aPart
1
Part 1 should be
no more than 5 pages in length. Please DO NOT double space
________________________________________________________________
Read
the case “Target: From ‘Expect More’ to ‘Pay Less’” and answer the question
that follow.
When
you hear the term discount retail, two names usually come to mind: Walmart and
Target. The two have been compared so much that the press rarely covers one
without at least mentioning the other. The reasons for the comparison are
fairly obvious. These corporations are two of the largest discount retailers in
the United States.
Category for category, they offer very similar merchandise. They tend to major
boulevards.
But
even with such strong similarities, ask consumers if there’s a difference
between the two and they won’t even hesitate. Walmart is all about low prices;
Target is about style and fashion. The “cheap chic” label applied to Target by
consumers and the media over the years perfectly captures the longstanding
company positioning: “Expect More. Pay Less.” With its numerous designer
product lines, Target has been so successful with its brand positioning that
for a number of years it has slowly chipped away at Walmart’s massive market
share. Granted, the difference in the scale for the two companies has always
been huge. Walmart’s most recent annual revenues of US$408 billion are more
than six times those of Target. But for many years, Target’s business grew at a
much faster pace than Walmart’s.
In
fact, as Walmart’s same-store sales began to lag in the mid-2000s, the world’s
largest retailer unabashedly attempted to become more like Target. It spruced
up its store environment, added more fashionable clothing and housewares, and
stocked organic and gourmet products in its grocery aisles. Walmart even
experimented with luxury brands. After 19 years of promoting the slogan “Always
Low Prices. Always.” Walmart replaced it with the very Target-esque tagline
“Save Money. Live Better.” None of those efforts seemed to speed up Walmart’s
revenue growth or slow down Target’s.
But
oh what a difference a year or two can make. As the global recession began to
tighten its grip on the world’s retailers in 2008, the dynamics between the two
retail giants reversed almost overnight. As unemployment rose and consumers
began pinching their pennies, Walmart’s familiar price “rollbacks” resonated
with consumers, while Target’s image of slightly better stuff for slightly
higher prices did not. Target’s well-cultivated “upscale discount” image was
turning away customers who believed that its fashionable products and trendy
advertising meant steeper prices. By mid-2008, Target had experienced three
straight quarters of flat same-store sales growth and a slight dip in store
traffic. At the same time, Walmart was defying the economic slowdown, posting
quarterly increases in same-store sales of close to 5 percent along with
substantial jumps in profits.
Same Slogan, Different Emphasis
In
Fall 2008, Target acknowledged the slide and announced its intentions to do
something about it. Target CEO Gregg Steinhafel succinctly summarized the
company’s new strategy: “The customer is very cash strapped right now. And in
some ways, our greatest strength has become somewhat of a challenge. So, we’re
still trying to define and find the right balance between ‘Expect More. Pay
Less.’ The current environment means that the focus is squarely on the ‘Pay
Less’ side of it.”
In
outlining Target’s new strategy, company executives made it clear that Walmart
was the new focus. Target would make certain that its prices were in line with
Walmart’s. Future promotions would communicate the “pay less” message to
consumers, while also highlighting the fact that Target is every bit the convenient
one-stop shopping destination that its larger rival is.
The
new communications program included massive changes to in-store signage.
Instead of in-store images and messages highlighting trendy fashion, store
visitors were greeted with large signs boasting price points and value
messages. Similarly, weekly newspaper circulars featured strong value
headlines, fewer products, and clearly labelled price points. In fact, Target’s
ads began looking very much like those of Walmart or even Kmart. Further
recognizing the consumer trend toward thriftiness, Target increased the
emphasis on its own store brands of food and home goods.
While
making the shift toward “Pay Less,” Target was careful to reassure customers
that it would not compromise the “Expect More” part of its brand. Target has
always been known for having more designer partnerships than any other
retailer. From the Michael Graves line of housewares to Isaac Mizrahi’s
clothing line, Target boasts more than a dozen product lines created exclusively
for Target by famous designers. Kathryn Tesija, Target’s executive
vice-president of merchandising, assured customers that Target would not only
continue those relationships but also add several new designer partnerships in
the apparel and beauty categories.
