Wal-Mart Vs. Target (Business Strategy Class)

1. (a) Economic globalization is an important aspect of modern world system. It is one of the most influential forces determining the future global development. The basic sphere of globalization is the international economic system, i.e. global manufacture, national economies and the world market. Wal Mart and Target Corporation are two US- based giant discount retailers operating around the world. The existence of such types of stores on the market becomes urgent. This phenomenon can be easily explained by the lowering standards of living and economic slowdowns. None of the discount retailers is more popular than Wal- Mart and Target.

The mission of the research is to analyze and compare Wal Mart and Target market position, identify the strategies the companies employed in their marketing which have lead to success. The research will be based on SWOT analysis, Porter’s 5 Forces analysis and 5 Generic Strategies. Also, a special attention will be given to recent trends and key success factors, code of ethics employed by each company and their social responsibility.

            The most general charac­teristic that Wal Mart and Target Corporation have in common is the emphasis on low prices. The mission of both companies is similar: to market lo a wide range of merchandise, including non-food items and nonperishable food, in a limited-service format.

Wal-Mart is the leader of the full-line discounters, with many stores cov­ering 120,000 square feet (or more) of floor space; food accounts for about a third of floor space and sales. Wal-Mart was found in 1962 in Rogers, Arkansas (Wal-Mart, 2005). Its founder, Sam Walton opend the first distribution center in 1970, which was a starting point for further expansion, and in two years it was included in the list on the New York Stock Exchange. During the next decade Wal-Mart acquired a number of stores including 16 Mohr-Value stores and Hutcheson Shoe Company. It opened new divisions such as jewelry, one-hour photo lab, pharmacy, auto service, and reached its first billion dollar sales in 1979 (about $1,248,000,000). Wal-Mart’s first foray outside the United States was in Mexico in 1991. Market entry in Europe came in 1997 with the purchase of 21 hypermarkets from Wertkauf GmbH. The follow­ing year Wal-Mart acquired 74 additional hypermarkets from Spar Handels AG. Annual charitable contributions were about $100 million in 1998. Today, Wal-Mart is the biggest private employer in the world withh 1,140,000 staff (Wal-Mart, Wikipedia, 2005). The recent starategy is to expand to urban markets.

            Target Corporation is a “large-store general merchandise company which has 1,450 stores in 47 states” (Target Corporation, Hoovers, 2005). Target Corporation includes discount stores, moderate-priced promotional and traditional department stores, as well as a direct mail and on-line business. Wal-Mart’s direct competitor was founded in 1902 by George Dayton in Minneapolis. The first discount store was opened in 1962 in Ruseville. In a decade, Target became a “top revenue producer” (Target. Wikipedia, 2005). “In 1967, the Dayton Corporation was established and it went public with its first offering of common stock” (Target. Wikipedia, 2005). Through merges with Hudson company, Mervyne’s and Marshall Field it became the 7th largest retailer. From 2001 to 2004 three brand, Dayton, Hudson and  Marshall Field operated under the Marshall Field brand, while Marshall Field was not sold. Today, “it operates under the banner of ‘Target’ (Target. Wikipedia, 2005).

            II. Market Analysis

(a) Wal-Mart stores typically offer middle-class customers a folksy atmosphere and value-priced brands. Wal-Mart also features the company’s Sam’s Club private label in a number of categories. Wal-Mart is a leader in the warehouse club segment of discount retailing; consumers “join” the club to take advantage of low prices on products displayed in their shipping boxes in a “no frills” atmosphere. In 2005 its net income is $10,267.0 with 11,3% of annual sales growth.

The company utilizes a variety of different retail formats, including discount stores, supercenters that feature a full line of groceries and general merchandise, and Sam’s Club, a warehouse operation offering goods in unbroken bulk packages. As Wal-Mart extends its reach around the globe, observers are using words such as “assault” and “invasion” to describe what it’s like for a nation that the company has in its sights. As the chief executive of one supplier noted, “Wal-Mart is going to change the retailing landscape internationally exactly the same way it’s done domesti­cally.” Some industry observers expect that, within a few years, four or five giant firms will dominate the world’s retail scene.

