Target Corporation Marketing Environment and Strategy Report by Eros Shreve Introduction Target is a leading discount retailer in the United States, which took this form in the 1960s, moving away from its department store roots as The Dayton Company. This report will outline Target’s marketing environment, both macro and micro, including a competitor analysis, as well as the business’ segmenting, targeting, and positioning strategy.
Macroenvironment The macroenvironment is all external factors that may affect a business or industry either directly or indirectly. More specifically, this includes all demographic, economic, natural, technological, political, and cultural/social forces. (Jobber, 2010; Kotler & Armstrong, 2016) Demographically, the average Target customer is 41 years old, makes roughly $60,000 annually, putting them in the middle class, and 57% have completed college and 42% have one or more children at home. (Francis, 2012; Target, n.d.) Target is affected by each of the economies in which its retail chain runs. This includes its primary retail point, the US, its primary production source, China, as well as India, in which it has headquarters, among others, which includes any other country of product production, or from which online sales may take place. (Target, n.d.) This meant that during the recent recession, Target had to shift its focus from the ‘Expect More.’ of
its slogan, indicating high quality to the “Pay Less.” indicating low prices, as was evident in its advertisement wording of the time. (Kotler & Armstrong, 2016) Target relies particularly heavily on the economies in the states of California, Texas, Florida, Minnesota, and Illinois, as these were its highest sales performers. (NASDAQ, n.d.) Recently, Target has benefited from the lowering prices of fuel, which has increased foot-traffic in the retail stores, and will likely soon benefit from the devaluation of the Yuan. (Aberdeen Asian Equities Team, 2015; Soni, 2015) A potential risk economically is the Indian headquarters where there is greater instability than in the US. Any continued problems here could lead to technological breakdowns or stagnicity for Target’s technology. (NASDAQ, n.d.) The three states with the highest total sales for Target, California, Texas, and Florida, are all frequently prone to natural disaster, which can affect sales. (Target, n.d.) For example, an earthquake in California could destroy a road leading to a store location and cause a dip in sales, or sales of certain products, such as non-perishable foods, could skyrocket in Florida due to news of a potential impending flood. Less extreme weather conditions may also affect sales, such as loss of profits from items such as coats or shovels due to an unseasonably warm winter, in any region of retail. (Target, n.d.) Target customers are accustomed to the quick uptake of new technology, and so Target must remain agile in remaining up-to-date with these practices. This affects target.com and Target apps, in addition to other factors including some aspects of store experience. (Target, n.d.) In addition, the recent increase of popularity of showrooming
has hurt Target, as customers will often use a Target store to browse, then will go online and purchase the product elsewhere for cheaper. (Kotler & Armstrong, 2016) In addition, Target was recently hurt by hackers who were able to capture the credit card details of Target Customers in late 2014. In response, Target became one of the first american retailers to adopt the Chip and Pin card, though business still suffered as a result of the incident. (Fortune, 2015, Target, n.d.) Politically, Target is affected in much the same way it is economically, as in the main governments of interest are the US, China, and India, as well as particular danger with instability in India, and particular sensitivity in those states aforementioned. (NASDAQ, n.d.; Target, n.d.) In addition, any trade agreements or disagreements between the US and China would affect Target greatly. (Target, n.d.) Values are largely important to the Target customer, and as such there is much pressure on the corporation to constantly foster its ethics culture and to improve product offerings to include more sustainable items. (Target, n.d.) In addition, sales are highly affected by cultural events within the US, including one-off events, such as the recent Star-Wars reboot, and recurring events, especially Black Friday and Cyber Monday. (NASDAQ, n.d., Soni, 2015, Target, n.d.)