Mounting Pressure
Although
Steinhafel’s “Pay Less” strategy was aggressive, Target’s financials were slow
to respond. In fact, things initially got worse with sales at one point
dropping by 10 percent from the previous year. Target’s profits suffered even
more. It didn’t help matters that Walmart bucked the recessionary retail trend
by posting revenue increases. When confronted with this fact, Steinhafel
responded that consumers held perceptions that Target’s value proposition was
not as strong as that of its biggest rival. He urged investors to be patient,
that the company’s value message would take time to resonate with consumers.
Given that Walmart had a decades-long lead in building its cost structure as a
formative competitive advantage, Steinhafel couldn’t stress that point enough.
While
Target continued to struggle with this turnaround challenge, it received a new
threat in the form of one of its largest investors. Activist shareholder
William Ackman, whose company had invested $2 billion in Target only to lose 85
percent of it, was holding the retailer’s feet to the fire. Ackman openly
chided Target for failing to deal effectively with the economic downturn. He
charged that Target’s board of directors lacked needed experience and sought to
take control of five of the board’s seats. “Target is not Gucci,” he said in a
letter to investors. “It should be a business that does well, even in tough
economic times.”
Making
the changes that Ackman and others were calling for was exactly what Steinhafel
was trying to do. Steinhafel refused to give up on his strategy. Instead, he
intensified Target’s “Pay Less” emphasis. In addition to aggressive newspaper
advertising, Target unveiled a new set of television spots. Each ad played to a
catchy tune with a reassuring voice singing, “This is a brand new day. And it’s
getting better every single day.” Ads showed ordinary people consuming commonly
purchased retail products but with a unique twist.
In
one ad, a couple was shown drinking coffee in what appeared to be a fancy
coffee house with the caption, “The new coffee spot.” But the camera pulled
back to reveal that the couple was sitting in their own kitchen, with a coffee
pot on the stove. The caption confirmed: “Espresso maker, $24.99.” In another
segment of the ad headlined “The new salon trip,” a glamorous woman with
flowing red hair appeared to be in an upscale salon. The camera angle then
shifted to show her in her own modest bathroom, revealing a small bottle
sitting on the sink with the caption, “Hair colour, $8.49.” Every ad repeated
this same theme multiple times, with takes such as “The new car wash,” “The new
movie night,” and “The new gym.”
In
addition to the new promotional efforts, Target made two significant
operational changes. First, it began converting a corner of its department
stores into mini–grocery stores carrying a narrow selection of 90 percent of
the food categories found in full-size grocery stores, including fresh produce.
One shopper’s reaction was just what Target was hoping for. A Wisconsin
housewife and mother of two stopped by her local Target to buy deodorant and
laundry detergent before heading to the local grocery store. But as she worked
her way through the fresh-food aisles, she found everything on her list. “I’m
done,” she said, as she grabbed a 99-cent green pepper. “I just saved myself a
trip.”
While
the mini-grocery test stores showed promising results, groceries also
represented a low-margin expansion. Walmart was seeing most of its gains in
higher margin discretionary goods like bedding, traditionally Target’s
stronghold. But in a second operational change, Target surprised many analysts
by unveiling a new package for its main store brand . . . one without the
familiar Target bull’s eye! That is, the packages discard the bull’s eye,
replacing it with big, colourful, upward-pointing arrows on a white background,
with the new brand name, “up & up.”
Continuing
to address the trend of higher store brand sales, Tesija stated, “We believe
that it will stand out on the shelf, and it is so distinctive that we’ll get
new guests that will want to try it that maybe didn’t even notice the Target
brand before.” Up & up products are priced about 30 percent lower than
comparable name brand products. Target began promoting the store brand in its
circulars and planned to expand the total number of products under the label
from 730 to 800. While initial results showed an increase in store brand sales
for products with the new design, it is unclear just how many of those sales
came at the expense of name brand products.
Signs of Life
Target’s
journey over the past few years demonstrates that changing the direction of a
large corporation is like trying to reverse a moving freight train. Things have
to slow down before they can go the other way. But after 18 months of
104105aggressive change, it appears that consumers may have finally received
the message. During the first half of 2010, sales rose by as much as 5 percent
with profits up a whopping 54 percent. Both spending per visit and the number of
store visits increased. All of this could be attributed to the fact that the
effects of the recession were starting to loosen up and consumer confidence was
stabilizing. But in a sign that Target’s efforts were truly paying off,
Walmart’s sales growth was slowing during this same period and even showing
signs of decline. Customer perceptions of Target’s value were indeed on the
rise.
