Target Corporation

“Expect More, Pay Less”

Consumer Audit
Amy Brantley Michael Deppa Carla Johnson Jen Jurs Anna Meyer Ray Roquemore MKTG 4150 Mon./Wed. 11:00 – 12:15

1 Table of Contents: Market Analysis ................................................................................................................ 2 Market Segmentation ....................................................................................................... 4 Product Positioning........................................................................................................... 7 Impact on the Consumer.................................................................................................. 7 Consumer Decision Process ........................................................................................... 12 Marketing Mix ................................................................................................................ 14 Market Plan Assessment ................................................................................................ 18

2 Market Analysis The Target Corporation is part of a company that goes back over a hundred years when the first Target store was opened in 1962. For the past forty years, Target has been committed to providing an inexpensive, yet chic and savvy shopping experience to their customers. As a result of Target’s continued success, in 2000 their parent company, The Dayton Hudson Corporation, was renamed the Target Corporation. Target continues to grow financially; in January 2006 they announced success of $50 billion in sales for a single year (Biesada). In more recent news, Target reported in mid-November that there third quarter profits have risen 16% and sales rose 11%. Target attributes these recent successes to the increases they have made in building new stores; in 2003 Target had a total of 1,225 stores, but currently they operate 1,494 (Freed). There are many economic, physical and technological conditions that influence consumer needs and behaviors to a corporation such as Target. An example of the economic conditions that have affected Target has been the recent war in Iraq. Because of the war, prices on certain items have increased, particularly gas prices, over the past couple years; but it is primarily the customers of competitor Wal-Mart that suffers, leaving Target to reap the benefits. The average Wal-Mart shopper makes an average annual income $20,000-$25,000 versus the average Target shopper at $50,000-$75,000. Wal-Mart shoppers stay loyal to the purchasing of cheap staple products, but because of the rise in gas prices, they avoid the items that are not absolutely necessary. On the other hand, Target’s customers are not as price sensitive to economic conditions and can somewhat afford to maintain their lifestyle. In the end Target keeps their numbers up, while Wal-Mart reports losses (Yerak).

3 Target Corporation has many different kinds of competitors as a result of the various types of merchandise they provide. They do have competitors with clothing retailers, grocery stores and even drugstores; however, their main competition is concentrated with other discounters or wholesale clubs. The top competitors of Target include: Wal-Mart, K-Mart, Costco and BJ’s Wholesale Club. In a recent Gallop Poll about 1,000 consumers were surveyed on which of the three discount retailers they would prefer to shop at. The results came back with Wal-Mart leading the way at 52%, Target in second at 29% and K-Mart falling quickly behind at only 13% (Grant). If Target became successful in becoming the number one discount retailer in the industry, WalMart would likely be one of the few retailers with sufficient financial resources to respond. Therefore, it is very important to the Target Corporation to ensure that their own marketing strategies are kept current and relevant with accurate information. According to a study performed by Maritz Research there 20% of Target shoppers are highly loyal to shopping at Target. The demographics in which 20% of consumers are loyal to Target, there are more females than males, 80% are under the age of 40 and are also college educated, and they are in the middle to upper income range. Customers of Target also prefer to shop at a place where there friends and family are likely to shop, and they are not price sensitive; these customers are willing to pay more at a store in which they feel good about and are treated well. In order to close the gap between the percentages of Target at 20% and Wal-Mart at about 50%, Target will have to analyze the reasoning behind Wal-Mart’s 50% mark. Research indicates that those who shop at WalMart are attracted by the low prices and although 20% of consumers would still shop at Target despite higher prices, in order to catch up to Wal-Mart Target Corporation would

4 benefit from looking into ways of decreasing their prices of products offered (Wal-Mart vs. Target Customers).

