Target Corporation: Strategic Analysis and Recommendations

Overview

Target is an American big box department store chain and the 7th largest in the United States (Wikipedia, 2022). Dayton company opened the first Target store in 1962 as a “discount version of Dayton's department store” (Nolen, 2019). Target corporation is on the list of S&P 500 with market value of 110.57 billion dollars as of January 7th, 2022 (Value.Today, 2022). Target is a popular store due to its multiple locations and affordable prices. Figure 1 shows Target Corporation business model canvas.

Like many other big box department stores, Target offers a wide variety of products and services for instance food, clothing, home decor, pharmaceuticals, and electronics to name a few. In other words, Target is a one-stop location to meet almost all household needs. One third of the products sold by Target are exclusive to Target stores procured by self-owned brands and private brands such as BRIGHTROOM providing home storage organization items and BOOTS & BARKLEY offering pet beds and toys and so on. Target is in partnership with designer brands to promote and sell their products exclusively at a Target location as well (Target Corporate, 2022). The corporate’s approach to what to sell in store is a big focus on national brands, such as AVA & VIV for women’s apparel and CASALUNA for bedding and bath items (Target Corporate, 2022), This strategy of promoting national brands is extremely crucial for continuance of local and national vendors and also American economy. Target also provides seasonal and occasional products such as Halloween or Christmas related items. Target believes that its stores have wide selections of items for every taste and their presence in almost every neighborhood brings convenience and comfort for their customers (Target Corporate, 2022).

As for pricing, Target uses economies of scale, value and discount pricing tactics. Target has been successful in offering affordable prices compared to its competitors such as Safeway Inc. One can argue that the reasonable prices at Target are mostly due to its owned brands and a range of products from unknown brands but seemingly of the same quality and design. Furniture items, for example, can easily compete with Ikea. A Target-owned brand white 3-drawer chest price is around $10 cheaper than the exact same product in Ikea. Target also offers great discounts on electronics such as TVs. Moreover, Target offers discounts and rewards on Target REDcard, Target Visa, and Target Card.

Headquartered in Minneapolis, Minnesota, Target has around 1938 stores covering all 50 states in the United States as of August 29, 2022 (ScarpeHero, 2022). According to Target Corporate website, Target has a location at approximately 10-mile radius of 75% of US population. Target also offers online shopping and provides in-store pickup, curb-side pickup, and home delivery.

Target mostly employs direct marketing for its promotion campaigns using its owned media such as Target website and mobile application and paid media such as Instagram feeds. Moreover, Target is sending its subscribers, either Target Circle or RedCard members, email notifications offering coupons or targeted products based on customers’ shopping habit (Kim, 2022). Target also has flyers and banners promoting time-limited offers at stores’ entrance. In the writer’s opinion, Target best promotion strategy is its presence in almost every neighborhood and its elaborate red logo.

Target has created an efficient process by employing skilled and friendly staff, who are available to help. The design of the store is also smart. Mostly customers visit a Target store to shop groceries. Groceries section is in the back of the store making the shoppers go through the non-urgent sections such as clothing, furniture and so on to reach the food section. The design and branding of these non-urgent sections not only do not disappoint the customers but also make them curious enough to stop and explore before visiting the desired section.

Situation Analysis

           Figure 2 shows Target’s SWOT analysis.

Strength

Presence

Target operates in all 50 states in the United States as of August 29, 2022, with 1938 stores (ScarpeHero, 2022). Seventy fine precent of US population has access to one Target store at an approximately 10-mile radius (Target Corporate, 2022). This presence makes Target very accessible for customers.

Diversified Portfolio of Products

Target has a wide range of products in its portfolio. Most of these products are tailored to satisfy household needs of customers. The portfolio varies from groceries, pharmaceuticals and cosmetics to clothing, home decor and even electronics (Target Corporate, 2022). This diversification of products makes Target an almost one-stop store for many customers.

