Target Stores:

Strategic Brand Alliance Exercise

The Target brand was launched in 1962 when the Minneapolis-based Dayton Company opened its first discount merchandising store in Roseville, Minnesota. By 2006 the company had opened 1,500 stores in forty-seven states, achieving an impressive $50 billion in annual sales. See Figure 1 for the mix of categories generating these sales. The company planned to continue its growth by opening one hundred stores per year in the foreseeable future.

Figure1: Target Category mix

One of the ways Target differentiated itself from other discount merchandisers was by featuring high-quality, distinctively designed products. Four types of managers collaborated to deliver on this vision. The process began with trend specialists who identified product categories, styles, and colors relevant to products that could fit into Target's discount merchandising format. This information was then used by merchandisers to develop a vision and a specific business strategy based on the trends and corporate objectives. Next, product design and development specialists defined a solution that reflected the vision and strategy. Finally, sourcing specialists evaluated the options for executing the solutionsometimes relying on strategic partners such as Champion athletic wear, and other times developing products internally such as the Archer Farms food line.

When setting price, Target strove to match Wal-Mart's price on comparable items and on items at the point-of-entry to a category. However, its high quality and superior design enabled Target to obtain somewhat higher margins than its competitors in categories where it had unique products. For example, Target's Archer Farms products had a more sophisticated flair and quality than many manufacturers' grocery brands and consequently commanded moderately higher prices. Indeed, Archer Farms barbecue sauce had beaten the barbecue sauce of the renowned Frontera Grill chef Rick Bayless in a blind taste test.

Target's goal was to transform the categories in which it competed by offering products with high quality and unique style and design at a great price. This strategy was captured in the company's now decade-old tag line, Expect More. PayLess.

The Target Guest

People who shopped at Target were referred to as guestsrather than customers throughout the company, reflecting the view that these people were doing the company a favor by visiting their stores and should be treated as one would treat a guest in one's home. Target guests were disproportionately female with an average age of forty-one, some college education, and an average household income of $63,000 per year. This profile was more upscale than the profile of the Wal-Mart customer and slightly younger and less affluent than the Costco customer.

A loyal Target guest averaged nine trips to the store per year. She also shopped at Wal-Mart (74 percent of Target guests had shopped at Wal-Mart in the past thirty days), but was less likely to frequent Costco (only 28 percent of Target guests had shopped at Costco in the past thirty days). When visiting Target, the guest averaged the same amount of time in the store regardless of how long it took her to find the planned purchase items. Thus, the company placed frequently purchased items near the front of the store so that guests could find what they needed and

then spend the remaining time browsing. Target hoped to drive future growth by expanding its offerings in categories that motivated frequent shopping trips (e.g., food and pharmacy).

Target did extensive research on its guests, conducting an annual competitive tracking survey with two thousand people. This research revealed that guests viewed their in-store experience at Target more favorably than their in-store experience at either Wal-Mart or Costco. It also indicated that 70 percent of the products that a typical guest bought was unplanned, and that attractive design and packaging played a key role in these unplanned purchases. If a guest picked up a product, 80 percent of the time she bought it.

Marketing

Target's marketing budget was $1 billion per year, much of which was invested in the weekly circular distributed with Sunday newspapers. The circular was viewed as the primary communication with guests, and it featured new and seasonally relevant items. Vendors vied to be featured in the circular, often paying for the privilege of doing so.

In addition to the circular and traditional print and broadcast advertising, the company had been a pioneer in event marketing. It had created temporary or pop-upstores in surprising

locationssuch as an historic home in the Hamptons and a barge in the New York harborto create visibility and excitement around themed merchandise.

Target's communications had a consistent, distinctive appearance. They made liberal use of the color red and incorporated brand symbols such as the bull's eye and Spot the dog (who had achieved the status of a cultural icon and was on display at Madame Tussaud's Wax Museum). The overall tone was fresh, energetic, and design/fashion focused.

Strategic Brand Alliances

Strategic brand alliances played a key role in delivering on Target's Expect More. Pay Less promise. The company had forged mutually beneficial relationships with brands known for high quality and great design, such as Bose (electronics), Calphalon (cookware), and Smith & Hawken (garden accessories and furniture).

The process of selecting and working with a strategicbrand partner was illustrated by Target's relationship with Smith & Hawken. Historically, Target stores featureda plant department. This department struggled because of the in-store effort required to care for live plants and the absenceof a shipping system that offered protection for fragile plants. Thus, several years ago, Target decided a different approach to lawn and garden products was required.

The process began with an examination of companies offering products in the lawn and garden market. At the time, Smith & Hawken had fifty-nine stores, was a well-respected brand, and had just been purchased by the Scott's Company (lawn care). Target felt that a partnership with Smith & Hawken could be mutually beneficial since research revealed that 76 percent of Target's best guests were familiar with Smith & Hawken and liked the style of its products. Smith & Hawken was intrigued by the possible partnership but had concerns about how it would impact the brand.

Ultimately a deal was struck. A line of products would be developed for Target featuring the classic designs associated with Smith & Hawken, but using less expensive materials to achieve a lower price point. For example, furniture would be made from eucalyptus rather than teak; ornamental ducks would be made from resin rather than teak. Quality controls were put in place to insure that the high standards of the Smith & Hawken brand were upheld. Accordingly, when a supplier did not stain a shipment of lawn furniture properly, Target pulled and disposed of $8 million in product.

Target spent a significant amount on the launch of the Smith & Hawken line, and the products were featured in the 55 million circulars that Target distributed weekly, increasing brand awareness considerably. The product line had been very successful for Target and had greatly expanded sales for Smith & Hawken.

Like Smith & Hawken, Calphalon's management was concerned that distributing the brand in Target might jeopardize its brand image. In this instance, a sub-branding strategy was employed, and Kitchen Essentials by Calphalon was created for Target. However, rather than harming the brand in other channels as feared, Calphalon's sales rose following the launch of Kitchen Essentials. As a result, the Calphalon name had been featured more prominently in Target over time.

The success of past strategic brand alliances had made it easier to attract new partners. Nevertheless, not all such ventures had met expectations. A partnership with California Closets failed to meet expectations, and a deal with Tupperware floundered partially due to strong resistance from the direct salespeople in the organization.

Your Task

1. List the criteria that you think Target should use in screening potential strategic brand alliances. Be as specific as possible.
2. Propose a strategic brand alliance in a category where Target current lacks one. Evaluate the pros and cons of the alliance from the perspective of both Target and the proposed partner.

Figure 1: Target Category Mix Consumables \& Commodities Electronics, Entertainment, Sporting Goods \& Toys Apparel \& Accessories Home Furnishings \& Dcor Other Source: Target Corporation Annual Report 2006