Target: From “Expect More” to “Pay Less”

In this case we examine Target, a discount retailer who was always known for their ‘cheap chic’, “Expect More, Pay Less” value proposition. Heavy investment into this value proposition positioned Target in the market in a not too distant second position to WalMart with their slogan “Always Low Prices”. Over time Target’s success led WalMart to mimic certain aspects of Target’s value proposition but shortly thereafter the macroeconomic force of the “Great Recession” fell upon the market and WalMart seemed to reinforce its position of superiority. In response to this Target rolled out a new marketing strategy which involved adjusting the flavour of its value proposition to entice customers who were seen to have defected to their major competitor. In this case study we shall examine Target’s strategy in the face of these challenges and evaluate the effectiveness of it against best marketing practices. What microenvironmental factors have affected Target’s performance over the past few years? Four main microenvironmental factors have affected Target’s performance in a negative way over the past few years.

1. Competitors: Pre-recession, both Target and its main competitor, WalMart had well developed and communicated value propositions. Target’s being “Expect More, Pay Less” and WalMart leading the industry with “Always Low Prices”. Just before the recession hit WalMart modified their marketing strategy by taking on some tenets of Target’s style and flavour by introducing new elements to its store layout and product lines. Now remember, the recession did not hit completely without warning. Many people were aware of the possibility of a coming storm but it seems that WalMart was prepared with what has been its main strength in the market… low prices. Once the recession was in full swing consumers naturally started to review the way in which their money was spent, hence a retailer with a long history of low prices and dollar stretching values seemed like a good partner with which to ride out the economic storm. Target, unfortunately was not keeping their ears to the ground and the recession found them losing market share to their biggest competitor.

This of course was made worse when WalMart advertised massive price “rollbacks” which could have simply been a cover for removing Target flavour from their marketing mix in an atmosphere of renewed consumer frugality. 2. Customers: Declining revenues and profits led a post-recession Target to implement changes to its marketing strategy in order to reclaim customers perceived to have ‘defected’ to WalMart. This would suggest that Target had lost sight of who its real customers were and subsequently launched a campaign that alienated some of their loyal, profitable customer base (termed, true friends). Long-time customers of Target whose views resonated with their “Expect More, Pay Less” ethos found themselves confused as Target seemed to abandon them or worse, assumed they had developed the same tastes as the discount hungry patrons of WalMart. In the face of the economic downturn and the changing views of the purchasing public, Target should have done more to communicate the core part of their value proposition, “Expect More”.

This approach would not have disengaged Target’s “true friend” customers and continuous emphasis on value being one part price and two parts quality would have been sufficient to convert the unconverted “butterflies” still shopping at WalMart. 3. The Company: The case study indicates that investors were not effectively engaged on the matter of the company’s new strategy in cash strapped times. Two points in the case underscored this assertion. In the section titled “ Mounting pressures” Target’s CEO, Gregg Steinhafel responded to degraded financials asking investors to be patient as WalMart had several decades to refine its cost structure with critical members of their supply chain. This is followed shortly by one of their major investors losing confidence in the board’s ability to steer the company back into the green. For any company in such an economic climate, investor confidence is very important as such sweeping changes as those taken by Target requires capital.

This situation would further erode Target’s ability to redefine its value proposition to its customers. 4. Suppliers: Based on the fact that consumers were becoming thriftier as a whole, Target’s suppliers would have been negatively affected both by the economic downturn and Target’s new marketing strategy. Renewed pressure would have put on these suppliers to help fulfil the shift in focus. In a difficult economic environment suppliers would have been asked to provide the same quality as before but at lower prices and in the face of plummeting sales. This all would have been made worse by the renewed emphasis Target had placed on its store brand. What macroenvironmental factors have affected Target’s performance during that period? Demographics

Target’s customer mix mainly consisted of Generations X’ers and Y’ers whereas WalMart’s customer base consisted mainly of Baby Boomers. Baby boomers were hit hard by the economic crisis when their retirement accounts and home equities plummeted. The result of this being that the generation of customers whose taste for things young and hip would have likely led to Target’s trendy allure, had to pinch pennies more than any member of the other two demographic groups. This would lead them to resonate more deeply with the “Always low prices” value offered by WalMart. Generation X’ers are more likely to examine the value of products in terms of both price and quality. Target’s shift in marketing focus however would have disengaged Generation X’ers as it made the two retailers far too similar in their offerings. This leaves Generation Y’ers, whose penchant for 2-Way brand relationships would require a trendy reseller like Target to have to woo them with a strong web presence and engaging social media campaigns.

Economics
In 2008, the world saw the worst economic downturn since the late 1930s. This has affected stores like Target as customers tend more towards thriftiness and suppliers have a more difficult time providing quality goods at good prices.

By focusing on the “Pay Less” part of its slogan, has Target pursued the best strategy? Why or why not? Target’s focus on the “Pay Less” portion of its value proposition is not the best strategy as it erodes the well-defined market position that the company held. As a result of this, they disengaged much of their loyal, profitable customer base and ultimately started competing on the turf of their major, more successful competitor using similar tactics.

What alternative strategy might Target have followed in responding to the first signs of declining revenues and profits? Target should have focused more on the “Expect More” portion of its slogan in order to retain its current customers while communicating steps taken to improve overall value offered to customers by managing its supply chain partners in order to reduce prices. This would ensure that the customer relationship is managed in a more effective way as profit margins could be maintained due to sustained customer satisfaction whilst sales are being bolstered by attracting new customers. They also needed to get the investors on board with their strategies so as to ensure they don’t develop the view that their investment is being wasted. A change in marketing focus particularly in rough economic times will require quite a bit of capital expenditure therefore making it critical to ensure that investor confidence remains intact.