94 Part Two | Understanding the Marketplace and Consumers

VIDEO Case
TOMS Shoes on how TOMS executes its strategy within the constantly chang-
“Get involved: Changing a life begins with a single step.” This ing marketing environment.
sounds like a mandate from a nonprofit volunteer organization. But After viewing the video featuring TOMS Shoes, answer the fol-
in fact, this is the motto of a for-profit shoe company located in lowing questions about the marketing environment:
Santa Monica, California. In 2006, Tom Mycoskie founded TOMS 1. What trends in the marketing environment have contributed
Shoes because he wanted to do something different. He wanted to to the success of TOMS Shoes?
run a company that would make a profit while at the same time
helping the needy of the world. 2. Did TOMS Shoes first scan the marketing environment in
Specifically, for every pair of shoes that TOMS sells, it gives a creating its strategy, or did it create its strategy and fit the
pair of shoes to a needy child somewhere in the world. So far, the strategy to the environment? Does this matter?
company has given away tens of thousands of pairs of shoes and 3. Is TOMS’ strategy more about serving needy children or
is on track to give away hundreds of thousands. Can TOMS suc- about creating value for customers? Explain.
ceed and thrive based on this idealistic concept? That all depends

COMPANY Case
Target: From “Expect More” slowdown, posting quarterly increases in same-store sales of close to
5 percent along with substantial jumps in profits.
to “Pay Less” SAME SLOGAN, DIFFERENT EMPHASIS
In fall 2008, Target acknowledged the slide and announced its in-
When you hear the term discount retail, two names that usually tentions to do something about it. Target CEO Gregg Steinhafel
come to mind: Walmart and Target. The two have been compared succinctly summarized the company’s new strategy: “The cus-
so much that the press rarely covers one without at least mention- tomer is very cash strapped right now. And in some ways, our
ing the other. The reasons for the comparison are fairly obvious. greatest strength has become somewhat of a challenge. So, we’re
These corporations are two of the largest discount retailers in the still trying to define and find the right balance between ‘Expect
United States. Category for category, they offer very similar mer- More. Pay Less.’ The current environment means that the focus is
chandise. They tend to build their stores in close proximity to one squarely on the ‘Pay Less’ side of it.”
another, even facing each other across major boulevards. In outlining Target’s new strategy, company executives made it
But even with such strong similarities, ask consumers if there’s a clear that Walmart was the new focus. Target would make certain
difference between the two, and they won’t even hesitate. Walmart that its prices were in line with Walmart’s. Future promotions
is all about low prices; Target is about style and fashion. The “cheap would communicate the “pay less” message to consumers, while
chic” label applied by consumers and the media over the years per- also highlighting the fact that Target is every bit the convenient
fectly captures the long-standing company positioning: “Expect one-stop shopping destination as its larger rival.
More. Pay Less.” With its numerous designer product lines, Target The new communications program included massive changes
has been so successful with its brand positioning that for a number to in-store signage. Instead of in-store images and messages high-
of years it has slowly chipped away at Walmart’s massive market lighting trendy fashion, store visitors were greeted with large signs
share. Granted, the difference in the scale for the two companies boasting price points and value messages. Similarly, weekly news-
has always been huge. Walmart’s most recent annual revenues of paper circulars featured strong value headlines, fewer products,
$408 billion are more than six times those of Target. But for many and clearly labeled price points. In fact, Target’s ads began looking
years, Target’s business grew at a much faster pace than Walmart’s. very much like those of Walmart or even Kmart. Further recogniz-
In fact, as Walmart’s same-store sales began to lag in the mid- ing the consumer trend toward thriftiness, Target increased the
2000s, the world’s largest retailer unabashedly attempted to become emphasis on its own store brands of food and home goods.
