1. How was Target’s pre-recession strategy vulnerable in an economic downturn?
Target’s pre-recession strategy was vulnerable in an economic downturn largely due to its disaccording brand positioning that focused on delivering high quality products compared to its counterpart, Wal-mart, which took advantage of its “lower pricing” positioning during an era when customers were highly price sensitive.
Initially the CEO of target, Steinhafel, responded to the recession by (1) cutting costs, (2) focusing on the value aspect of Target’s “Expect more, pay less” campaign and (3) expanding selection of grocery items. However all of these strategies were either short sighted or ineffective in contributing to the company’s bottom line.
The first and second approaches of cutting costs and “expect more, pay less” campaign are reminiscent of a traditional red ocean strategy, in which this case, Target was trying to beat its competition, Wal-mart—who dominated the lower price positioning segment—by attempt to benchmark and adjust their own prices. Even during the hard economic times, customers didn’t necessarily associate the value price offerings with Target as much as Wal-mart. While 75% of consumers recognized Wal-mart’s traditional slogan… only 16 % attributed “Expect more, pay less” to Target. This strategy was deemed to be cannibalistic in the longer run since their stock prices and fair share of the market was already declining post 2007.
The third approach was to aggressively accelerate the rollout of food content in stores and thus making its entry in the grocery business to drive the frequency of shopping trips. Since consumers shopped for groceries significantly more often than home and apparel goods, Target leadership felt the presence of grocery items could increase food traffic in to the store and thus further inducing them to buy non grocery items as well.