Selecting Business-Level Strategies

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Chapter 5

Selecting Business-Level Strategies L E A R N I N G O B J E C T I V E S

After reading this chapter, you should be able to understand and articulate answers to the following

questions:

1. Why is an examination of generic strategies valuable?

2. What are the four main generic strategies?

3. What is a best-cost strategy?

4. What does it mean to be “stuck in the middle”?

The Competition Takes Aim at Target

On January 13, 2011, Target Corporation announced its intentions to operate stores outside the United

States for the first time. The plan called for Target to enter Canada by purchasing existing leases from a

Canadian retailer and then opening 100 to 150 stores in 2013 and 2014. [1] The chain already included

more than 1,700 stores in forty-nine states. Given the close physical and cultural ties between the United

States and Canada, entering the Canadian market seemed to be a logical move for Target.

In addition to making its initial move beyond the United States, Target had several other sources of pride

in early 2011. The company claimed that 96 percent of American consumers recognized its signature logo,

surpassing the percentages enjoyed by famous brands such as Apple and Nike. In

March, Fortune magazine ranked Target twenty-second on its list of the “World’s Most Admired

Companies.” In May, Target reported that its sales and earnings for the first quarter of 2011 (sales: $15.6

billion; earnings: $689 million) were stronger than they had been in the first quarter of 2010 (sales: $15.2

billion; earnings: $671 million). Yet there were serious causes for concern, too. News stories in the second

half of 2010 about Target’s donations to political candidates had created controversy and unwanted

publicity. And despite increasing sales and profits, Target’s stock price fell about 20 percent during the

first quarter of 2011.

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Concern also surrounded Target’s possible vulnerability to competition within the retail industry. Since its

creation in the early 1960s, Target executives had carved out a lucrative position for the firm. Target offers

relatively low prices on brand-name consumer staples such as cleaning supplies and paper products, but it

also offers chic clothing and household goods. This unique combination helps Target to appeal to fairly

affluent customers. Although Target counts many college students and senior citizens among its devotees,

the typical Target shopper is forty-one years old and has a household income of about $63,000 per year.

Approximately 45 percent of Target customers have children at home, and about 48 percent have a college

degree. [2] Perhaps the most tangible reflection of Target’s upscale position among large retailers is the

tendency of some customers to jokingly pronounce its name as if it were a French boutique: “Tar-zhay.”

Target’s lucrative position was far from guaranteed, however. Indeed, a variety of competitors seemed to

be taking aim at Target. Retail chains such as Kohl’s and Old Navy offered fashionable clothing at prices

similar to Target’s. Discounters like T.J. Maxx, Marshalls, and Ross offered designer clothing and chic

household goods for prices that often were lower than Target’s. Closeout stores such as Big Lots offered a

limited selection of electronics, apparel, and household goods but at deeply discounted prices.