more like Target. It spruced up its store environment, added more While making the shift toward “Pay Less,” Target was careful
fashionable clothing and housewares, and stocked organic and gour- to reassure customers that it would not compromise the “Expect
met products in its grocery aisles. Walmart even experimented with More” part of its brand. Target has always been known for having
luxury brands. After 19 years of promoting the slogan, “Always Low more designer partnerships than any other retailer. From the
Prices. Always.” Walmart replaced it with the very Target-esque Michael Graves line of housewares to Isaac Mizrahi’s clothing line,
tagline, “Save Money. Live Better.” None of those efforts seemed to Target boasts more than a dozen product lines created exclusively
speed up Walmart’s revenue growth or slow down Target’s. for Target by famous designers. Kathryn Tesija, Target’s executive
But oh what a difference a year or two can make. As the global vice president of merchandising, assured customers that not only
recession began to tighten its grip on the world’s retailers in 2008, the would Target continue those relationships but also add several
dynamics between the two retail giants reversed almost overnight. As new designer partnerships in the apparel and beauty categories.
unemployment rose and consumers began pinching their pennies,
Walmart’s familiar price “rollbacks” resonated with consumers, while MOUNTING PRESSURE
Target’s image of slightly better stuff for slightly higher prices did not. Although Steinhafel’s “Pay Less” strategy was aggressive, Target’s
Target’s well-cultivated “upscale discount” image was turning away financials were slow to respond. In fact, things initially got worse
customers who believed that its fashionable products and trendy ad- with sales at one point dropping by 10 percent from the previous
vertising meant steeper prices. By mid-2008, Target had experienced year. Target’s profits suffered even more. It didn’t help matters that
three straight quarters of flat same-store sales growth and a slight dip Walmart bucked the recessionary retail trend by posting revenue
in store traffic. At the same time, Walmart was defying the economic increases. When confronted with this fact, Steinhafel responded
 Chapter 3 | Analyzing the Marketing Environment 95

that consumers held perceptions that Target’s value proposition SIGNS OF LIFE
was not as strong as that of its biggest rival. He urged investors to Target’s journey over the past few years demonstrates that chang-
be patient, that its value message would take time to resonate ing the direction of a large corporation is like trying to reverse a mov-
with consumers. Given that Walmart had a decades-long lead in ing freight train. Things have to slow down before they can go the
building its cost structure as a formative competitive advantage, other way. But after 18 months of aggressive change, it appears that
Steinhafel couldn’t stress that point enough. consumers may have finally gotten the message. During the first
While Target continued to struggle with this turn-around chal- half of 2010, sales rose by as much as 5 percent with profits up a
lenge, it received a new threat in the form of one of its largest in- whopping 54 percent. Both spending per visit and the number of
vestors. Activist shareholder William Ackman, whose company store visits increased. All this could be attributed to the fact that the
had invested $2 billion in Target only to lose 85 percent of it, was effects of the recession were starting to loosen up and consumer
holding the retailer’s feet to the fire. Ackman openly chided Target confidence was stabilizing. But in a sign that Target’s efforts were
for failing to deal effectively with the economic downturn. He truly paying off, Walmart’s sales growth was slowing during this
charged that Target’s board of directors lacked needed experience same period and even showing signs of decline. Customer percep-
and sought to take control of five of the board’s seats. “Target is tions of Target’s value were indeed on the rise.
not Gucci,” he said in a letter to investors. “It should be a business Steinhafel made it very clear that the new signs of life at Target
that does well, even in tough economic times.” were being met with cautious optimism. “Clearly the economy and
Making the changes that Ackman and others were calling for was consumer sentiment have improved since their weakest point in
exactly what Steinhafel was trying to do. Steinhafel refused to give up 2009,” said the Target CEO. “But we believe that both are still
on his strategy. Instead, he intensified Target’s “Pay Less” emphasis. somewhat unstable and fragile and will likely continue to experience
In addition to aggressive newspaper advertising, Target unveiled a occasional setbacks as the year progresses.” Steinhafel’s comments
new set of television spots. Each ad played to a catchy tune with a re- reflected an understanding that even as the economy showed signs
assuring voice singing, “This is a brand new day. And it’s getting bet- of recovery, research indicated that consumers everywhere were
ter every single day.” Ads showed ordinary people consuming adopting a newfound sense of frugality and monetary responsibility.
