Target Corporation and the New Rules of Business Strategy
Applying Business Strategy Concepts to Target Corporation
In an effort to understand how different business strategy concepts contribute to the overall performance of an organization, this paper applies the principles of each concept to Target Corporation and its business practices. Target Corporation’s “capsule collection” model and exclusive collaborations with on-trend brands has created a cult-like following of the corporation’s business activities. This paper seeks to understand whether these business strategies are sustainable and will continue to be profitable.
Theory
The New Rules Of Strategy - Alstyne, Parker, and Choudary (2016) defined the new rules of strategy very simply - scaling now trumps differentiation. Using the example of the mobile phone industry, they highlighted that 92% of global mobile phone profits changed from incumbent manufacturers to a single newcomer - Apple - in less than a decade. At the same time, the incumbent manufacturers made no profit at all. Apple did not make these massive profitability gains through innovative product alone, but also through exploiting the power of platforms (the App Store) and creating a market that had undeniable network effects and explosive growth (Alstyne et al., 2016).
Platforms like the one created by the App Store change strategy entirely. The traditional “five forces” model ignores network effects and their corresponding value, regarding external forces as extracting value not enhancing it (Alstyne et al., 2016). Within a platform, the most valuable asset is the community and the corresponding resources of the members. In the case of the App Store, the quality of developers and quantity of consumers becomes the asset and the number of apps uploaded and total number of downloads becomes the core profitability driver. In short, the “new” five forces (or the new rules of strategy) are intra-ecosystem forces, extra-ecosystem forces, focus, access and governance, and metrics. These new forces (and specifically the relevant metrics) can become the reason why Uber had a higher valuation than General Motors in 2016 or how Apple can take down the mobile phone industry in less than a decade (Alstyne et al, 2016).
Can You State Your Strategy? Collis and Rukstad (2008) highlighted the single largest dirty secret of business: most executives cannot articulate their business’ unique objective, scope, and advantage in under 35 words. Those executives that can are often steering the most successful companies in their respective industries. Edward Jones has quadrupled its market share in the last twenty years, outperformed its rivals despite both bull and bear markets, and is regarded as a top company to work for (Collis and Rukstad, 2008). Edward Jones’ business strategy is exactly 35 words - the recommended maximum length.
What makes a strategy statement is less easy to understand than the maximum recommended length. Any solid strategy statement should start with the desired end result, providing the “light at the end of the tunnel” that the business aims to achieve (Collis and Rukstad, 2008). This end result should be defined in metric (i.e. target revenue) and time (i.e. five years). The strategy statement should also defined the scope of the business - “market leader in the portable electronics industry” is more specific and attainable than “market leader.” Finally, the strategy statement should define the advantage - what the business is doing differently or better than its competitive set (i.e. Edward Jones’ advantage is in “providing convenient, trusted, personal service and advice (Collis and Rukstad, 2008)). The strategic mecca for a company is the specific place it meets customers’ needs where competitors cannot, given the specific capabilities the company has to offer.
What Is Strategy? Porter (1996) defined five key components that are (or are not) strategy. Simply speaking, companies must be able to evolve with the market, changing fluidly with competitive and market changes. Operational effectiveness is not strategy but instead a necessary component of performance that is separate to strategy (Porter, 1996). Companies can only achieve their aspirations of outperforming competitors by establishing key market differences that can be preserved. Operational effectiveness is performing the same activities better than rivals whereas strategy is truly performing a differentiated activity.
When choosing strategic positions, Porter (1996) recommended that the articulated position be based on customers’ needs/accessibility or the variety/set of a company’s products or services. Jiffy Lube does this well by specializing in oil changes only and not offering car repair or maintenance. The key differentiator for Jiffy Lube is faster service at a lower cost than its competitors. Sustaining a strategic position long-term requires trade-offs, meaning that more of the one thing the company intends to compete on necessitates less of others that it does not (Porter, 1996). Strategic positions should also rely on fit - locking out imitators by creating a strong and difficult to replicate process. Southwest does this well: its key differentiator is rapid gate turnaround which is achieved by well paid crew, no meals, no seat assignment, and no interline baggage transfers (Porter, 1996). Porter (1996) also emphasized that selected strategic positions should have a horizon of a decade or more. This creates efficiencies in planning, implementation, supply chain, and other sectors that fully enable the company to take advantage of the profitability of the selected strategic position.