Market Segmentation The store offers a wide range of selling from clothes (male and female), groceries, pet supplies, athletics, electronics, home accessories, pharmacy and shoes. Target has accomplished a lower median consumer age than its competitors at an age of 41. The median household income is $58,000. Approximately 80 percent of Target customers are female, of whom 43 percent have children still living at home (delayed full nest II, full nest II, and single parent II), and 80 percent have attended college with 43 percent completing a degree program. In a recent poll done by CNN, consumers were asked to choose between Target, Wal-Mart, and Kmart. The results found a sliding scale upward: 16 % of people in the less than 20,000 annual income chose Target 23 % of people with 20,000 to 29,000 annual income chose Target 26 % of people with 30,000 to 39,000 annual income chose Target 29 % of people with 40,000 to 74,000 annual income chose Target 47 % of people earning more than 74,000 annual income chose Target

The results show a high level of educated consumers lean more towards Target than they do their competitors with 59% of people with annual income of $20,000 or less preferring Wal-Mart (Grimm). Target likes to view its retail position as a “discount department store”, instead of primarily a discount store. This could be due to the companies desire to go above and beyond the basic customer needs of a discount store. They are trying to perceive

5 themselves as a store presenting name brands at low price by cutting expenses, then lowering prices on lower quality items similar to Wal-Mart. The visual perception of a Target store is very important to the company. Target Corporation takes great pains in the presentation and appearance of the store and merchandise. Using wide isles and drop ceilings, the store portrays more of a department store feel. By using this strategy Target is understandably portrayed as more upscale than its competitors by many of its consumers. This strategy is also portrayed in the way Target Corporation presents itself. The customers of the stores are called “guests”, employees are “team members” and supervisors are “team leaders”. Through this approach, Target presents more of a comfortable environment; it also proves effective as many of targets customers refer to it as “Tarje” or “Tar-zhay”, as if it were an upscale French department store. Target became one step closer in achieving its desire to have the appearance of a department store when they collaborated with designer Todd Oldham. This partnership will pave the way for a newer, more youthful brand to appeal to the younger consumer. Think about what Martha Stewart has done for Kmart. Now make the endorser less relevant to middle aged homemakers and shift them toward the left of the culture, where it’s less about environmental conformity and more about self-expressive art. Now putting them amid what has become the trademark artsy, rock ‘n’ roll TV spots for Target. In recent years, Target’s spectacular co-op advertising in this vein has put profoundly younger frames on such vendors’ brands as Tide and Coca-Cola. When a Target commercial appears you wonder why such a direct approach is taken to market their product. Then the red Target logo appears. Oldham, bringing his new artistic

6 designs for clothing and home furnishings – back to college, kids – builds this aesthetic on the fashion end of Target’s business with a kind of edge that Stewart could never claim. In addition to its new acquisition for its clothing line, Target has also enlisted the help of designer Michael Graves to design a set of distinctive home furnishings and appliances (Grimm). When dealing with culture, all businesses have to take in effect what is around them. In 2002 Target had to pull merchandise clothing off the racks, which was embroidered with “88” known to a lot of people as the white supremacist symbol. Target also has a new advertising campaign for the holidays. Instead of referring to “Christmas” in their promotions they use “holiday” to keep from offending those of different religions who shop at Target (Answers.com). Target is known for the bull’s eye of the store logo. Whether it is the dog with the bull’s eye over the eye or just the bull’s eye in advertisements, promotions, or the store logo, the company is well known for the symbol. Target also has a web site online that enables the consumer to browse, review and buy online. This hits more of the tech savvy buyers that like to use the internet to search, review and buy products online than going to the store. Other than showing products, it also allows the customer to see where their money is being contributed to by the company (education, communities, etc.). Also Target has a Visa credit card service that allows for the customers to be able to buy products and receive a promotion of 10% discount just by using the card, through the store and online with certain products (Grimm).

7 Product Positioning “Pay Less + Expect More”- is how Target sets its self apart from its competitors (Berman). It also has a famous red bulls-eye symbol that most consumers know; and research shows that 96% of people recognize the Target bulls-eye over Apple and Swoosh (Behind the Bullseye). Target seems to offer high quality products at low prices. Target is seen as an upscale discount store, because it has many major designers that design a line of products just for Target (Berman). Since Target seems to focus its marketing on women- not only does it offer a variety of clothing and intimate apparel that would appeal to just about any women but it also is offering power tools for women (Hawkins). Target’s mission statement focuses on “great guest service, clean stores, in stock merchandise, and speedy checkout” (Lhe). This corporation is a “purveyor of all that is cheap, yet chic” (Biesada).

