Pricing Strategy of Target Corporation - Literature review Example

Macro Economics and Micro Economics Introduction Target Corporation is one of the largest American retail supermarket chains cum ecommerce companies headquartered in Minnesota, USA. Currently the company has positioned itself in second position, just after Walmart, in the list of discount retailers of USA. It is a public company which has a successful and glorious history since 1902. Target Corporation is a one of the major component of S&P 500 index and it has also ranked itself in 36th position in the list of Fortune 500 Company. It opened their first Target store in Rosevile in 1992, till then it was involved in supplying dry goods since its foundation and the then name of the company was Dayton’s Dry Goods (Target Brands Inc). During this period it ran as a family enterprise owned and managed by George Draper Dayton who was a banker and started this business by acquiring farm mortgages. After opening first Target store, it grew rapidly and eventually became the largest and most profitable business division of Dayton Hudson Corporation. After successful business of almost 8 years in last decade of ninetieth century, the management decided to rename the whole company as Target Corporation in 2000. Target successfully penetrated into all potential geographical location of USA and entered into Canada in early 2013 as its first footprint in foreign market. Currently, its Canadian Subsidiary operates through100 stores in Canada. Target Corporation has recently faced a major data security breach in December 2013. Company’s security expert revealed that Target Corporation was involved in a detailed investigation of a major data security breach which involves the confidential information of their customers such as their debit and credit card records. This news spread very quickly throughout all the market where Target operates. The CEO of the company confirmed this massacre through press release on 19th December, 2013. According to the press release the hackers gained access of credit and debit card records such as customer names, card numbers, expiration date, CVV numbers etc of more the 40 million customers. On January 2014, Target again announced that personal information of another 70 million customers was also hacked which brought a maximum possible number of affected customers to more than 110 million. This security breach is the second largest retail cyber hacking in history. The company has very recently declared resignation of company CEO on May 5, 2014 (Target Brands Inc). Literature review It may be the case that the supply and demand conditions existing in the market are such that the market fails to perform efficiently. Therefore it is the time for some intervention that would improve the situation for both consumers and retailers. Lack of relevant information or mis-information among the consumers may lead to such situation. The diagram below will show a clearer picture. Suppose initially the equilibrium demand and quantity offered is P1 and Q1 respectively as in the diagram below. It is assumed that due to some economic factors or some other reasons, there is excess supply in the market (Varga 210-214). Economic theory suggests that in this case, holding other conditions remaining unchanged, the price will fall as the supply curve shifts to the right. Again, when there is excess demand in the market, holding other conditions to be the same, the price will rise as the demand curve shifts to the left. The diagram below shows the new equilibrium price and quantity offered is P2 and Q2 respectively. According it can be regarded that the demand for products from the supermarket will vary in the above mentioned fashion. So to be immune from such turbulence of the market structures it is necessary to formulate plans for Target Corporation. (Mankiw 21) To capture the market Target has taken many marketing strategies. Apart from reducing the price of the products it has introduced different brands in the market. The positioning of Target has utilized in their global marketing operations. It deals with how Target was differentiated among the other brands and adopted a cost leadership strategy in the market. The different types of strategy is to attempts from the diverse competitors in the market by adding something to its products it creates s unique value of the product to its customers. There are also many others ways in which the firm can differentiate its products from the other. It can depend on the cost that how it can be differentiated between the other brands. Differentiation of Target can achieve superior quality of product and can compete with their closest rivals. It can also create high brand value and image to the customers. It has also used their promotion and packaging as a means of differentiation. Target has become internationally recognized brands. It basically used two methods for the employees’ strategic management and directions. The products offered by Target are very well incorporated a comprehensive product portfolio which allowed to enter the market and to hold a huge market position. It has a clear vision that to manager a big organization there are also some human resource challenges involve in it (Peter 55-69). Industry type and characteristics The industry type and characteristics can be defined by pestle analysis and by porter’s five force models: Pestle Analysis: This model is used to analysis the political, environmental, social, technical, legal and economical conditions of that particular