Theory Comparisons
Each of the authors above highlight different strategies that should be leveraged to develop strong strategic positions for a corporation. There are key overlaps that can identify areas of immense focus and differences that might highlight lower priority activities.
A re-emerging theme was the identification of key market differences. All three readings mentioned market differences in some way with Collis and Rukstad (2008) and Porter (1996) specifically calling out market differences as necessary to define and have well articulated.
A critical difference was the consideration of scaling. Alstyne et al. (2016) cited scaling as more important than market differences whereas Collis and Rukstad (2008) and Porter (1996) cited scaling as a secondary or tertiary consideration after a clearly defined strategy and market differences.
Fortune 500 Case Study Company Application (Let’s Talk Target)
Target Corporation is structured into three main segments - Target storefronts, CVS Pharmacy in-store outposts, and the Shipt business (PR Newswire, 2017). Within Target storefronts, there are many sub-stores and house brands including: collaborations with Chip & Joanna Gaines, Create & Cultivate, Day Designer, Sugar Paper LA, and others; Target-owned brands such as Good & Gather, Archer Farms, etc; and the company’s one-off collaborations with high-end brands like Hunter, Zac Posen, Jason Wu, Proenza Schouler, and so on.
Target’s growth strategy specific to the company’s one-off collaborations has produced tremendous success for the corporation overall. Over the past twenty years, Target has been a “pioneer of making design accessible and affordable to the masses” (Target Corporation, 2019) and has collaborated with more than 175 high-end brands to bring exclusive content to storefronts. From the first collaboration with Michael Graves in 1999 to more recent collaborations with brands like 3.1 Phillip Lim and Hunter, these collaborations have sold out quickly, often leaving shelves and online inventory within hours of their official launch.
The impetus for the original collaboration with Michael Graves was to give Target a unique differentiation point, similar to the growth strategy recommendations outlined by Collis and Rukstad (2008) and Porter (1996). Retail had become increasingly saturated and with Amazon’s rising successes, Target knew that its runway was growing shorter (Safdar and Nassauer, 2019). These collaborations were to become a reason to enter Target stores (and later to shop on Target.com) with the larger goal being to increase average basket take and gross revenues beyond the niche collaborations (Segran, 2019). Not only did the collaborations serve this revenue-focused goal, as social media became a more prevalent cultural forum, organic conversations about Target grew equally as rapidly (Target Corporation, 2019). Target has now become a cultural phenomenon with memes about “walking into Target for toilet paper and leaving $300 poorer” being commonplace social shares (Segran, 2019).
When asked about the competitive landscape, Target CEO Cornell identified Walmart and Amazon as Target’s biggest competitors, stating that “retail will always be a very, very competitive marketplace” (Safdar and Nassauer, 2019). Any local-market grocer is also a natural competitor of Target - Kroger, Mariano’s, Plum Market, and so on. Any entry or mid-market priced homegoods or apparel store is a competitor of Target as well. Alstyne et al. (2016) highlighted the way that Apple changed the mobile phone industry forever and Target has done the same with retail. Target capitalized on an opportunity to give high-end designers a channel to broaden their reach without diluting their brand while also giving diehard designer customers a chance to get their hands on more affordable items (Segran, 2019). Alstyne et al. (2016) also outline three key shifts in moving from a pipeline to a platform: moving from resource control to resource orchestration; moving from internal optimization to external interaction; and moving from a focus on customer value to a focus on ecosystem value. These designer collaborations that Target has produced check all of the boxes for shifting from a pipeline to a platform, furthering Target’s brand equity and prominence in a saturated retail market.
Looking at Target’s 10-K filings from the past couple decades shows healthy year over year growth percentages with multiple-billion dollar revenue increases as well (Target Corporation, 2019). More than that, Target is one of America’s fastest-growing social media brands as well, having added multiple million Facebook fans in single month timeframes (Arnold, 2012). Target has used social media to build a long history of community involvement as well, leveraging their "Give With Target" campaign and recurring wall posts to encourage charitable giving while also promoting designer collaborations and other product launches (Arnold, 2012).