Affordable Pricing on Quality Products

Target has been able to provide more reasonable prices on quality products that can compete with most designer brands (Target Corporate, 2022). The corporation has been able to keep prices down while selling quality products through sales of self-owned brands and partnering with exclusive and national and local brands (Target Corporate, 2022). Moreover, Target does price matching for online products (Wondershare EdrawMax, n.d.).

Social Influence

Dayton Foundation, that was established over 100 years ago, was renamed to Target Foundation in 2000 (Target Corporate, 2012). Through its foundation, Target has committed to tackle the issue of inequality and financial stability by investing and empowering leaders, organizations, and networks that “expand economic opportunity equitably, enabling communities to determine their own futures.” (Target Corporate, n.d.). Target has also committed to allocate 5 percent of its profit for children’s education, relief works, food and disaster prevention in local communities (Gupta, 2022).

Financial Services and Loyalty Program

Target offers two types of reward programs: Target Circle and RedCard (Kim, 2022). Target Circle membership is a simple registration of a phone number and an email address. This free program gives customers 1% credit on eligible items and 5% around customer’s birthday, that can be redeemed in store or online (Kim, 2022). This membership also offers personalized coupons based on customer’s shopping habit (Kim, 2022). Target RedCard is also another free membership that requires customers apply for a credit line or connect a bank account to Target debit card (Kim, 2022). Almost all purchases on Target RedCard are eligible for 5% discount and free two-day shipping (Kim, 2022).

Weaknesses

Lack of Effective Marketing Campaign

Target is clearly not invested in marketing compared to its competitors such as Walmart or Costco (Wondershare EdrawMax, n.d.).

No Presence in International Market

Currently, Target is only present in the US (Target Corporate, n.d.). Between 2011-2015, Target opened 133 stores in Canada; however, all these stores closed down in 2015 (Gupta, 2022).

Expensive Groceries

Target tends to be around 15% more expensive than Walmart, that is Target’s biggest competitor (Gupta, 2022).

Opportunities  

Attractive Store for Budget-conscious Customers

Like many other businesses in retail industry, Target sales can also be affected by macroeconomic factors such as economic downfall. In times of recession or high inflation, customers become more budget conscious. This change in customers’ purchasing power can make Target an attractive store because of its budget-friendly products. (Wondershare EdrawMax, n.d.).

More Presence in International Market

Target has an opportunity to expand its business to other countries, especially neighboring countries of Canada and Mexico. The expansion will result in more revenue for the company.

Growing Supplier Network to Offer Lower Prices  

There is an opportunity for Target to expand its supplier network to provide even more diversified portfolio of products, especially in groceries department, resulting in lower its prices. This measure will decrease threats from competitors such as Walmart in attracting Target’s customers over (Gupta, 2022).

Expanding e-Commerce

Many industries have allocated enormous funds to digitalization. Retail industry is not an exception. Target already offers online shopping services through its website and mobile application. However, Target needs to expand its online services in areas such as same day delivery to be able to compete with mega retail companies such as Amazon.

Threats

Competitive Rivalry

Retail industry is very competitive and low margin. Target’s rivals such as Walmart, Costco and Home Depot have many locations across the country and therefor Target’s market share is negatively affected. Also, Target is hugely threatened by Amazon in e-Commerce sector (Gupta, 2022).

Market Uncertainties Resulting from Macroeconomic Factors

Many retailers' bottom lines have been hit by market uncertainty on both the domestic and international levels during the pandemic and also post-pandemic. Target has not been greatly impacted, but the uncertainties have compelled the corporation to update its expansion plans and predictions. Due to market uncertainty, the business revealed that it is reducing its store refurbishment plans from 3,000 to just 300 (Gupta, 2022).

Threats of New Entrants Due to Low Barrier

New entry to retail business is not a difficult task if capital is provided. Any company can be established and offer products at lower prices to attract more customers and take up a big portion of the market share (Gupta, 2022).

Threats of Substitutes

The increasing popularity of online shopping and the convenience it offers has negatively impacted the performance of retail stores. Since products sold by Target are generic and not “specialty products”, Target needs to take measures to maintain its brand loyalty due to the threats of customers switching to brand-free price-sensitive online shopping (Gupta, 2022).