organization. Pestle analysis is the popular method which focuses in the external and internal factors of business and the environments in which it operates. Political: This examines the current position from the political pressures. The government has the right to set fines if the company does not meet their standard law. The changes that take place in law and regulations, such as accounting, taxation and environmental law can affect the company and their entry in the foreign country. Economic Analysis: it examines the local, national and world impact which includes the issues of inflation rates and recession. The retail brand has high sales in countries outside U.S. The global retail market is experiencing a boom at this moment of time (Salamanig 63-68). Social Analysis: It analyses the changes in society affecting the organization like changing in lifestyles and attitudes of the market. The customers in new generation are more concerned towards the quality of the products they opt for. There is also age group which is known as baby boomers. The people are becoming more concerned about their increased in longevity. This affects the retail market in a positive fashion by increasing demand for the healthier products (Anthon 65-77). Technological analysis it is the main focus to analysis where the introduction of technology are valued. It creates opportunities for offering new products and products improvement. The advancement in technology has led to the innovation of customer friendly products (Anthon 65-77). Legal Analysis: Target Corporation has to abide by the laws and regulations as imposed by the government where the company operates. It has to pay the corporate taxes and other taxes levied upon the retail firms by the concerned authorities. Environmental Analysis: It examines the issues of local, national and world environmental. Target Corporation has all the facilities that are strictly followed according to the environmental laws that are imposed by government. Porter’s five force model The five forces measure the competitiveness of the market. It determines the risk of the industry. Threats of New Entrants: In retail industry the barriers for entry are low. There is no switching cost and require zero capital. Although there are many upcoming new brands in the market but customers like to go with the brand. Target Corporation is not seen only as a retail firm but it is also a brand. It has a created a significant market share for a long time and customers are not likely to try any new brands. Threat of substitute products: There are alternatives available in the market like Tesco, Walmart and Carrefour. There are competitions among the top retail firms but Target Corporation has managed to capture a proportion of market share (Daniel 45-58). Bargaining power of buyers: The bargaining power of buyer is low because of the brand loyalty and the brand name. Large retailers like Target, Walmart etc face low bargaining power from buyers because of larger order quantity (Roy 83-88). Supplier’s bargaining power: the bargaining power of suppliers is high since they Target Corporation has to depend totally upon them for their entire supply chain process. They are not differentiated. If the suppliers decide not to supply products to the retail shop, the supply chain process will collapse which will affect negatively upon the brand loyalty on the minds of the consumers. Competition among existing firms: The main competitor of Target Corporation is Tesco. It also has many outlets across the globe with headquarter in United States. Both brands enjoy their market share and both focus on expansion of their business operation across the globe (Mathias 77-79). Industry Concentration analysis Target Corporation should understand the trends that what will shape their business in the future and to move swiftly for what’s to come. The retail market is highly competitive and has huge number of firms’ presence. Competitive factors influence the business of Target Corporation and they are not limited to pricing, advertising and sales promotion programs. Introducing new packaging, vending machines are brand development and trademark of development and protection. The competitive strengths are used to lead the brands with a high level of consumer acceptance. Target Corporation has to face strong challenges in geographic regions and in many other countries (Herbert 38-42). Pricing decision analysis Target is committed in providing best shopping experience to their customer in terms of price value relationship. The tagline of the company “shop with confidence” says that the customer can be confident in terms of return they get through the value of the product out their expenses at Target stores. This is an indirect pricing strategy where the company says that the price of their offerings is much less the value that the customer will receive by consuming their product. Target also promotes plenty of saving techniques to its customer through several types of coupons to the customers. The company compares prices of more than 25000 products with their competitors (Tuttle). They also accept manufacturer discount coupons along with their own Target Coupons for every single item. Target also practices another pricing strategy to attract new customers as well as to retain its existing customers. They also promotes price match guarantee of their products compared to its competitors. Every qualifying products available at Target or City Target matches with the price of identical products available at major ecommerce