its rivals (Thompson 128). Guerilla tactics involve initiating occasional low prices to attract customers away from competitors. For example, the company can implement seasonal promotional activities that offer customers discounts for one week or a preferred timeframe to attract new customers to its business.

Market Segment

Convenience as a Core Value Proposition

Businesses can attain a competitive advantage through low costs, differentiation, or unique value. A typical strategic issue about target stores is that they are always out of stock, and their customers seldom find all of their desired products. On the other hand, its market competitors, including new market entrants, offer customers a one-stop shopping experience. Target needs to consider a business model that addresses convenience as a primary core value proposition. Empirical evidence has shown that customers are always willing to pay more for value (Thompson 126). Additionally, according to Thompson, having a broad product offering will help the company spread its fixed operating costs over many items.

Today’s world is fast-paced, and people have busy lifestyles; therefore, convenience is a critical factor that influences customers’ purchasing decisions. Consumers value time – most of them want to purchase products with little effort and planning. Therefore, Target’s “out-of-stock” problem is a significant deal-breaker for its customers. The company should ensure product availability to all customer segments through extensive distribution. Its physical stores should be strategically positioned, particularly in heavily traveled sites, popular shopping malls, next to a cheap transportation network, market outlet, or at an interchange. It should ensure that consumers have access to a wide range of products in those market outlets and retail stores. The company can achieve this goal by offering a broad range of products.

Target Audience

Until now, Target has differentiated itself from other discount retailers by tending to the hipper market. Unlike Walmart and dollar stores, Target is not perceived as a low-class retailer (“SWOT Analysis of Target Corporation”). Target’s consumer market consists of trend-conscious and middle-class individuals aged between 18 and 44 years (“SWOT Analysis of Target Corporation”). Target can improve its market position by targeting a more diverse customer population. It can attract more customers by offering unique products that cater to their individual needs and concentrating on underserved market segments. For example, middle-aged adults and older adults are widely ignored in the eCommerce market. Because the company has a brick-and-mortar strategy, it should consider this population as a potential customer segment. The approach will allow this population to visit the retail store if they need extra help.

There is a multitude of literature showing that the aging population is significantly increasing. The United Nations reports that the global population of older adults is approximately 962 million; this number is projected to increase by 2050 to reach at least 2.1 billion (“World Population Ageing” 10). Through innovative technology, such as assistive technology, Target can attend to this population. Amazon has already implemented technology such as Amazon Echo, Alexa, and automatic re-ordering to improve mature adults’ and senior citizens’ shopping experiences. Target should be a fast adopter and implement such technology to capitalize on this untapped market.

Product Offerings

The company can also reach a more extensive and diverse target audience by offering more products. Most discount retailers have similar product offerings, making it difficult for companies to differentiate themselves. Of Target’s product offerings, beauty and household essentials and apparel and accessories are the most important. The former generated $17.73 billion, while the latter generated approximately $15 billion in net revenues in 2018 (“SWOT Analysis of Target Corporation”). The company should invest in products that generate significant revenues and de-invest in the least important ones.

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The blue ocean strategy is a unique tactic that will differentiate the company from its competitors. It refers to a market space/industry that does not yet exist and is untainted by competition (Thompson 127). It involves inventing distinct market segments and creating new market demands. Coca-Cola has acquired a strong market position by using this strategy (Thompson 127). For example, through research and development, Coca-Cola realized some customers valued healthy living lifestyles. Therefore, Coca-Cola developed new products such as Coke-zero and sugarless beverages to appeal to these customer segments (Thompson 127). Similarly, Target should research its market, identify untapped markets or customer needs, and develop products that will appeal to these markets. This new market space offers excellent opportunities for profits and rapid growth.

The company should consider entering new markets, especially the global market. The brick-and-mortar strategy provides the organization with a unique opportunity to expand to new geographic regions at low costs. The company only needs a web store to display products and a system for filing and delivering customers’ orders. The company’s retail store personnel can fill and ship orders to local customers and attend to those who opt to pick theirs from the store. It can establish distribution and delivery channels globally by partnering or getting into joint ventures with established companies in those markets. Partnering and allying with established companies will give the firm the needed capabilities to penetrate new markets. It reduces risk by lowering costs while concurrently offering value and quality to customers (Thompson 128). Target’s first attempt to venture into the global market failed because of the rapid expansion. On the contrary, the company should open small retail stores in selected areas and then slowly expand its operations.