Target is already looking ahead to the next twenty years of designer collaborations. The company published a book entitled Target: 20 Years of Design for All: How Target Revolutionized Accessible Design and created a documentary highlighting how the company’s innovative approach to accessible and affordable design has revolutionized and forever changed the retail industry (Target Corporation, 2019). Plans for future designer collaborations are already in the works and are teased on social media when relevant to current conversations in that space.
Ethics and sustainability play into this growth strategy seamlessly. Sustainability takes two approaches - the ongoing sustainability of acquiring new designers for the collaborations as well as the environmental sustainability of Target’s impact as a retailer. Both forms of sustainability are considered not only by Target but by the designers as well as there is a high-end shift to environmentally sustainable fashion consumption (Target Corporation, 2019). From an ethical standpoint, Target has only one challenge to contend with - are there any concerns around taking high-end brand items and offering them at low price points, therefore harming high-end brands’ stance that thousand-plus dollar price points are necessary? So far, the answer has been no.
In Conclusion - Target Corporation has created a business growth strategy around the “capsule collection” model and exclusive collaborations with on-trend brands. The result has been a cult-like following of the corporation’s business activities and social media, making it a profitable and socially desirable business. Target’s success has positioned the company as a retail industry challenger and tastemaker, paving the way for future sustained growth.
This blog post was originally written as a paper in pursuit of my Doctorate of Business Administration.
References
Alstyne, M. V., Parker, G. G., & Choudary, S. P. (2016). Pipelines, platforms, and the new rules of strategy. Harvard Business Review, 94(4), 54–62.
Arnold, M. J. (20129). Target on Social Media - 5 Lessons from One of The World's Most Successful Retail Brands. Retrieved from https://www.socialmediatoday.com/content/target-social-media-5-lessons-one-worlds-most-successful-retail-brands.
Bhattarai, A. (2018). Upscale, downscale: Target draws customers with collaborations with high-end brands. Retrieved from https://www.washingtonpost.com/business/economy/upscale-downscale-target-draws-customers-with-collaborations-with-high-end-brands/2018/04/13/5dd25888-3cd2-11e8-a7d1-e4efec6389f0_story.html.
Collis, D. J., & Rukstad, M. G. (2008). Can you say what your strategy is? Harvard Business Review, 86(4), 82–90.
MarketLine (2019). Target Corporation MarketLine company profile (pp. 1–48). Retrieved from http://search.ebscohost.com.library.capella.edu/login.aspx?direct=true&db=bth&AN=139028153&site=bsi-live&scope=site
Porter, M. E. (1996). What is strategy? Harvard Business Review, 74(6), 61–78.
PR Newswire (2017) Target to acquire same-day delivery platform Shipt, Inc. to bolster fulfillment capabilities: acquisition will enable Target to offer same-day delivery services at approximately half its stores by early 2018. PR Newswire. Retrieved from http://library.capella.edu/login?qurl=https%3A%2F%2Fsearch.proquest.com%2Fdocview%2F1975999185%3Faccountid%3D27965
Safdar, K., & Nassauer, S. (2019). Leading Target in the Amazon era. Retrieved from https://www.wsj.com/articles/leading-target-in-the-amazon-era-11574439945.
Segran, E. (2019). Exclusive: see 300 items Target is rereleasing from its designer collaborations. Retrieved from https://www.fastcompany.com/90388062/exclusive-see-300-items-target-is-rereleasing-from-its-designer-collaborations.
Target Corporation (2017). Target announces Hearth and Hand with Magnolia, partnership with Chip and Joanna Gaines. Targeted News Service. Retrieved from http://library.capella.edu/login?qurl=https%3A%2F%2Fsearch.proquest.com%2Fdocview%2F1938538132%3Faccoun
Target Corporation. (2019). Form 10-K 2019. Retrieved from https://investors.target.com/sec-filings/sec-filing/10-k/0000027419-19-000006
Target Corporation (2019). Target celebrates 20 years of designer partnership with an anniversary collection. Retrieved from https://corporate.target.com/article/2019/08/20-years-anniversary-collection.