companies such as Amazon, EBay, Best Buy etc. If any customer finds lower price in any ecommerce website or other retail stores even after next three weeks of purchase then the customer can hassle free claim for the refund of extra money paid or can adjust that through discount coupons of same amount in next purchase. The company also practice reduced price events very frequently to provide shopping experience to the lower income level households (Carnevale). The events are organized as kids art competition program where the parents of participated kinds get special coupons enjoy shopping with special discounted pricing for the same day from any Target store. Dayton, the founder of the company proposed and implemented a unique pricing strategy in the company. The aim was to avoid price war with other local discount retail stores. They positioned themselves to discount store to customer mind from typical departmental stores where cheap goods are sold in much lesser price on irregular basis to empty the old stocks. From that time the company has been employing unique pricing strategies to attract the customer (Cheverton, 114-119). Target Corporation’s pricing strategy is set same as the level of its competitors. It has the price that can be affordable for consumers. Target has to be a keep a fluent and consistent pricing strategy. Throughout the year the company has made many pricing strategy and their goal is to maximize the shareholders value. To grab the market Tesco took the initiative to drop prices (Ozdagler 36-39). Meanwhile Target decided to decrease their price for some selected products. Target uses low price to enter into new markets that are especially sensible for the pricing. It does this to raise their brand popularity among the population. The brand has an image for the customers in their lifestyles, happiness and moment of joy. Target is focusing on the price that is related for positioned. The company has finally merged with best marketing strategy and maintained its position as an affordable brand for the consumers (Anthony 98-102). Game theory Game theory is to study the strategic decision making. The modern idea began with mixed strategy equilibrium between two persons zero-sum game and was proved by John Von Neumann. This theory is widely known for many important fields. Game theory is an important method that is being used in mathematical economics and for modeling competing consumer behavior (Gintis, 73-77). The pay off of game theory is generally represented the utility of individual players. It is the situations in which the payoffs represent money which is correspond to an individual’s utility. Game theory helps to predict nation’s response when there is a new rule or law that can be applied for the nation (Asu and Ishai 111-115). Target and Tesco both do the advertising very aggressively for promoting their brands in the market. They are trying to capture the customers by conveying new information about the products and by offering any discounts for the products (Hughes 56-59). Target and Tesco are in oligopoly market. Both are selling the homogeneous products so that they can have control over the price (Peters 132-137). They will consider their action when they will change the price of their goods. They basically change their prices of goods according to the kinked demand curve. A game theory is a pricing policy and it helps a firm to enhance profit. There are very high barriers for entering this market. Both the company has signed a cartel contract. Cartel is a small number of firms that act together for making a limit to cost (Hans 100-121). Conclusion The paper has also discussed about the advertising and pricing strategy of Target Corporation. Both the brand has an image of in the mind of customers. Target Corporation has many different price strategies in order to maintain the popularity among the customers. Target reduced the price of some selected product when Tesco started to take the market. The paper says about the company’s characteristics and the industry concentration analysis. In this paper it has described about the Pestle analysis. It says that how the company deals with the political, economical, social, technological, environmental and legal factors of the company. Pestle analysis is the theoretical framework that helps to understand the market competition of that particular company. It has also analysis the company by using Porter’s five forces models. The five forces models tell about the bargaining power of the buyers, suppliers, and the challenges to enter into a new market. The other theory which has described in this paper is the game theory which is also known as the prisoner dilemma. The prices of both the products are same and provide the same tastes as they were earlier. As we know if Target does an advertisement than it will gain more profit than Walmart and vice versa. Works cited Target Brands Inc. About Target and History. 2014. Web. 10 May. 2014. < https://corporate.target.com/about/history>. Tuttle, Brad. Target Battles Walmart for Low-Price Supremacy. 2012. Web. 10 May. 2014. < http://business.time.com/2012/08/27/target-battles-walmart-for-low-price-supremacy/>. Carnevale, Chick. Target Corp Offers Solid Value And An Above Market Yield. 15 March. 2013. Web. 10 May. 2014. < http://www.forbes.com/sites/chuckcarnevale/2013/03/15/target-corp-offers-solid-value-and-an-above-market-yield/>. Cheverton, Peter, Key Marketing Skills: New York, Kogan Page Publishers, 2005. Print. 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