Steinhafel
made it very clear that the new signs of life at Target were being met with
cautious optimism. “Clearly the economy and consumer sentiment have improved
since their weakest point in 2009,” said the Target CEO. “But we believe that
both are still somewhat unstable and fragile and will likely continue to
experience occasional setbacks as the year progresses.” Steinhafel’s comments
reflected an understanding that even as the economy showed signs of recovery,
research indicated that consumers everywhere were adopting a new-found sense of
frugality and monetary responsibility.
Target’s
“Pay Less” strategy has continued forward without wavering. Pricing seems to
have found the sweet spot as Steinhafel announced that few adjustments are
needed. Ads continue to emphasize low prices on everyday items. And the
expansion of groceries and store brands has continued. In fact, for 2010,
Target planned just 10 store openings, the lowest in its history. “It will be a
long time before we approach the development pace of several years ago,” said
Doug Scovanner, Target’s chief financial officer. Instead, Target is putting
its money into remodelling existing stores to better accommodate the shifts in
inventory.
Some
Wall Street analysts have expressed concern that Target’s recent value strategy
may weaken the brand as customers lose sight of the distinctive features that
set it apart from Walmart. But the words of one shopper are a good indication
that Target may still be retaining the “Expect More” part of its image, despite
having emphasized “Pay Less.” “Target is a nice place to go. Walmart may have
good prices, but I would rather tell my friends that I came back from shopping
at Target.”
Question
1 (20 marks)
Identify four factors in the microenvironment that haveaffected
Target’s performanceoverthe
past few years.
Question
2 (10 marks)
Describe how economic and cultural factors
affected
Target’s marketing strategy during the economic
downturn.
Question
3 (10 marks)
According to its chief financial officer, Target primarily allocates
its money to remodelling existing stores to better accommodate the shifts in
inventory. Under such a circumstance, which growth strategies in the
product/market expansion grid best describe Target’s strategy?
Question 4 (20 marks)
Name Michael Porter’s four basic competitive positioning strategies.
Which one of these best explains Target’s original positioning of “better stuff
for slightly higher prices” in the context of global recession? Explain.
Question 5 (20 marks)
Define both competitor-centred
and customer-centred. Is Target a
competitor-centred and/or a customer-centred company? Explain your response
using facts from the case.
Question
6 (20 marks)
Which one of the five winning value propositions
1. More for More
2. More for the Same
3. The Same for Less
4. Less for Much Less
5. More for Less
best describes Target’s new emphasis on “Payless” while keeping the existing tagline,
“Expect more. Pay less”? How does this new value proposition differ from the
one used before the economic downturn? Explain.
Part 2
Part 2 should be
no more than 5 pages in length. Please DO NOT double space
________________________________________________________
Read the case “Pepsi: Can
a Soda Really Make the World a Better
Place?” and
answer the questions that follow.
In 2010, PepsiCo did something that shocked the
advertising world. After 23 straight years of running ads for its flagship
brand during the Super Bowl, it announced that the number-two soft drink maker
would be absent from the Big Game. But in the weeks leading up to Super Bowl
XLIV, Pepsi was still the second-most discussed advertiser associated with the
event. It wasn’t so much what Pepsi wasn’t doing that created such a stir as
much as what it was doing.
Rather than continuing with the same old messages of
the past, focusing on the youthful nature of the Pepsi Generation, and using
the same old mass-media channels, Pepsi took a major gamble by breaking new
ground with its advertising program. Its 2010 campaign, called Pepsi Refresh,
represented a major departure from its old promotion efforts in two ways: (1)
The message centred on a theme of social responsibility, and (2) the message
was being delivered with a fat dose of social media.
At the centre of the campaign was the Pepsi Refresh
Project. PepsiCo committed to award US$20 million in grants ranging from
US$5000 to US$250 000 to organizations and individuals with ideas that would
make the world a better place. Therefresheverything.com website greeted visitors with the headline, “What do
you care about?” PepsiCo accepted up to 1000 proposals each month in each of
six different areas: health, arts and culture, food and shelter, the planet,
neighbourhoods, and education. Then crowd-sourcing took over, as consumers
voted for their favourites. Pepsi awarded the grants each month. One-third of the
way through its one-year run, the company had funded more than 100 projects,
giving approximately US$5 million back to local communities. At that time, the
company stated that the project was on target to award the full US$20 million
by the end of the year-long effort.