Microenvironment The internal factors which directly affect a company are called the microenvironment, and include namely the company itself, and its suppliers,
intermediaries, customer markets, competitors, and publics. (Kotler & Armstrong, 2016, Jobber, 2010) Target Corporation has had a near-lifetime focus on ethics and values, as shown through its donation of 5% pre-tax revenue back into its communities since 1946, with a primary focus on education. (Target, n.d.) This ethical focus trickles down to its employees, called Team Members, who receive good benefits and exist in an environment which fosters diversity and inclusion, winning Target various awards. (Target, n.d.) Target’s leadership is headed by CEO and Chairman of the Board, Brian Cornell, alongside 11 others, 5 of which are female. (Target, n.d.) All team members are encouraged to participate in the Target Volunteers Program, which has received the highest honor available to programs of its kind, and together the hours put in through this program has totaled to over one billion. (Target, n.d.) Contrary to its ethical focus, Target still sources a large portion of their products from China, where factory conditions are less formally regulated. (Target, n.d.) However, Target has started multiple initiatives to improve these conditions, such as the Clean by Design program which has reported up to 36% reduction in water use in Chinese textile mills. (Target, n.d.) Their biggest sourcing push has been in their grocery sections, in which they recently increased their organic food offering by 26% from 2012 to 2014, and have aimed to make 100% of their seafood sustainably sourced by 2015. (Target, n.d.) As a superstore, Target deals both in own-brand and national brand products, and the profit split lies roughly ⅓ in own-brand and exclusive lines and ⅔ in name-brand
non-exclusive. (NASDAQ, n.d.) Exclusive lines refer to name-brand companies which Target has partnered with to create lines to be sold exclusively in Target stores. These include C9 by Champion, DENiZEN by Levi’s, and Converse One Star, as well as one-off products, typically done in Target’s signature red, such as the Exclusive Target Red Game Boy Advance in 2002, and Adele’s 25 Target Deluxe Edition, which fosters strong trade relations between the brands and Target stores. (Berghammer, 2002, Sullivan, 2015, Target, n.d.) Because of Target’s strong position in the market, it carries the ability to pressure intermediaries to be more ethically conscious. In addition to 100% ethical sourcing of seafood, as aforementioned, their goal is also for 100% traceability from ocean to Target freezer. (Target, n.d.) In addition, the company makes use of the Sustainable Apparel Coalition’s Higg Index to help determine and reduce environmental impact. (Sustainable, 2012) Target also looks to find diverse vendors in order to better serve those within its diverse market. (Target, n.d.) Target’s location within the US means it’s customer market relies heavily on the population of the country. According the the US Census Bureau (2014, 2010) website, the population is growing, up 3.3% from 2010 to 2014, which bodes well for the retailer. In addition, the US population is increasingly finishing college, by +.4% in the past year, which is also beneficial to the company as its typical customer falls under this category. (Target, n.d.; US Census Bureau, 2014, 2013) The Target customer’s average age is likely to creep up in coming years, as the current average guest age is 41 falling in the 21-44 range, similar to the typical American, however this is shifting towards 45-64 in coming years. (Target, n.d.; US Census Bureau, 2013, 2014)
The company’s publics include most relating to US citizens, such as the US government, the US media, as well as, of course, US shoppers, due to the company’s position as one of the country’s largest retailers. (Top, 2015) In particular, those publics affected most include TGT stock shareholders, Target consumers, and Target team members.
