Target is Wal-Mart’s closest competitor in the U.S. (Troy, 2011)and it is no easy challenge to go against the largest retailer in the world, especially when it has firmly established itself as a cost leader. Target has employed a mix of product differentiation and cost leadership strategy though the focus is greater on product differentiation. Target does emphasize its low prices but the company promotes itself as more upscale than Wal-Mart. Target’s selections are seen as more stylish and the company has a history of partnering with designers such as its five year partnership with Isaac Mizrahi to introduce exclusive product lines (Target Corporation, 2008). Since Target doesn’t emphasize low prices as much as Wal-Mart, it allows the company to carry some niche and little pricier brands as well. The company also pays attention to the interior atmosphere of its stores which feel more modern than Wal-Mart. Thus, Target puts a great emphasis on product selections and shopping experience to differentiate itself from Wal-Mart and other competitors. Wal-Mart recognized the fact that Target’s stores are perceived as cleaner and better organized by going for extensive remodeling of its own stores few years back (Linn, 2007).
As far as segmentation strategies are concerned, Target goes for demographic segmentation on the basis of education, gender, and income levels. Unlike Wal-Mart which targets the low income groups, Target aims at middle income groups many of whom are college educated. According to Target, the median age of its customer is 46, median household income is $55,000, and eighty to ninety percent of Target customers are females (Target Corporation). Target seems to have succeeded in its segmentation strategy because the company has developed an image of being hip, fun, and chic in the minds of the customers who perceive Wal-Mart as a place for frugal shopper. This probably explains why Target’s customer base is primarily women who are drawn to Target’s extensive selection of trendy clothing, household, and decorative products.
Even though Target has been doing well but it can take certain steps to further strengthen its competitive position. Even though Target is known more for its product offerings rather than low prices, it’s prices are quite competitive as compared to Wal-Mart. A recent study by retail consulting firm Custom Growth Partners found out that Target’s prices are almost in line with Wal-Mart and even lower in some instances. Thus, Target should promote the low prices more so that more customers become aware of the value aspect of shopping at Target. The low prices are powerful marketing tools in tough economic times. In addition, Target donates five percent of its annual income to the communities in which it does business (Target Corporation). Target’s competitor Wal-Mart has been struggling with social image for some time thus, Target’s promotion of its social programs will give it even more goodwill as compared to Wal-Mart. Target already enjoys a better reputation than Wal-Mart when it comes to employees’ compensation. This goodwill will also reduce opposition to Target when expanding into new domestic markets unlike Wal-Mart whose expansion is often met with resistance.
Target should also target lower income groups as well as men. Marketing to men, especially by clothing and cosmetics brands has increased by a huge proportion in the last two decades. Similarly, U.S. consumers feel lower job security now than in the past which means they would become even more value conscious while still demanding quality. Target is in a great position to meet the expectations of both high quality and low prices because it already does so. Thus, Target would benefit by targeting more demographic segments and may also succeed in taking away market shares from companies like J.C. Penney and Kohl’s etc.