Impact on the Consumer Target’s influence on consumers differs than other leading retailers. Their image and product offerings provide for a wide range of customers. Target strives to differentiate its products through an image of cheap stylish and elegant clothing (Yerak). There consumers are up market families, as well as young singles, who shop at Target because they offer products that are fun and trendy, as well as the availability of general merchandise. There niche is based on young, affluent families that are typically cushioned from economic fluctuations (Bull's-Eye on Target). Based on their customers, there are a number of internal influences that affect the customers. Target has positioned their stores from other retailers, particularly Wal-Mart,

8 as being a chic, upscale discount chain that is a hipper alternative to Wal-Mart. This brand image is evident in current distinctive marketing campaigns developed for Target. They are positioning ads to reinforce the concept to the consumer that they offer “style.” The ads show consumers that they do not have to pay top dollar for lucrative welldesigned products. The ads are being designed and finished so that they can stand beside ads for luxury items, and to help bring style to the masses by making “cheap” look cool. Thus they are making the product the key focus, instead of the offer. They are able to balance price and image to build the brands and brand loyalty (Tilley). The brand that they have established with the customers can be conveyed through the use of personality in their marketing practices. Their chic, upscale discounter image is used as their focus in building and enhancing their brand personality, with the ability to better target key customer groups. Of the five dimensions of brand personality, which include sincerity, excitement, competence, sophistication and ruggedness, Target belongs in the excitement area. They could possibly be in the sophistication area, but this pertains to mostly upper class, higher end items. Target is high scale, but at a discounter level. They are focused on the daring, spirited, imaginative and up-to-date excitement brand personality. There product offering includes modern designs, fashions, styles and merchandise items. They have to make sure they stay on top of the trends as products in this category tend to fade in excitement over time, thus keeping current on consumer preferences is important (Hawking, Mothersbaugh, Best). There are several attitude aspects of Target consumers that can be seen. Shoppers tend to be more affectively loyal to the brand. They prefer to shop in an atmosphere where they are treated well and feel good about the store. This results in a willingness to

9 pay more for items, and individuals who are not as price sensitive. They consider the store brand important, and they shop at stores their friends and family prefer. A decision to purchase or not to purchase items at Target is part of the behavioral component of consumer attitudes. In a recent survey of 1,200 people, 70% say they shop at Target at least bi-weekly or more, while they have an average historical share of 70%. Also within this component lies the ability for a Target customer to recommend the stores as a place to shop. Ninety six percent of Targets current customer base would recommend the store to their friends (Wal-Mart vs. Target Customers). Target customers fall into the category of “esteem” based on Maslow’s Need Hierarchy. These individuals are looking for status, superiority, self-respect and prestige. There need relates to the individuals feeling of usefulness and accomplishment. The consumers that can buy trendier, more in style fashions at Target, whether it is clothing, furniture or anything else, will feel they have products that are seen as being better, even though they are shopping at a discount store. They will be able to buy products that give them better image or status, but at a reasonable price (Hawking, Mothersbaugh, Best). McGuires’s Psychological Motives will place a majority of Target customers under the affective preservation motive of need for expression. This motive fits with Target’s current trend of offering fun, trendy and fashionable items which is a model for the need to express one’s identity to others. For example the purchase of clothing allows consumers to express a particular image to others. This is also evident in the marketing of their own exclusive, stylish merchandise (Hawking, Mothersbaugh, Best). Hedonic, or reasons for shopping, reasons related to McGuries’s typology for Target consists of value shopping and idea shopping. Target is able to attract those who

10 enjoy going to discount stores to find great deals, along with those who enjoy keeping up with new trends (Hawking, Mothersbaugh, Best). Target customers fall mostly under the achievers dimension of the VALS Segment system. The achievers have a percent female of 56%, a median income of $67,000 and a median age of 40. These VALS demographic characteristics fit with Targets major demographics (Hawking, Mothersbaugh, Best). Target has more females than males, and majority of their customers fall in the middle to upper income levels. Achievers are more committed to their family, which demonstrates their efforts to recommend brands to their family members. Though they are not as risky, or value selfdiscovery, as other segments do, achievers are still active in the consumer marketplace and favor image. They are going to want products that demonstrate success to their piers. Target allows them the opportunity to get trendy fashionable clothing or other items, and can save these individuals time in their busy lives, by providing them the availability to purchase a large variety of products in one trip (SRIC). Target has been able to tie in the perception of their logo design with their marketing strategy. Target bulls-eye logo can stand alone, as almost 94% of Americans recognize it. They also focus on keeping their marketing, store design, product offering and website consistent in an effort to further their brand message. The expectation associated with the brand keeps individuals interpretation consistent (Brown). Target’s product position relative to other major retail outlet centers can be derived from price, either high or low, and the type of merchandise they offer, whether specialized or for the masses. Target, Wal-Mart and K-Mart fall in the area low priced, mass merchandise. Target in comparison to these companies offers products that are