Competitor Analysis Target describes its competitors as “traditional and off-price general merchandise retailers, apparel retailers, internet retailers, wholesale clubs, category specific retailers, drug stores, supermarkets and other forms of retail commerce.” (Target, n.d.) Just as Coke has Pepsi, McDonalds has Burger King, and Macintosh has Windows, Target has Walmart. While Target has focused its efforts on superior atmosphere, merchandise, service, and company image on top of low prices, offering products ranging from basics to designer pieces, Walmart has laser-focused its approach on price, offering services such as layaway. (D'Innocenzio, 2012; Kotler & Armstrong, 2016) The slogans of each company are similar, Target’s “Expect More, Pay Less’ and Walmart’s “Save Money. Live better,” both focusing on good products and low prices in short clipped phrases, however the order means everything for perspective. (Target, n.d., Walmart, n.d.) In all reality, prices between Target and Walmart aren’t very disparate, and reports waver between which is, in actuality, the cheaper option, however, in the end it’s all moot as both companies perform price matches. (Target, n.d.; Walmart, n.d.; Washam, 2014) Culturally, one goes to Walmart solely to save
either time or money, while one is proud to shop at Target, earning Target the moniker TargĂŠt, as if it were a fancy french brand, and earning Walmart websites dedicated to poking fun at its patrons, such as People of Walmart. (Target, n.d.; About, n.d.) Other key competitors include Costco and Amazon, which rival Target using completely different strategies. (NASDAQ, n.d.; Soni, 2015, Target Corporation, n.d.) Costco is a wholesale retailer, the number 3 ranked retailer, and features cheap prices, a no-frills approach, and large quantities. (Costco, n.d.; Top, 2015) Amazon deals exclusively in online sales, and ranks in at number 9, saving money by cutting out the overhead of physical locations. (Amazon, n.d.; Top, 2015) Others, still, include Sears and Kmart, as well as other discount and department stores. (Kane, 2015; NASDAQ, n.d.; Target Corporation, n.d.)
Segmentation Businesses separate their target market into sections, called segments, based on meaningful characteristic differences in order to make them more manageable in reference to accessibility, definability, actionability, profitability, and growth potential. This is called segmentation, and allows a company to focus on a particular segment, and alter itself to better serve said segment. (Brassington & Pettitt, 2006; Economic, n.d.; Jobber, 2010; Varley & Rafiq, 2014) Through its literature and tactics, one can tell Target segments primarily by location, particularly by state and level of development in the local area, ie urban, suburban, rural. (Target, n.d.) In addition, Target segments through class level, as is
evident through its overall brand experience and offering, and family situation, such as single person household, developing families, and families with children. (D'Innocenzio, 2012, Duhigg, 2012)
Targeting Targeting is simply choosing which segment(s) to focus serving. (Brassington & Pettitt, 2006, Jobber, 2010) Target specifically uses differentiated marketing, which means that while it has a wide product offering, not all products are targeted to the same segments. (Brassington & Pettitt, 2006) Target originally started as a department store named Dayton’s and transitioned to discount store in 1962, which is why its target market remains fairly affluent, because this is the customer it was used to serving. (Target, n.d.) Today, Target has specific stores to serve specific markets. These store types include the original Target and Target Grocery, which is targeted at most segments, SuperTarget, for suburbia, and CityTarget and TargetExpress in urban areas. (Target, n.d.) In some states, Target is targeted specifically at hispanic customers. (Kotler & Armstrong, 2016) Within class structure, Target primarily targets the more affluent (middle class and up), and families, especially developing ones. (Duhigg, 2012, D'Innocenzio, 2012) Within their stores Target breaks down different affluence levels further to target separately through use of multiple own-brands at different price levels. (Target, n.d.) In addition, different markets are targeted through product sections within store. For
example, new families are targeted through the stylish baby and kids sections, and young working families are targeted through the small grocery sections. (Target, n.d.)
Positioning Positioning is simply how a business differentiates itself from its competitors to its target market. (Brassington & Pettitt, 2006; Jobber, 2010) This is often described in relation to the marketing mix: price, product, place, promotion. Overall, Target’s aim is to “combine the best of the fashion world with the best of the discount world, a quality store with quality merchandise at discount prices, and a discount supermarket.” (Target, n.d.) Its ranking as the #2 US discount retailer, and #29 on Fortune’s World’s Most Admired Companies list, alongside multiple awards, proves it does a satisfactory job in achieving this goal, alongside maintaining a good image. (Target, n.d.; Target Corporation, n.d.) In terms of price, Target, as a discount retailer, aims to keep them low, promising customers that they can “expect more,” and at the same time “pay less.” (Target, n.d.) However, compared to similar retailers (ie, Walmart), their strategy aligns more closely with the ‘more for same’ approach: similar low prices, but with superior experience and products. (Kotler & Armstrong, 2016) Its low-priced own brand essentials range titled Up&Up is on average 30% cheaper than the competing national brand, and allegedly of equal quality. (Target, n.d.) In addition to lower priced items, however, Target also mixes in higher ticket items, such as discount designer clothes and high-quality organic products. (Target, n.d.)