Marketing Strategy

Target’s decision to venture into eCommerce increased its competition as Walmart and Amazon are already well-established in the field. However, one of Target’s core competencies is its unique and captivating marketing strategies. The company uses the brick and mortar strategy: customers can shop at its physical stores or online stores. The company should establish an approach that will convert its website traffic into revenues. According to “SWOT Analysis of Target Corporation,” Target’s advert on Lilly Pulitzer fashion merchandise attracted a massive audience that its website crashed. Target should leverage such capabilities to give customers a superior shopping experience and turn web surfers into actual customers. Its strategy should be intriguing and appealing enough to make customers return to the website again.

Operational Management

In regards to its other product offerings, Target depends on third-party vendors outside the United States. The tension between China and U.S. after the Covid-19 debacle has made the business environment unpredictable and unattractive. A recent study by the Federal Reserve Bank revealed that U.S. companies lost $1.7 trillion in stocks due to the Chinese-American feud (Hass and Denmark). It is crucial that Target quickly adjusts its business operations in response to the current political environment. Currently, China is the company’s largest source of merchandise. However, due to the current political climate, the company should consider sourcing its products locally. It should liaise with the best distributors and suppliers in the region through exclusive partnerships, contracts, or even acquisitions. These strategic partnerships will provide the company with the expertise and first-class capabilities needed to compete in the domestic market. The strategic alliances will also allow the company to concentrate on its core business proposition.

The company should outsource its order fulfillment activities to become competitive in eCommerce. According to Thompson, outsourcing order fulfillment activities is cost-effective, reduces the firm’s exposure to ever-changing technologies and buyer preferences, and improves its ability to innovate. However, to make the most out of outsourcing strategy, the company should only outsource distribution, manufacturing, administrative activities, information/data processing, and order fulfillment activities. According to Thompson, a company will only be sabotaging itself if it depends on outsiders to provide skills, capabilities, and expertise in areas that give its competitive advantage. Therefore, product design should be done in-house as it is one of its core value-propositions.

Brand Image

Over the recent years, Target has received negative attention from the media for supporting an anti-gay political activist. Additionally, the company is facing a legal suit for violating dozens of health and safety regulations. It was accused of disposing of hazardous wastes, including aerosols, pool chemicals, pesticides, and flammable substances, risking the community and animal health in the process (Rosen). As mentioned previously, Target’s brand image plays a significant role in the company’s business. There is a causal relationship between a company’s green activities and its profitability. A company’s green image positively influences customer’s perception of its products, promoting its brand loyalty (Assaker et al. 948). Thus, the bad press the company has been recently receiving is detrimental to its brand image. Target should implicitly communicate its values and commitment to maintaining the environment’s health. It should hire an expert to help rebuild its damaged image and build trust with the community. Investing in corporate social responsibility activities can also the company improve its reputation in the community.

Conclusion

Target should implement offensive strategies to outcompete its competitors. Target has a strong brand loyalty that it can use as a preemptive strike against its rivals. It should avoid competing on prices and focus on differentiation instead. It should offer its customers convenience as a core value proposition and ensure product availability in all retail stores and outlets. The company should consider entering new market segments, including the global market. The older population offers promising opportunities, but only if mediated by innovative technology. The company should also seek differentiation by creating new markets undiscovered by its competitors. It should outsource non-critical value chain activities to keep operational costs low. Strategic alliances and partnerships will help the company establish a strong foothold in new markets, especially the global market. Finally, it should concentrate on rebuilding its brand image to sustain its core competency.

Works Cited

Assaker, Guy, Peter O’Connor, and Rania El-Haddad. “Examining an Integrated Model of Green Image, Perceived Quality, Satisfaction, Trust, and Loyalty in Upscale Hotels.” Journal of Hospitality Marketing & Management vol. 29, no. 8, 2020, pp. 934–955. Web.

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Hass, Ryan, and Abraham Denmark. “More Pain than Gain: How the US-China Trade War Hurt America.” Brookings, 2020, Web.

Rosen, Jeffrey. “Target Corporation to Pay $22.5 Million Settlement for Environmental Violations.” County of Santa Clara, 2018, Web.

“SWOT Analysis of Target Corporation.” PESTLE Analysis, 2015, Web.

Tabish, Muhammad, Syed Furqan Hussain, and Saher Afshan. “Factors That Affect Brand Loyalty: A Study of Mobile Phone Industry of Pakistan.” KASBIT Business Journal (KBJ), vol. 10, 2017, pp. 151–170. Web.

Thompson, Arthur. Strategy: Core Concepts and Analytical Approaches. 6th ed., McGraw-Hill, Irwin, 2020.

“Walmart Total Assets 2006-2020: WMT.” MacroTrends, Web.

World Population Ageing 2020 Highlights. United Nations, 2020.

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