With reported first half profits of $74 million, down from $215 million in 2008, the tables have turned and Target is now where Kmart was seven years ago, resulting in the appointment of Kmart Managing Director, Guy Russo, to lead the Target turnaround – the same Guy who is credited for turning Kmart into the retail stalwart it is today.
When Target was purchased by Wesfarmers in 2007, along with sister companies Coles and Kmart as part of the Coles Myer acquisition, it was at the top of the retail game. Their strategy was clear, it was one of differentiation where the focus was on providing quality branded goods to the middle market consumer. Their target market were happy to pay a premium for high quality, branded products, so as long as the economy was stable they were able to bask in the glory of their ongoing success.
Then along came the Global Financial Crisis, and consumer’s discretionary spending habits changed; where people were once happy to pay for quality products, there was now an expectation that these products could be obtained at a lower price. Enter the identity crisis…
What was Target to do now that her target market were abandoning her; tightening their purse strings and getting their quality products for less elsewhere? She turned to her successful, little sister, Kmart, to see what she was doing right, and then stole some of her ideas.
The beginning of the end.
Kmart is renowned for successfully deploying the “Everyday-Low-Price” strategy; an approach which offers low cost products to price sensitive consumers. Given that Kmart was enjoying success as a result of this strategic approach, Target decided to replicate. However, rather than changing their strategic direction to emphasise this new cost focus, Target chose to service only some price conscious customers whilst still trying to continue servicing their remaining customer base; resulting in a mismatched product offering of cost-fighting product ranges alongside their premium offering, together with confused consumers and lost sales.
Why does strategy matter?
In order to be successful, a business must have a competitive advantage (Porter, 1985). It is claimed that a firm can possess two basic types of competitive advantage; low cost or differentiation (Pertusa-Ortega et al, 2008):
- Low cost exists when a company chooses to compete in the marketplace on the basis of price, and relies on high volume goods to drive sales revenue (Kumar, 2006); Kmart is an example of successful implementation of this strategy with their “Everyday-Low-Price” Guarantee.
- Differentiation occurs when a company competes on the basis of providing a unique offering to consumers (Sharp & Dawes, 2001), often in the manner of quality product not available elsewhere; much like Target’s fashion designer collaborations.
When a narrow scope of activities is deployed in the pursuit of these two strategies, a third strategy emerges; focus. However, it is argued that this strategy is more of an approach rather than a strategy (Mintzberg, 1998), as it is more about the market scope a business will target, as opposed to the manner in which they will pursue success. From a retailing perspective this strategy would best be likened to a tailor who creates bespoke pieces in accordance with customer specifications.
Target lost sight of their target market by venturing into the low-cost market, which spells doom for any differentiator (Johnson et al., 2014), and in doing so, Target was reliant upon economies, which not only inherently defied the core strategy of a differentiator, but also subjected them to price-cutting from the market leader, Kmart. It is argued that a limited degree of overlap can be a successful strategy if well implemented and where markets are clearly defined, however, there is emphasis on clear delineation between the two businesses, which didn’t exist for Target and Kmart in this instance.
Can organisations successfully implement multiple strategies?
It’s possible for an organization to successfully implement multiple strategies; however, caution must be exercised to prevent the lines from being blurred between competing businesses (Johnson et al., 2014). The liquor market is one area where Wesfarmers’ rival, Woolworths, has flourished in servicing multiple target markets.
Woolworths are responsible for the hugely successful Dan Murphys; the ultimate ‘big-box’ retailer with enormous depth of stock, BWS; mid-tier stores linked to hotels, and Woolworths Liquor; providing convenience liquor for supermarket customers. Woolworths successfully competes in all three spaces because the three brands make sense with each having an identified competitive strategy which doesn’t impede on the other’s market space. That’s how you do strategy.
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