Target offers a large range of products, its signature categories being kids, baby, wellness, and style. (Target, n.d.) There is a large focus at Target on items that are good for people and good for the earth, prompting Target to curate a selection of brands titled Made to Matter with this focus. (Target, n.d.) In addition, Target was one of the first grocers in the States to offer USDA certified organic food, and continue to increase their organic offering today. (Target, n.d.) Target’s own-brand ranges are often of superior quality to those of national brands, which builds brand loyalty to the brands as well as company. (Kotler & Armstrong, 2016) Target frequently partners with other companies in order to offer their customers a higher quality and/or exclusive selection, or in order to make a difference in their community. These companies include designers such as Nate Berkus and Kate Young in the high-end range, Converse and Champion in the exclusive range, and TOMS and Yoobi who both donate products to those in need for each product they sell. (Target, n.d.) Target also positions itself by not selling certain products, refraining from selling cigarettes or any guns or ammunition, and even asking its customers to refrain from bringing open carry guns into stores, in order to help foster its image as a family company. (Kotler & Armstrong, 2016; Peterson, 2014; Target, n.d.) Place is Target’s strongsuit, and was the focus of the store even before it existed, its founder announcing that “shopping at the new, currently unnamed store will be fun, delightful and welcoming to the entire family. The stores will include wide aisles, easy-to-shop displays, fast checkout and loads of well-lighted parking." (Target, n.d.) Target, today, knows that it must focus to keep the stores safe, cleanly, and well
stocked, as well as the site and apps in good service. (Target, n.d.) To achieve this image, Target has multiple policies in place, including the aforementioned gun policy, a no-solicitation policy, and a lack of music or overhead announcements in its stores. (Peterson, 2014; Target, n.d.) In addition, most Targets feature a Target Cafe, which are often partnered with Pizza Huts and/or Starbucks, as well as other bespoke retailers within the stores, such as Target Optical and Target Pharmacy, owned by CVS. (NASDAQ, n.d.; Target, n.d.; Zacks Equity Research, 2014) Customer service is a priority at Target, and trickles all the way down to the nomenclature: they are not customers, they are guests. (Target, n.d.) Each customer’s experience with Target is completely unique, and completely tracked using Target’s guest ID system which attaches each customer with an ID number loaded with their name, email, credit card, buying history, app usage, as well as purchased in-detail demographic information. (Duhigg, 2012; Hill, 2012; Target, n.d.) Services offered include a price match for up to 14 days after the purchase, including prices from both Target and competitor’s ads, an online subscription service, and in-store pick-up for online purchases. (Target, n.d.) Target’s technology, including target.com, the Target app, Cartwheel, among others, has won numerous awards throughout the years, proving its quality. (Target, n.d.) Target was the first retailer to incorporate the use of UPC Scanning and to offer a company credit card accepted at major retailers nationwide, and one of the first to offer a gift-registry service, Chip and Pin technology, a company check card, and carts made entirely of biodegradable plastic. (Target, n.d.)
Target’s promotions are highly targeted using the aforementioned guest ID system, and numerous algorithms developed by Andrew Pole, the most notorious of which determines if a person is pregnant, and if so, her due date, which helps target shoppers during a malleable time in their shopping-habit lives. (Duhigg, 2012; Target, n.d.) This allows Target to transform the shopper that hits Target only for specific items to one that considers Target a one-stop shop. (Duhigg, 2012) Target’s adverts, which cost them $1,600 million in 2014, are bright and cheerful and clearly highlights specific products available in store. Other tactics used by Target includes product placement in television, promotional posts by bloggers, as well as pricing ending in .99, which subconsciously triggers the consumer to believe the item is a bargain. (Kotler & Armstrong, 2016; Target, n.d.)