11 slightly higher in price, beside mass merchandise items, and more specialized products. The perceptual map below relates these three companies with other well know retailers: Perceptual Map:

One out of two people shop at mass merchandisers every week. Target has to make sure that they are focused on satisfying the consumer’s functional and emotional issues. Target is able to balance this with a variety of general products with the excitement of the latest affordable trendy item, while enticing consumers at all income levels (Liebmann). Target is able to understand that sales are made in the head and the heart. They are able to take ordinary products and make them desirable. Cheap products to some are

12 presented through Target in a way that makes them “cool.” There ads are used in a way that makes the company stand out. The look, tone and message all respect the reader. They do not pack every available space of an ad with a “selling, selling, selling” mentality. Target makes the product, not the offer, the important aspect. They are able to balance the price and the image, to drive sales and build brand loyalty, day after day. (Tilley)

Consumer Decision Process When consumers are starting the consumer decision process many would start with looking at the physical surroundings when deciding which store to frequent. Target stores have been designed to display items in a clean, organized and welcoming environment (Roger). Most Target Supercenters are laid out in a fashion so that

crowding is not an issue for customers to deal with. Target tries to make the stores more intuitive by placing related departments close to each other; such as toys and sporting goods, as well as home improvements near the home decorations (Roger). Rather simple things like these are important to the customer. It shows that Target is thinking about the customer and their needs when making design/layout plans; and it makes customers want to return to their store. Target’s goal is to attract more affluent and better educated customers, and attract them they do; consumers that shop exclusively at Target are more likely to shop at more high fashion retailers such at Nordstrom and Macy’s (O’Donnell). These customers are less likely to be “one-stop” shoppers. Target consumers are more likely to fall into the nominal decision making category. They recognize the problem and after doing an internal search, they have their

13 solution by choosing to go to their preferred store or buy their preferred brand. Consumers go to Target to purchase items that they have previously purchased from Target. Target’s clothing, for example, is of a great quality, and that is recognized, especially by women shoppers. Women spend more each year on business/casual clothes and health and beauty aid products at Target each year than any other products in the store (O’Donnell). Time plays a huge role in the consumer decision process. Consumers have less and less time to spend on things like shopping each week, so many are turning more and more to online shopping to fulfill their needs. Online shopping helps to reduce the time it takes to actually purchase the product as well as allow the consumer more control as to when the purchase is being made. Of all Target exclusive customers 58% made online purchases last year; 45% of them spent over $100 in online purchases last year (O’Donnell). Women are emerging as the stronger internet buyer in recent years. The key items that women have been purchasing online are clothing or accessories, consumer electronics and toys or games (O’Donnell). Women Online Purchases:

14 Target has had the ability to offer designer as well as store brands in their stores such as Mossimo, Isaac Mizrahi and Sonia Kashuk to name a few. These store brands are important attributes to the company; if consumers like the designers, they have to go to Target to get the product due to the fact that no one else carries them. These high quality designers/products attract the type of customer that Target is looking for: affluent, bettereducated, younger and more upscale. The shopping orientation of Target customers would best fit into the Chameleons category. Their shopping styles are situation specific and can frequently change. Their approach is different for different products and for different purposes of shopping (gifts, personal, etc.). Target customers could also fall into the Scavengers category. They enjoy shopping and consider it to be a form of entertainment and many are prone to make unplanned purchases.

Marketing Mix Target offers a wide array of products for every type of consumer. A recent study showed that ¼ of all U.S. primary household shoppers visit a Target store at least once a month (“Chain Store Age”). Consumables and commodities make up about thirty percent of Target’s sales (Hoover’s). In September 2006, Target launched organic foods and beverages, sold under the Archer Farms label, into their stores. The purpose of the move into organics was to attract younger, female shoppers. Electronics, entertainment, sporting goods and toys make up twenty-three percent of sales (Hoover’s); however, Target along with other entertainment retailers have begun to struggle with the profits from entertainment items because of online web sites that offer music and movie

