Strategy analysis Target vs. Kmart
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Strategy analysis Target vs. Kmart

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Target- Kmart comparison

Target- Kmart comparison
Porter's 5 forces
VRIO analysis, competitive advantages.

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Strategy analysis Target vs. Kmart Strategy analysis Target vs. Kmart Presentation Transcript

  • Strategy Final Assignment VS. Shai Zamir Dan Saguy
  • The Discount Retail Arena• Founded 1902 • Founded 1916• Over 1800 stores • Over 1000 stores• 49 States, now expanding into Canada • 50 U.S. states, Puerto Rico Competition
  • Porter’s 5 Forces analysisRivalry/competitionCompetition is intense. Many rivals with similar products andservices.Threat of new EntrantsLarge capital is necessary for operating (big workforce, chainof stores, etc.). Difficulty of creating reliable suppliers anddistribution channels. Threat of new entrants is rather low.SubstitutesShopping in brand name stores for a certain item, rather thangoing into a huge store with everything. Relatively low threatShopping online. Both Kmart and Target have an online store. View slide
  • Porter’s 5 Forces analysisPower of buyersBuyer power is high. Many competitors available, stores aswell as online.For Kmart, bargaining power is high, since the Kmart brand isgoing through difficulties for the last decade.For Target: target market is perceived to be moresophisticated- also high.Power of SuppliersThe companies rely on suppliers to deliver quality products.But both companies sell nationwide and offer store locationsin prime shopping locations. Suppliers are abundant.The power of the suppliers in the industry is fair.Kmart’s supplier power will be higher because of paymentproblems in the relatively near past. View slide
  • Porter’s 5 Forces analysisSummary• Same market• Similar products.Similar performance.Differences exist, mainly due to Kmart’s difficulties andstruggles to develop its brand, which is reflected in the higherbargaining power of both suppliers and buyers.
  • Analysis
  • Key Resource 1: IT competenceValuable• Just in time inventories• Intelligent IT spendingRarity: Competence in information technology is also an asset of othercompetitors (Wal-mart, Amazon.com, Costco, to name some), Theresource is not rare.Rare• Also an asset of other competitors• The resource is not rare.
  • Key Resource 2: Distribution Channels Valuable Both brands operate in an arena that requires a nationwide and diversified net of suppliers. The resource of a distribution network is absolutely essential to thrive for both companies. Valuable. Rare The distribution network, selling so many different products to millions of different customers throughout the country, is a vast network, and one of the key resources in the discount retail industry. There are other nationwide brands like Gap, Barns&Noble, Stop’n’Shop, etc. but they sell a smaller line of products, and not necessarily discounted. Therefore we consider it as being rare.
  • Key Resource 2: Distribution Channels Inimitable Very difficult to imitate due to the cost disadvantage that competitors will face in acquiring or substituting this resourceOrganizationThe corporation has the organizational capability to exploit theresource that they developed, capture more share of the market andgrow.Kmart, on the contrary, had some difficulties with supplier relations,along it’s history of financial disorders. Competitive advantage Performance Above normal
  • Key Resource 3: Brand NameValuableTarget: Known as providing quality products for low price, brand isrelated to a positive, even fun experience: result of Targets intensiveinvestment in the shopping experience. Their mission statementfocuses great guest service, clean stores and speedy checkouts.Kmart’s brand name is related to the lowest prices. It is highly popularwith minorities groups, especially afro-Americans and Hispanics. Bothbrand names are valuable.RareTargets brand represents quality and low prices, along with anenjoyable shopping experience. The slogan is "expect more, payless", and they live up to it. The combination is rare.In Kmarts case for example, the brand represents very low prices,but of lesser quality. Kmart strategy focuses mostly on pricing, andhas not differentiated itself from Walmarts strategy. Kmarts brandis not rare.
  • Key Resource 3: Brand Name Inimitable Targets brand name is hard to imitate. A significant cost disadvantage in acquiring/substituting the resource (advertising, customer service, product diversification, etc).OrganizationTarget has successfully incorporated the resource into theirorganization. Targets brand recognition is hugely important to success.The firm identified that this resource is a competitive advantage.. Competitive advantage Performance Above normal
  • Key Resource 4: Human CapitalValuableTarget understands that low wages never equal a satisfied employeewhich can reflect negatively on the company.While Kmart also invests in human capital, its payrolls are usuallysmaller and the workforce is not as qualified, shorter training program.Kmarts resource is not valuable.RareMany companies recognise the importance of human capital, andthis resource is not rare for Target.
  • Key Resource 5: LocationValuableTarget Corporation operates 1,750 stores in 49 U.S. states and theDistrict of Columbia. Further, it offers general merchandise productsthrough its Website, Target.com.Kmart, operates a total of 1,205 stores (as of December 2011). Kmartstores are across 49 states, Guam, Puerto Rico, and the U.S. VirginIslands, and through its e-commerce shopping site, www.kmart.com.Both companies are operating on a nationwide level- valuableresource.RareUnlike any of Targets competition, many stores have been placedin accordance with trendy malls. This gives and advantage ofconvenience.Kmart stores are located in easily accessible areas, especially inurban areas where they are able to get a large multi-culturalconsumer group. We conclude that the resource is rare for bothcompanies.
  • Key Resource 5: LocationInimitableMany big players in the arena (like Walmart, Costco) can shifttheir stores from one location to another. It may generate costsbut this will not create a great cost disadvantage. Resource isimitable.