commonly purchased retail products but with a unique twist. Target’s “Pay Less” strategy has continued forward without
In one ad, a couple was shown drinking coffee in what appeared wavering. Pricing seems to have found the sweet spot as Stein-
to be a fancy coffee house with the caption, “The new coffee spot.” hafel announced that few adjustments are needed. Ads continue
But the camera pulled back to reveal that the couple was sitting in to emphasize low prices on everyday items. And the expansion of
their own kitchen, with a coffee pot on the stove. The caption con- groceries and store brands has continued. In fact, for 2010, Target
firmed: “Espresso maker, $24.99.” In another segment of the ad planned just 10 store openings, the lowest in its history. “It will be
headlined “The new salon trip,” a glamorous woman with flowing a long time before we approach the development pace of several
red hair appeared to be in an upscale salon. The camera angle then years ago,” said Doug Scovanner, Target’s chief financial officer.
shifted to show her in her own modest bathroom, revealing a small Instead, Target is putting its money into remodeling existing stores
bottle sitting on the sink with the caption, “Hair color, $8.49.” Every to better accommodate the shifts in inventory.
ad repeated this same theme multiple times, with takes such as Some Wall Street analysts have expressed concern that Target’s
“The new car wash,” “The new movie night,” and “The new gym.” recent value strategy may weaken the brand as customers lose
In addition to the new promotional efforts, Target made two sight of the distinctive features that set it apart from Walmart. But
significant operational changes. First, it began converting a corner the words of one shopper are a good indication that Target may
of its department stores into mini-grocery stores carrying a narrow still be retaining the “Expect More” part of its image, despite hav-
selection of 90 percent of the food categories found in full-size ing emphasized “Pay Less.” “Target is a nice place to go. Walmart
grocery stores, including fresh produce. One shopper’s reaction may have good prices, but I would rather tell my friends that I
was just what Target was hoping for. A Wisconsin housewife and came back from shopping at Target.”
mother of two stopped by her local Target to buy deodorant and
laundry detergent before heading to the local grocery store. But Questions for Discussion
as she worked her way through the fresh-food aisles, she found
everything on her list. “I’m done,” she said, as she grabbed a
1. What microenvironmental factors have affected Target’s
99-cent green pepper. “I just saved myself a trip.” performance over the past few years?
While the mini-grocery test stores showed promising results, 2. What macroenvironmental factors have affected Target’s
groceries also represented a low-margin expansion. Walmart was performance during that period?
seeing most of its gains in higher margin discretionary goods like
3. By focusing on the “Pay Less” part of its slogan, has Target
bedding, traditionally Target’s stronghold. But in a second opera-
pursued the best strategy? Why or why not?
tional change, Target surprised many analysts by unveiling a new
package for its main store brand . . . one without the familiar Tar- 4. What alternative strategy might Target have followed in
get bulls-eye! That is, the packages discard the bull’s-eye, replacing responding to the first signs of declining revenues and profits?
it with big, colorful, upward-pointing arrows on a white back-
5. Given Target’s current situation, what recommendations
ground, with the new brand name, “up & up.”
would you make to Steinhafel for his company’s future?
Continuing to address the trend of higher store brand sales,
Tesija stated, “We believe that it will stand out on the shelf, and it Sources: Karen Talley, “Target Profit Rises on Strong Sales, Improved Credit-
is so distinctive that we’ll get new guests that will want to try it that Card Operations,” Wall Street Journal, May 20, 2010, accessed at http://
maybe didn’t even notice the Target brand before.” Up & up prod- online.wsj.com; John Kell and Karen Talley, “Target’s Profit Rises 54% on
ucts are priced about 30 percent lower than comparable name Higher Sales, Improved Margins,” Wall Street Journal, February 24, 2010,
accessed at http://online.wsj.com; Natalie Zmuda, “Target to Put More Fo-
brand products. Target began promoting the store brand in its cir-
cus on Value,” Advertising Age, August 19, 2008, accessed at http://adage
culars and planned to expand the total number of products under .com; Ann Zimmerman, “Target Believes a Rebound Recipe Is in Grocery
the label from 730 to 800. While initial results showed an increase Aisle,” Wall Street Journal, May 12, 2009, p. B1; Nicole Maestri, “Target
in store brand sales for products with the new design, it is unclear Revamps Its Target Brand as ‘Up & Up,’” Reuters, May 19, 2009, accessed
just how many of those sales came at the expense of name brand at www.reuters.com; Nicole Maestri, “Target, BJ’s Wholesale Results Beat
products. the Street,” Reuters, May 20, 2009, accessed at www.reuters.com.