15 downloads at a discounted price, such as iTunes. Apparel and accessories account for twenty-two percent of sales (Hoover’s). Target offers chic, inexpensive yet trendy apparel and accessories which attracts more young and affluent consumers. Eighty percent of Target’s products have private label from big name designers such as Colin Cowie, Behnaz Sarafpour, Tara Jarmon, Paul & Joe, and Isaac Mizrahi. Home furnishings, décor, and other items, such as seasonal products, make up the remaining twenty-five percent of sales (Hoover’s). Each store has “The One Spot” which is a section of the store, usually located near the entrance, which contains products that only cost one dollar. The items change frequently and the consumer sense like they have found a bargain. Target currently has 1,494 stores in forty-seven states. The corporation has three types physical store formats, Target, SuperTarget, and Target Greatland. A regular Target is an upscale discount store that is usually 123,000 square feet. SuperTarget carries groceries and general merchandise while Target Greatland is about seventy percent larger than a regular Target store (Hoover’s). Target.com is the third most visited retail web site only to be surpassed by Ebay and Amazon. The online store currently offers 90,000 products and that number is estimated to exceed 200,000 by the end of the year. According to a study conducted by Scarborough, Target has a higher market penetration than Wal-Mart (O’Donnell).

16 Market Penetration:

Promotional campaigns play a vital part to the success of Target. Advertisements and inserts in newspapers allow the company to reach a large segment. The company spends a lot of money for advertisements and inserts in the newspaper weekly. Free shipping is offered periodically at Target.com. During the holidays, Target offers special extended holiday hours as well as special promotional pricing for new products or products with a high demand. The stores open early and close late. Private label designers are usually featured in commercials for Target. This is a very good promotional strategy because it allows the designer to get their name and product lines into the market, and it also gives Target the competitive advantage because the designers’ products are only sold at Target stores. Clearance items and prices change every week. This promotional strategy is beneficial because it makes the customer return to the store. Everyone wants a good deal and they are willing to take the risk to see how much the product’s price will be reduced and if the product will still be available when its price is marked down. The signature logo for Target is the bulls-eye. This has become a trademark for the company and when people see it, they associate it with Target.

17 Target Logo:

In a recent study conducted by Retail Forward, Murray Forseter said “Instead of focusing primarily on price, Target strives to differentiate.” Even though the company’s products are more expensive than their leading competitor, Target remains popular because they have unique and differentiated products. The average household income for Target customers is $50,000 per year (Robin). The company is considered to be an upscale discount store and its pricing structure is reflected by the title. As mentioned earlier, Target’s products are more expensive than its leading competitor, but the products are considered to be more chic. Target services its customers through the decision process as well as with the post purchase. Most products can be returned within 90 days, and damaged or defective products will be replaced. The Club Wedd and Target Baby Registry have been a very successful service for couples. This service allows couples to register for products that they need and helps the person giving the gift to choose the right product for the couple. Registries can be viewed, and products can be purchased online or at any Target store. For added convenience, the pharmacy and the photo center allow customers to order medications and photos online. Target has also opened several in-store medical clinics that provide basic medical services without the hassle of having to make an appointment with a doctor. Prescription drug bottles are now being colored coded to keep the customers from taking the wrong medication and the pharmacy will match Wal-Mart’s price on generic drugs.

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Market Plan Assessment Targets product positioning is strong. As stated above, ninety-six percent of people recognize the Target bulls eye (Behind the Bullseye). This seems to show that Target is well known, but Target is not for everyone. Target does target its market towards consumers with the income of $50,000 or greater (Robin), because Target does have higher prices than Wal-Mart. Since Target’s prices are higher, lower income consumers do find if more difficult to purchase items there. However, losing the lower income bracket does not affect Target in anyway. As seen in the beginning of the year, Target was excited to announce that it made $50 billion in sales in 2005 (Biesada). Therefore, Target is growing and continues to grow by adding new stores, but its growth does not affect the way Target feels about its customers or the way the customers feel about Target. Target shoppers are more brand loyal, are treated well, and because of this, are willing to pay more for what they get (Wal-Mart vs. Target Customers). Target does create a need for its customers. Because Target is seen as an upscale discount store, customers are more likely to go there and by their clothing, furniture and appliances. They can buy trendy and stylish clothing at a lower cost than many retail stores. In conclusion, Target is the second most preferred discount retailer, only coming in second to Wal-Mart. Target is growing and bringing in new consumers as it expands. They seem to know and understand their target market, giving them an edge for future growth.

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