Market Opportunity Analysis

Market Penetration

Although Target is already a recognizable brand due to its massive presence all over the United States, the corporation’s 12-month market share as of Q3 2022 has been only 5.1% (CSI Market, 2022). Target has plans to open up approximately 30 more stores to increase their presence (Target Corporate, 2022). In order to increase its market share, Target needs to invest on marketing and e-commerce to be able to compete with other retailers such as Amazon and Walmart.

Product Development

Target corporation’s products are supplied through self-owned brands and exclusive partners, national and local brands (Target Corporate, 2022). As for self-owned brands, Target manages a professional product design and development team with more than 600 product developers (Target Corporate, 2014). The corporation aims to target everyday needs of every class of society in any life stage (Target Corporate, 2022).

Market Development

Target corporation’s mission is to attract any customer with any unique needs from all different financial and cultural backgrounds (Target Corporate, 2022). The corporation is already investing on market research. There is an opportunity for Target to expand to international markets, especially in neighboring countries of Canada and Mexico.

Diversification

Although Target is already managing a diversified portfolio of product, there is yet an opportunity for the Corporation to expand and specialize its portfolio of goods. Some categories of products are limited to basic or cheap goods. Electronics department is a great example. A quick visit to a Target store can show that Electronics section is one of the less crowded departments of the chain store. The reason of Target not being a popular store for purchasing electronics might be due to limited inventory of electrical items sold at stores. The company’s opportunity is to increase its revenues by reconsidering electronics inventory through research and promoting a wide range of selections to its big customer-base.

Considering how retail industry functions, Ansoff's matrix would be most relevant Strategic Quadrants Framework for guiding Target’s marketing strategy decisions. Ansoff’s matrix divides strategies into four categories based on whether they are about the organization's current products or new products, as well as its current target markets or new markets; and then the matrix provides four strategic options of market penetration, product development, market development, and diversification (Tuten, 2020). Since competitive rivalry in retail industry is high and there is little barrier for new competitors to enter the industry, it is vital for the success of a retail company to constantly do research products and market.

In 2021, the retail available market in the United States was worth $4.55 trillion. From 2021 to 2026, the market is anticipated to expand more than 3% (GlobalData, 2022). The key players in this industry are Walmart, Amazon, Target, Ross Dress for Less, Dollar General, Apple, Home Depot, Walgreens, Tractor Supply Co, and Bath & Body Works (GlobalData, 2022). As previously mentioned in this paper, Target corporation’s 12-month market share as of Q3 2022 is 5.1% (CSI Market, 2022). Market share total of Target’s biggest rivals, that are Amazon, Walmart, Costco and Kroger, is 68% (CSI Market, 2022). Therefore, Target’s addressable market is 68%, that shows a big opportunity for Target to expand its market penetration. As for achievable market, Target could aim for 44% of market share (Amazon’s market share is excluded due to its massive operation) through expansion of products portfolio, market penetration and e-Commerce. Considering Target’s opportunities of budget-friendly products for budget-conscious customers, more presence in international market and growing supplier network to offer lower prices, the achievable market share seems to be very attractive for the corporation. However, this increase of market will not be an easy task due to the threats of competitive rivalry, market uncertainties resulting from macro- and microeconomic factors, threats of substitutes and threats of new entrants due to low barrier.

Segmentation and Targeting and Buyer Behavior

The best segmentation base for Target’s customers is demographic. Target's strategy for target market and market penetration is based on Mass Market. Target offers a product for almost every age and gender group in different departments including children, teenagers, young adults, and seniors even students. The corporation also targets customers from different cultural backgrounds such as Asian and Hispanic. Customers at Target are more brick-and-mortar dependent. However, as technology is advancing and online shopping services are becoming more enhanced, so is customers’ shopping behavior evolving. Target’s most typical shopper is a millennial suburban mom with a household income of $80,000 (Reuter, 2022). Figure 2 shows this typical buyer persona.