The Target Corporation is a public company with $3,198.0 net income (2005) and 2.7% a year sales growth. Price competition with Wal-Mart backed by improved efficiency, is the main feature of the company. It fights for survival in the market faced with over-capacity. The recent trends is to get the right goods to the right consumers. Another marketing aim is to build and promote new division and services to attract wider market segment. Knowing what individual customers appreciate and what they want to avoid can add up to one of differences that create a competitive advantage. Its main division include: Target Financial Services, Target Sourcing Services, such branf division as Target, Target Greatland, and SuperTarget. To compete on the market, Target Corporation adopted “aggressive plans to have 2,010 stores open by the year 2010” (Target Corporation. Wikipedia, 2005).

(b) The success factors of both companies include low cost and differentiation strategy, customers’ loyalty and strong brand image, string market position and continuous innovations. Within rapidly changing environment, this kind of development ensures that long-term survivors are those firms who are more competitive and are better able to satisfy consumer needs and adapt to the new competitive environment

The key of Wal-Mart’s success is the location of stores situated in the neighborhood of business regions and in the center of the city. Wal Mart is characterized by slightly higher quality (and prices) than competing retailers like Target. Opening of a new grocery stored under the Wal-Mart brand helps the company to a sustain market position and attract new customers. The key success factor of Target is its differentiation strategy based on “offering more upscale, trend-forward merchandise. Target refers to itself as a “discount department store” instead of just a discount store” (Target Corporation. Wikipedia, 2005) like Wal-Mart.

(c) In his book “Competitive Advantage” Porter identifies five forces that drive competition within an industry:

1. The threat of entry by new competitors.
2. The intensity of rivalry among existing competitors.
3. Pressure from substitute products.
4. The bargaining power of buyers.
5. The bargaining power of suppliers (Porter, 1985).

The threat of entry to an industry by new competitors depends up the ‘height’ of a number of entry barriers. Wal-Mart and Target obtain a strong market position and will not be influenced greatly by a new competitor. Nevertheless, the size of the investment required by a business wishing to enter into industry will be an important determinant of the extent new entrants. The higher the investment required, the less the threat from new entrants. For Target the threat of entry is more dangerous, because it has lower market share then Wal-Mart. Brand loyalty is also important factor in increasing the costs for customers of switching the products of new competitors.

The intensity of rivalry among existing competitors is strong taking into account that Wal-Mart is #1 discount retailer in the USA. Nevertheless, differentiation strategy adopted by Target allows it to compete on the market with such giant as Kmart. Existing competitors may make price cuts or increase marketing expenditure, so it will increase competition between two retail giants.

A substitute can be regarded as something that meets the same needs as the service of the industry. The pressure of substitute products does not have a great influence on Wal-Mart, because it covers millions of items selling at comparatively low prices. For Target, close substitutes whose performance is comparable to the industry’s service and whose price is similar will be a serious threat to an industry. This is also closely tied in with the extent to which customers are brand loyal. One of the key strategic methods in maintaining customer loyalty is to increase the cost – to the customer – of changing to a new supplier.

The bargaining-power of buyers is important for both corporations and influenced by the following factors: the larger the volume of purchases, the greater will be bargaining power of buyers. Both retail chains attract millions of buyers proposing them millions of items, so the bargaining power of buyers is great. The degree of concentration has the effect that a few suppli­ers will tend to reduce the bargaining power of buyers as choice and the ability to ‘shop around’ is reduced. The bargaining power of buyers has a strong influence upon the prices for Wal-Mart and Target. (Porter, 1985).

Businesses must obtain the resources that they need to carry out their activities from resource suppliers. “Wal-Mart has been prosecuted for predatory pricing behavior, temporarily lowering prices in order to drive competitors out of business and develop local monopolies” (Wal-Mart. Wikipedia, 2005). In contrast to Target, “Wal-Mart pays the supplier only for the actual cost of the goods themselves, and the supplier pays no fees to Wal-Mart” (Wal-Mart. Wikipedia, 2005). In contrast,  Target Corporation has to increase prices including slotting fee.

(d) Economies of both corporations differ because of their size and market share. The sales of Target is $46.839.0 million in contrast to Wal-Mart sales of about $285, 222.00 million. Nevertheless, target Corporation has higher income growth (73,7%) in contrast to 13,4% of Wal-Mart’s income growth. “In 2004, it pocketed $10.3 billion in profits, on sales of $285 billion, more business than Target, Sears, Kmart, J.C. Penney, Safeway and Kroger combined” (Borosage, R., Peters, T. 2005).

