Assignment

Read the $$History and Evolution of Home Depot.$$ As you read the case, think about the concepts from Chapter $12$ that are represented in the case. Then answer the questions that follow the case.

History and Evolution of Home Depot

Back in the late $1970$s$,$ Bernie Marcus and Arthur Blank ran a chain of Southern California home improvement centers called Handy Dan. While running some pricing experiments, they found that lower prices raised sales revenue and lowered costs as a percent of sales. They thought the lower prices could increase Handy Dan$$s profits compared to the $$buy low and sell high$$ pricing commonly practiced in their industry. However, before they could expand the experiment to more stores, new ownership at Handy Dan came in and swept out most of top management$$including Marcus and Blank.

From a Los Angeles coffee shop, the two drafted a business plan for a new kind of home improvement center. A New York City investment firm funded the idea, and the first two Home Depot stores opened outside of Atlanta, Georgia. Marcus and Blank helped usher in a new $$mass$-$merchandising$$ approach to retail, demonstrating that low prices could generate high sales volume and profitability.

Even in the company$$s early days, Home Depot$$s $100,000-$square$-$foot warehouse stores featured a wide variety of merchandise$$from paint to plumbing to electrical and lumber. Experienced contractors and serious do$-$it$-$yourselfers loved the wide selection and low prices. To appeal to a less experienced and less confident target market, Home Depot hired and trained a knowledgeable staff who could teach customers how to lay a tile floor, handle a power tool, or build a fence. As this target market gained confidence, they tackled more household jobs$$after going to Home Depot, of course. Sales grew quickly. By the late $1990$s$,$ Home Depot generated sales of over $$38$ billion from more than $900$ stores.

After Marcus and Blank retired in the early $2000$s$,$ Home Depot sought to grow profits by opening stores in international markets like China and cutting costs at home. These strategies were not successful. After six years of disappointing sales in China, Home Depot pulled out, citing cultural differences. The company found that Chinese consumers were not ready for the warehouse store, preferring to shop at smaller, specialty shops. Back in the U$.$S$.,$ cost control efforts included cutting the number and training of its sales associates. While this increased profits in the short term, it alienated employees. And when customers couldn$$t find knowledgeable help at their local Home Depot, many headed to rival Lowe$$s$,$ which offered better service. Sales lagged and then dropped when the economic recession and housing crash came in $2008.$

At this point, Home Depot returned to a familiar marketing strategy: low prices and high customer service. More sales associates and spruced$-$up stores created a better shopping experience. Store managers$$ incentives emphasized customer satisfaction. Soon employee morale improved; customers noticed the changes and returned to Home Depot.

Home Depot faces a wide range of competitors. Fellow home improvement center Lowe$$s goes after a similar target market. Other competitors seek a slice of Home Depot$$s business. For example, Sherwin$-$Williams Paint Stores offer a limited product line of paint, stain, painting supplies, and wallpaper. Many formerly independent hardware stores joined the Ace Hardware cooperative, where pooling purchases and marketing expenses lowers costs. When seeking just a few items for a small project, many customers like the convenient easy$-$in$,$ easy$-$out of Ace$$s smaller stores. Other customers pick up those supplies at their local Walmart or Target supercenter.

For many retailers, the most feared competitor is Amazon. The store$$s name has even become a verb; for example, department stores like Macy$$s have been $$Amazoned$$losing significant market share to the online retail giant. Supermarkets appear to be the next type of store in Amazon$$s sights. Home Depot$$s marketing strategy tries to avoid direct competition with Amazon. This strategy starts with those knowledgeable folks in the orange aprons. It also seeks to build brand preference for exclusive store brands like Ryobi power tools, Hampton Bay fans, and Behr paints.

Home Depot also understands the advantages and disadvantages of online shopping. They recognize online shopping can offer customers access to a rich variety of information, customer reviews, and $24/7$ shopping. On the other hand, some products need to be seen and touched before making a purchase, and others don$$t ship well via UPS. In addition, some customers like to talk to a knowledgeable salesperson before buying. Most importantly for Home Depot, many customers want the best of both worlds. These multichannel shoppers shift back and forth between a cell phone, computer, and local store before making a purchase.

Home Depot appeals to multichannel shoppers wi