Positioning

Value Drivers

The 5 top motivator value drivers for customers in retail industry are convenience, reputation, customer service, price, and comfort.

Convenience

Target has around 1938 stores in all 50 states in the United States as of August 29, 2022. In other words, Target is present at approximately 10-mile radius of 75% of US population. Target also offers online shopping and in-store or curbside pickup services. Target’s huge presence in the US market has made access to a Target store very convenient for customers. Target’s score for convenience is 8/10.

Reputation

Target has built a solid reputation for its high-quality goods and services in the United States. Due to the numerous discounts provided to customers, the business has also earned the reputation of being a low-cost retailer. Target's slogan, "Payless, Expect More," further enhances its reputation as a corporation that offers high-quality products at competitive prices. The chain store is also known for providing affordable stylish products in the United States (Taylor , 2021). Target’s score for reputation is 9/10.

Customer Service

Target is one of the big box stores known for its top-notch customer service. The corporation is making sure employees are fully trained and are present to help customers in-need. In addition to store-wide employees’ presence, Target also has an in-store customer care desk. Moreover, customer relationship is maintained via online chat services or over the phone (Target Corporate, 2022). Target’s score for customer service is 8/10.

Price

Using economy of scales, value and discount pricing tactics, Target offers more affordable prices on quality and stylish products. Moreover, Target’s loyalty programs through Target REDcard, Target Visa, and Target Card offers discounts and reward point to customers. Target’s score for price is 7/10.

Comfort

Due to its diversified portfolio of products, Target is almost a one-stop store to fulfill almost all household needs. Target’s score for comfort is 7/10.

Target’s biggest competitive rival is Walmart. Figure 3 shows the comparison of value drivers between Target and Walmart.

Looking at figure 3, Target’s strength is in its reputation and customer service and the corporation’s positioning strategy should focus on these two value drivers. However, to be able to compete with Walmart, Target needs to open more stores nationwide, offer lower prices on products and expand its portfolio of products.

The flag of Target’s biggest competitors are as follows: ‘Lower prices’ for Walmart, ‘Most customer-centric company’ for Amazon, ‘Quality goods and services at the lowest possible prices’ for Costco. Target’s flag should be its effective customer service and reputation of a store where quality products can be purchased with more affordable prices. Considering Target’s proposed flag in this paper, Target’s positioning statement would be as follows:

To everyone who is looking for a perfect shopping experience, Target is a happy place which delivers the best customer service and more affordable quality products because only Target is willing to go above and beyond to bring joy and happiness into everyone’s life.

Design to Value an Offer

In this section, a proposed marketing mix is going to be discussed and compared to Walmart that would increase Target’s market share in the Unites States.

Product

Walmart offers a wide range of products including college supplies, home appliances, funeral, outdoor living, and groceries to name a few. In other words, customers can purchase almost anything from Walmart (Papia, n.d.). Although Target already manages a diversified portfolio of products, there is yet a lot of room for improvement. There are four product categories in Target department store with the least range of products namely fresh produce, fresh seafood, electronics, and fitness-related items. The corporation needs to expand on these products to be able to perform more competitively with its biggest competitors.

Price

Walmart does not produce its products; instead, in order to benefit from economies of scale, it purchases items in massive quantities from all over the world. As a result, compared to other retailers, Walmart offers goods at a 15% discount. Walmart uses a range of price methods to draw more customers in and persuade them to buy inexpensive products. Sam Walton used the phrases "Always cheap pricing" and "Everyday low prices" to describe how each product is offered at a different discount price based on the time of day and the level of demand. The cost of consumer electronics is relatively affordable when compared to other retailers. Walmart offers the product at low and acceptable costs that are affordable to many people throughout the world, as stated in its tagline. (Shastri, 2021). Target is known for providing quality products at more affordable prices. However, compared to most of its rivals, Target is slightly more expensive. Pricing strategy is one of the most important elements of increasing market share given the extremely volatile macroeconomics variables that affect customers’ purchasing power. Target can achieve lower prices by expanding its supplier network. Moreover, Target can apply economies of scale strategy more effectively by opening more stores that will result in bigger volumes of procurement resulting in lower costs. Decreasing profit margin is also another strategy to consider for lowering prices.