            III. (a) The strength of Wal Mart is that it’s goods obtained a very competitive position on the market. The company is ruled by the team who is able to raise the price level and gain more or less strong market position. At the very beginning the strengths included high potential to growth and profitability of the company, and professional management team, customer loyalty and excellent service. “Wal-Mart’s sales juggernaut helped dull the pain of the past recession. It provides everyday America with affordable goods.” (Ridenour, 2002). The strength of Target Corporation is that it is on average as dependent on reliable information technology as any other businesses. They care more about reliable service and confidence than about the lowest price. They don’t want to rely solely on their own expertise, so they choose instead to deal with us with our promise of service and support when needed.

Maintenance of high standards is a key factor to maximizing customers satisfaction is a strength of Target Corporation. The service of Wal-Mart is poorer in contract to Target. “Target designs its stores to be more attractive than Wal-Mart by having wider aisles, drop ceilings, and a more attractive presentation of merchandise” (Target Corporation. Wikipedia, 2005). Corporate culture is a strangth of Target which “calls its customers “guests” and its employees “team members” (Target Corporation. Wikipedia, 2005).

(b) Wal Mart needs better management facilities outside the USA to control and monitor performance around the world. Another weakness of Wal Mart is comparatively low wages. “Wal-Mart’s generous compensation for top executives contrasts sharply with the wages of the people who produced or sold the goods that earned the company $10.3 billion in profits on sales of $285 billion last year” (Anderson, 2005). According to the report by Anderson (2005), full-time employees earn $9.68 per hour, in contrast to national average wage which is approximately $15.35 per hour. The main problem is that “many employees of the world’s largest company must rely on government healthcare, food, housing and other aid” (Anderson, 2005). This situation negatively affects company’s image and causes critics in press. Target Corporation is very fragmented in terms of supply, with a large number of smaller operators being characteristic. The main weakness is higher prices.

(c) From the environmental perspective, the end of 1990s was marked by the changes on the European market which altered many of the parameters of competition and thus enforced a period of reassessment and adaptation. The opening up of the market and the resultant increased competition has widened the perspective of the planning framework with profound implications for Wal-Mart. The opportunities of Target include the non-price competition which takes form of branding, advertising, promotion, and additional services to customers and product innovation. Critics of Wal-Mart policies becomes an opportunity for Target to resist strongly  and replace Wal-Mart.

(d) The threat is that the removal of physical barriers to trade and the new-found freedom of movement around the European market have served to catalyze European expansion and in so doing raise the degree of European trade. “Wal-Mart has found it difficult to leverage the economies of scale it has become accustomed to in North America. In Europe, Tesco has shown that it is equal to Wal-Mart not only in market muscle, but also in deploying advanced IT, merchandising and supply chain systems” (Davison and Smith, 2005, p.2).  The main threat for target is strong competition policy and aggressive advertising campaigns provided by Wal-Mart and Kmart.

For both companies the US governemtn tax policy has a grerat impact on successful market position of Wal Mart during the next year. Equally, there is a danger of ignoring the environment, as customers and their needs, competitors, changes in technology, etc., can play an important role in determining competitive success

1. The nature of ethical standards is one of the key issues to be addressed by personnel managers operating in large corporation. There will gradually be a growing together of national prac­tice on working hours, but it will take a lot longer for rates of pay to harmonise. It was found that in “January 2004, the New York Times reported on an internal Wal-Mart audit which found “extensive violations of child-labor laws and state regulations requiring time for breaks and meals. One week of time records from 25,000 employees in July 2000 found 1,371 instances of minors working too late, during school hours, or for too many hours in a day.” (Wal-Mart Wikipedia, 2005). Also, Wal-Mart is criticized that it “sells controversial items such as rifles and shortguns, R-rated movies, and violent video games — although Wal-Mart did remove the video game Agrand Theft auto: San Andreas from its shelves due to a sexually explicit scene which is accessible by modifying the game’s code via a software patch” (Wal-Mart, Wikipedia, 2005).

The recent criticism of Target Corporation concerns “the company’s decision to no longer allow the Salvation Army to collect donations at its stores” (Target, Wikipedia, 2005). Low hourly wages and opposition to labour unions also have a negative impact on company’s image.

(b) Both Corporation adopt CSR because some moral justification comes from a value system that is independent of the business itself and where individual opinion can be sharply divided.  Wal-Mart SCR implies that employees at work should be honest and that claims about a product or service should be accurate. On the other hand, CSR of Wal-Mart involves equal opportunity for all staff, although there may be sharp disagreement about what exactly that means in practice. Nevertheless, as usual employees when making decisions tend to combine their own judgment with benefits of the corporation, although frequently without being aware of the consequences of their decisions. In this case, the responsibility of Wal-Mart is to analyze social conditions and possible threats of their products for potential consumers. They should be well aware of educational background of their customers and should not sell a product which can be injurious to health.