  • Competitive Advantage 1: Diversity of ProductsImitation• Size economies: Both companies operate on a nationwide level and reaching customers with products that appeal to different needs.• Management of inventory and distribution channels requires knowhow (private information).• Inventory management and trend predicting is constantly being upgraded.
  • Competitive Advantage 1: Diversity of ProductsSubstitutionThe substitutes are the brand name stores that sell specificitems (like buying a toy in Toys R Us). Target and Kmart arenot responding to the threat - its not a risking the value thatthe diversity of products generates for Target and Kmart.HoldupThe large scale of products has allowed the companies’ tocontract a wide range of suppliers, giving high bargainingpower, creating stable, trustful relationships with long termcontracts, and a holdup advantage.
  • Competitive Advantage 1: Diversity of ProductsSlackTarget is doing a better job in exploiting this valuableadvantage. It is utilizing technology and implementing it intoits information systems, to control inventory stock, checkoutsystems, etc. One of its strength is its ability to anticipate thedemands of the customers ahead of time. Target is exploitingand maximizing fully its’ competitive advantage and continueto show growing sales.
  • Competitive Advantage: Quality in Retail DiscountImitation• Size economies• Private information- Target is doing an excellent job withtechnology and improving the inventory system, as well asanalyzing their clients preferences• Switching costs, the quality products at low prices policymakes it difficult for competitors to compete..SubstitutionBuying in regular brand name stores: normally price will behigher. Target is defending by offering its clients upscaletrendy innovative products which keeps their customersreturning. It is also recombining: Top designers have signedagreements with Target to sell their items at affordableprices, for example: Victorias Secret
  • Competitive Advantage: Quality in Retail DiscountHoldupTargets large scale has allowed it to contract with a greatrange of suppliers, with extraordinary bargaining power. Ithas built mutual dependence with long term suppliers whooffer quality products, developed trust to create stablecooperative relationships, giving it a holdup advantage.SlackTarget has been depicted as "the discount store with attitude– where department store customers feel very comfortableshopping". This has created loyal returning customers, andcontinually makes the business become a tough competitoramong its rival. Very limited slack.
  • Competitive Advantage: PricingSlackAmazon is investing many efforts in penetrating new marketsand adopting new products and processes, allowing a widerange of products and lowering the price for each.Also, Amazon sells used products that make the price evenlower. Thus, Amazon has limited slack in terms of discountretailing.
  • Competitive Advantage: PricingSlackAmazon is investing many efforts in penetrating new marketsand adopting new products and processes, allowing a widerange of products and lowering the price for each.Also, Amazon sells used products that make the price evenlower. Thus, Amazon has limited slack in terms of discountretailing.
  • Competitive Advantage : Distribution NetworkImitation• Private information- analyzing the retail process: how orders are made, packaging, shipping, inventory management etc.• Switching Costs- the delivery costs and service of other companies will be higher• Size Economy- Amazon is a gorilla in the online selling marketSubstitution• Not responding- the reasonable substitution: going to a physical store.`
  • Competitive Advantage : Distribution NetworkHoldupAmazon has contracts with numerous suppliers, and hasextraordinary bargaining power. It has built mutualdependence with the suppliers, developed trust to createstable cooperative relationships with long termcontracts, giving it a holdup advantage.SlackLimited slack. Amazon exploits its distribution potential bysending millions of products to millions of customers all overthe globe, and pooling resources (a customer buying abook, can also add other products to his shipment).
  • Competitive Advantage : Customer ServiceImitation• Private information- understanding the needs of its customers, investing resources and effort in ongoing improvement of its customer service (ranked one of the top companies in this field).• High switching costs- customers don’t not want to switch to a different company.• Upgrading and constantly ImprovingSubstitutionCustomer service does not have an efficient substitute (maybesophisticated software) Amazon is not responding to thisthreat.
  • Competitive Advantage : Customer ServiceHoldupConstantly improving customer service, to build mutualdependence of clients, develop trust and cooperation. Its longterm relations and contracting with suppliers, allows it toefficiently address customer service issues regarding a specificsupplier or product.SlackAmazon uses online surveys to improve and monitor itscustomer service. limited slack. Amazon also has anoutstanding return policy.
  • SummaryThe discount retailing industry in the U.S is mainly controlledby three "gorillas": Wall-Mart, Target and Kmart. The marketcharacteristics leave no room for strategic mistakes.In terms of external threats, the buyers & suppliers poweramong with the rivalry is the main threats to pay attention toand while Target made significant moves in order todifferentiate itself from the rivals and lowering the bargainingpower of suppliers and buyers, Kmart experienced stagnationin terms of business development, focusing mainly on pricingand target market.
  • SummaryInternal analysis:Target develops its resources and capabilities, primarilyfocusing on its brand name and collaborations, as well asinnovative technology to control store management that gaveit competitive advantagesKmart had poor performance according to the VRIO analysis.The company did not respond or defend itself from otherthreats and lost the advantages that it had. This is a death sentence for Kmart in the long run if it will notchange its strategy.