Place

Walmart has opened around 4600 stores in the United States and 11700 stores in over 28 countries. Walmart uses the theory of market saturation to consider a store location (Papia, n.d.). Target, on the other hand, runs only around 1938 in the United States and has no international presence. Clearly, opening more locations in the United States and also expanding its business into international market will increase Target’s market share both domestically and internationally.

Promotion

Walmart’s slogans are "Save Money, Live Better" and "Lowest Price Store”. Walmart promotion strategies are offering discounts, coupons, and other advantages to loyal clients. It has recently launched an e-commerce site as well, where it offers free shipping to consumers who receive an A grade. Additionally, its 90-day return policy without a receipt encourages impulsive shopping at the stores (Papia, n.d.). Target’s current promotion strategies are its massive presence in the United States and offering discounts and rewards through its financial services and loyalty programs. Target is also known for a store carrying quality products at affordable prices. However, compared to its biggest rival, Target needs to penetrate more into the market by running more effective marketing campaign, offering more enticing rewards and discounts.

People

Walmart is a large multinational company that values its workers highly. Given that they handle all customer inquiries in-store, employees and staff are a crucial resource for Walmart. The staff at Walmart is well-trained and eager to help customers. Approximately 1.5 million of Walmart's 2 million employees work in the United States (Shastri, 2021). Walmart emphasizes on diversity and inclusion and offers affordable medical and dental plans to its employees (Walmart Corporate, 2022). Target also focuses on diversity and inclusion in its staffing policies. The corporation is also invested in training its staff. However, it seems that Target needs to employ more staff to do retailing on the floor of the stores to increase customer-employee engagement.

Process

Walmart tries to create an easy and simple shopping experience for its customers. The company does so by having readily available trolleys, orderly product layout and categorization, numerous payment terminals, and a range of payment options (Shastri, 2021). Target’s current design of the store by having groceries section in the back and also categorized departments are effective. However, there is usually a long line up for payment that hinders the process. The corporation needs to expand its self-serve payment terminals and hire more cashiers to facilitate the process of shopping.

Presence

Walmart’s layout is a typical department store. The only department that offers hands-on experience is electronics. Target, on the other hand, has made an effort to offer more tactile experience, particularly in its home decor and electronics departments. As for home decor, Target has tried to create a room experience designed by its products that facilitates customers’ shopping decisions. As for electronics, customers can test the sound quality of music systems by playing music, or they can check the picture quality of TVs by watching them. Target can also create the same environment in other departments, especially in the fitness and children’s department.

Marketing Performance

Tracking metrics has a direct impact on a retail store profitability. Tracking performance helps a retail store understand what changes and improvements need to be done to increase sales and customer retention (Keenan, 2022). The following metrics can be measured by Target to evaluate its performance and guide future decisions (Nicasio, 2021).

·     Sales per square foot

·     Sales per employee

·     Conversion rate

·     Gross and net profit

·     Average transaction value

·     Basket size / items per transaction

·     Online sales relative to brick-and-mortar locations

·     Year over year growth

·     Sell-through

·     Shrinkage

·     Foot traffic

·     Customer retention

Conclusion

As the 7th largest department store chain in the United States, Target has been successful in creating a reputation of a store that carries quality products at affordable prices, focuses on customer satisfaction and is committed to tackle the issue of inequality and financial stability. However, with only around 5% of market share in the United States, Target must improve in several areas in order to stay in competition with its biggest rivals such as Walmart, Costco and Amazon and to mitigate the risk of substitutes and new players in the industry. Firstly, Target needs to expand its presence in the United States and explore international market. Secondly, as customers’ shopping behavior is changing, Target must utilize the latest technology and improve its e-Commerce services. Thirdly, Target should aim at lowering its prices by expanding its supplier network. Finally, Target needs to diversify its portfolio of products to be able to address more daily needs of its customers.

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