Target Corporation’s CSR collects many benefits for a business including: obtaining high standards of performance at all levels of work force, and reducing anxiety and confusion over what is acceptable employee conduct. Some standards of CSR derive from voluntary agreement.  It means that Target is faithful to its customers having a CSR as a basic concept of its business. The code addresses some aspects of the private lives of employees in so far as they affected the professional performance of the individual or the interests of the company. The programs include diversity programs and employees benefits programs. For instance, “Target Corporation was named one of the “100 Best Companies for Working Mothers” in 2004” (Target, Wikipedia, 2005).

1. Five Generic strategies include: low cost, differentiation, best-cost, focus, market niche.

Cost focus is a cost competitive strategy that focuses on a particular buyer group or geographic market and attempts to serve only this niche, to the exclusion of others. In using cost focus, Wal-Mart seeks a cost advantage in its target segment. Wal-Mart achieves cost focus by keeping overhead and by focusing its marketing efforts strictly on its market niche. The cost focus strategy is valued by those who believe that Wal-Mart focuses its efforts is better able to serve its narrow strategic target more efficiently than can its competition. Target corporation pays a special attention to cost focus, but it fails to compete with Wal-Mart on proce basis.

Differentiation focus is strength of Target which concentrates on a younger buyer group than Wal-Mart and higher quality products. In using differentiation focus, Target seeks differentiation in a market.

Target Corporation tries to achieve lower cost and differentiation simultaneously.

Best cost is primarily used by Wal-Mart which oriented on a middle class segment proposing the lowest price the its competitors.  Cost leadership allows Wal-Mart to sustain its market position and compete on the market. When product standards became established for minimum quality and features, competition between Wal-Mart and Target has shifted to a greater emphasis on cost and service. Slower growth combined with overcapacity and knowledgeable buyers put a premium on a firm’s ability to achieve cost leadership and differentiation along the dimensions most desired by the market. Research and development shifts.

Market niche of Wal-Mart is middle-income families from urban and country areas, The niche is target is “younger people and more educated customers than its competitors. The average (median) person who shops in a Target store is 46 years old, and is the youngest of all major discount retailers that Target competes directly against” (Target Corporation, wikipaedia, 2005).

Conclusion

      Taking into account information mentioned above its is evident that Target Corporation has adopted a better strategy than its competitor Wal-Mart. Financial growth of company’s profitability proves that its strategic planning is successful and allows the company to attract new customers. Also, differentiation strategy helps it to resist strongly and compete on the market. The strong market position of Wal-Mart can be explained by history and low prices which force most customers to purchase low quality goods. Without objec­tives, nothing else can happen. The adoption of courses of action refers to the actions taken to arrive at the objectives that have been previously set. The allocation of resources refers to the fact that there is likely to be a cost associated with the actions required to achieve the objectives.

References

1. Anderson, S. “Wal-Mart’s Pay Gap”.  New Press, 2005. http://www.ips-dc.org/projects/global_econ/walmart_pay_gap.htm
2. Borosage, R., Peters, T. Target Wal-Mart. 2005. Available at: http://www.tompaine.com/articles/20051114/target_walmart.php
3. Davison, J., Smith, S.E. “Wal-Mart Finds Dominance Harder to Achieve in Europe”. 2 Sept. Gartner Research. 2005, from gartner.com/resources/ 130800/130826/walmart_finds_d.pdf
4. Porter M.E. 1985, Competitive Advantage. New York, Free Press.
5. Ridenour, A. Wal-Mart: A Target because It’s Successful http://www.nationalcenter.org/NPA443.html
6. Target Corporation. 2005 Available at: sites.target.com/site/en/corporate/page.jsp?contentId=PRD03-001087
8. Target Corporation. Hoover’s. 2005. Available at: http://www.hoovers.com/target-corporation/–ID__10440–/free-co-factsheet.xhtml
9. Wal-Mart. Wikipedia. 2005. Available at: http://en.wikipedia.org/wiki/Wal-MartWal-Mart. Hoover’s. 2005. Available at: http://www.hoovers.com/wal-mart/–ID__11600–/free-co-factsheet.xhtml