2 page paper on the marketing environment for target

Project Description:

case study 1 -
target: from "expect more" to "pay less"

when you hear the term “discount retail,” two names usually that come to mind: walmart and target. the two competitors have been compared so much that the press rarely covers one without at least mentioning the other. the reasons for the comparison are fairly obvious. these corporations are two of the largest discount retailers in the united states. category-for-category, they offer very similar merchandise. and they tend to build their stores in close proximity to one another, often even facing each other across major boulevards.

but even with such strong similarities, ask any consumer if there’s a difference between the two and they won’t even hesitate. walmart is all about low prices; target is about style and fashion. the “upscale discounter” label applied by consumers and the media over the years perfectly captures the company’s long-standing positioning: “expect more. pay less.” with its numerous designer product lines, target has been so successful with its brand positioning that for many years it has slowly chipped away at walmart’s massive market share lead. granted, the difference in the scale of the two companies has always been huge. walmart’s most recent annual revenues of $419 billion are more than six times target’s $67 billion. but for many years, target’s grew at a much faster pace than walmart.

in fact, as walmart’s same-store sales began to lag in the mid-2000s, the world’s largest retailer unabashedly attempted to become more like target. it spruced up its store environment, added more fashionable clothing and housewares, and stocked organic and gourmet foods in its grocery aisles. walmart even experimented with luxury brands. after 19 years of promoting the slogan, “always low prices. always.”, walmart replaced it with the very target-esque tagline, “save money. live better.” none of those efforts seemed to speed up walmart’s revenue growth or slow down target’s.

but as the global recession began to tighten its grip on the world’s retailers in 2008, the dynamics between the two retail reversed almost overnight. as unemployment rose and consumers began pinching their pennies, walmart’s familiar price “rollbacks” resonated with consumers, while target’s image of slightly better stuff for slightly higher prices did not. target’s well-cultivated upscale discount image was turning away customers who believed that its fashionable products and trendy advertising meant steeper prices. by mid-2008, target had experienced three straight quarters of flat same-store sales growth and a slight dip in store traffic. at the same time, walmart was defying the economic slowdown, posting quarterly increases in same-store sales of close to 5 percent along with substantial jumps in profits.

same slogan, different emphasis

in the fall of 2008, target acknowledged the slide and announced its intentions to do something about it. ceo gregg steinhafel succinctly summarized the company’s new strategy: “the customer is very cash strapped right now. and in some ways, our greatest strength has become somewhat of a challenge. so, we’re still trying to define and find the right balance between ‘expect more. pay less.’ the current environment means that the focus is squarely on the ‘pay less’ side of it.”

in the few years since steinhafel unveiled the new strategic plan, target has gone through some drastic changes. the executives at target challenged every assumption about the brand and the business model that had formerly brought target so much success. while this certainly meant cutting costs and prices, walmart’s decades-long lead in that department meant that target would have to do more.

according to michael francis, target’s chief marketing officer, doing more is exactly what happened. “there was more innovation happening within target during the recession than in any time in my 25 years with the corporation.” for starters, target began a massive effort to redesign its stores. this included redesigning departments and making updates to store signage and lighting. but the biggest change to store design came from the pfresh concept, an expansion of the grocery section in regular target stores to include fresh produce, meat, and dairy products. this new “mini-grocery store” was design to provide a narrow selection of 90 percent of the food categories found in full-size grocery stores while occupying only a corner of an existing target store.

target’s intention was to create mini-grocery stores to provide customers with a one-stop shopping experience. one shopper’s reaction was just what target was hoping for. a wisconsin housewife and mother of two stopped by her local target to buy deodorant and laundry detergent before heading to the local grocery store. but as she worked her way through the fresh-food aisles, she found everything on her list. “i’m done,” she said, as she grabbed for a 99-cent green pepper. “i just save myself a trip.”

while the pfresh concept demonstrated promise for increasing store traffic, groceries are a low-margin category. that’s why target’s second major operational change focused on stronger sales of higher margin goods. target surprised many analysts by unveiling a new package for its main store brand…one without the familiar target bulls-eye! instead, the new target store brand, “up & up,” featured big, colorful, upward-pointing arrows on a white background. the total number of products under the store label was expanded from 730 to 800 and promotional efforts for the store brand were increased in weekly newspaper circulars. kathryn tesija, target’s vice president of merchandising, stated, “we believe that it will stand out on the shelf, and it is so distinctive that we’ll get new guests that will want to try it that maybe didn’t even notice the target brand before.”

the design changes to target stores required a major shift in the company’s store growth plan. in fact, target opened only 10 new stores in 2010, the lowest in its history. “it will be a long time before we approach the development pace of several years ago,” said target chief financial officer, doug scovanner. target continues to put its money into remodeling existing stores to better accommodate the shifts in inventory.

as its product portfolio and prices began to reflect the “pay less” part of its slogan, target also shifted its advertising strategy. for years, the company had featured ads that projected the “expect more” part of its slogan. but even as it turned the stated message of its ads toward price, trendy and stylish visual imagery continued to strike customers as “expensive.” so target put all its advertising in the hands of wieden & kennedy as its first-ever lead advertising agency. wieden went to work, fine-tuning the marketing message in an effort to convince consumers that target was just as cheap as walmart.

target’s most recent campaign, “life’s a moving target” is spot on. the campaign has produced in excess of 70 15-second spots, each highlighting a specific product, ranging from flu shots to pants to cheese. the overall message that “the pace of life is complex” is much more in line with the reality that middle america faces. and each ad ultimately shows that target is there to fill consumers’ daily needs. for example, one clever shot shows a young boy at the table, sliding his brussells sprouts under the table to the dog. but the dog won’t have them and leaves, just as a bag of pedigree dog food flashes on the screen, followed by the campaign’s tag line. the campaign also brings in co-op dollars from vendors who are even petitioning target to be part of the campaign.

signs of life

although steinhafel’s “pay less” strategy was aggressive, target’s sales and profits were slow to respond. in fact, sales initially fell, at one point dropping by 10 percent from the previous year. target’s profits suffered even more. it didn’t help matters that as target’s financials suffered, walmart bucked the recessionary retail trend by posting revenue increases.

but target’s journey over the past few years demonstrates that changing the direction of a large corporation is like trying to reverse a moving freight train. it has to slow down before they can go the other way. it now appears that consumers may have finally gotten the message. during 2010, target’s same-store sales rose by as much as five percent while profits shot up 16 percent. both spending per visit and number of store visits increased. in a sign that target’s efforts are truly paying off, walmart’s fortunes reversed as well. the retail giant saw same-store sales decline for seven straight quarters.

steinhafel makes it clear that target is viewing the new signs of life at with cautious optimism. “clearly the economy and consumer sentiment have improved since their weakest point in 2009,” says the target ceo. “but we believe that both are still somewhat unstable and fragile and will likely continue to experience occasional setbacks as the year progresses.” steinhafel’s comments reflect an understanding that even as the recession ended, research indicates that consumers everywhere have adopted a new-found sense of frugality and monetary responsibility. and while economic growth may have improved, inflation is on the rise and unemployment remains high.

some wall street analysts have expressed concern that target’s recent value strategy may weaken the brand as customers lose sight of the distinctive features that set it apart from walmart. but the words of one shopper are a good indication that, despite having emphasized the “pay less” part of its image, target still retains the “expect more” part. “target is a nice place to go. walmart may have good prices, but i would rather tell my friends that i came back from shopping at target.”

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