Integrating Digital Throughout the Promotional Mix
The Pepsi Refresh campaign was a groundbreaking
effort, in part because of its heavy use of social media. PepsiCo capitalized
on a growing trend in a way that no other major brand has done so far. The
company was quick to point out that Pepsi Refresh was not a social media add-on
like most others, where an ad simply directs people to a website for reasons
that may or may not be relevant to the message. Nor was it a social media
campaign as such, where the entire campaign takes place through social media.
Rather, social media were the glue that held together a truly integrated
marketing communications effort. “It’s not about digital as its own channel
anymore,” said Bonin Bough, director of digital and social media for PepsiCo.
“It’s how do we infuse digital across all of our marketing programs?”
For starters, although PepsiCo bypassed the Super
Bowl, it did not ditch broadcast media. To the contrary, Pepsi ran spot ads on
the main networks as well as on 30 different cable channels. The ads initially
informed people about the Pepsi Refresh campaign, directing them to therefresheverything.com website. But shortly after the first grants were
awarded, ads began highlighting projects that had been funded. Traditional
media efforts extended to 10 print publications as well. And PR played a role
through agreements such as the one with NBC Universal for paid pitches on the Today
show.
But this campaign underscored a shift in how PepsiCo
is spending its advertising dollars. According to CEO Indra Nooyi, the world’s
number-two soft drink seller is shifting as much as one-third of its marketing
budget to interactive and social media. This move involves not only the Pepsi
brand but also Mountain Dew, Doritos, SoBe, and PepsiCo’s other brands.
Certainly, PepsiCo is not alone in the trend toward digital and social media
marketing. But analysts point out that its approach, moving away from
high-profile spots in favour of heavy spending on a digitally focused social
responsibility campaign, is both compelling and risky. “I applaud Pepsi for
embracing social media and technology,” said Marc Lucas, an advertising
executive. “On the flip side, I think it’s very bold to not be in a place where
you know you’re going to have an audience.”
Therefresheverything.com website was just one component of the brand’s online
efforts. PepsiCo spread the message through the big social networks, such as
Facebook and Twitter, and even partnered with them for advertising
opportunities. For example, Pepsi Refresh held the lead ad position on Facebook
during the Super Bowl. Pepsi also partnered with Hulu to sponsor its first
original series, the reality show If I Can Dream. “It amplifies an
advertising 495496campaign by making it something people talk about, more of a
social conversation,” said Jean-Paul Colaco, senior vice-president for
advertising at Hulu. PepsiCo even partnered with Spin magazine, music
festival South by Southwest, and two indie bands in a web-based contest in
which music lovers could vote for their favourite. Metric beat out Broken
Social Scene for a US$100 000 grant that it gave to the Women’s Funding
Network.
As another component of the integrated campaign, the
company did not shy away from using celebrity endorsers. Through clever network
spot ads that placed celebrities inside a life-sized, three-dimensional laptop
made of tagboard, Kevin Bacon appealed to people to vote for his cause,SixDegrees.org. He was quick to point out that the cause had nothing to do with the
cult trivia game Six Degrees of Kevin Bacon. Rather, he proposed using a US$250
000 grant to hand out “good cards” that people could use to donate to any of
more than a million different charities. Bacon went on to explain that the
power of SixDegrees comes from the social networks of good card recipients.
They buy more good cards and pass them on to others, and as social networking
works its magic, that US$250 000 grows into millions.
Among various other celebrities, Pepsi also recruited
Demi Moore; NFL players Mark Sanchez, DeMarcus Ware, and Drew Brees; and NASCAR
veterans Jeff Gordon, Dale Earnhardt Jr., and Jimmie Johnson to apply for
grants and act as spokespersons for the project. These celebrities vied for
votes to award grants to such organizations as the Girls Education and
Mentoring Service, the American Cancer Society, and the Brain Aneurysm
Foundation.
PepsiCo also got its message out to consumers at the
point of purchase. Cans, bottles, and multipacks featured updated graphics that
minimized an all lowercase Pepsi logo written vertically and highlighted a new
Pepsi brand mark: a large circle with swaths of red, white, and blue. That
symbol replaced any “o” in Pepsi’s packaging and promotional materials. Thus,
both “Do Some Good” and “Doing Good 101” each carried four of the new Pepsi
circles. To draw people into retailer outlets to see the point-of-purchase
(POP) materials and hopefully buy its soft drinks, Pepsi partnered with
Foursquare, the social network that connects people through GPS in real time.
Foursquare members were directed to Pepsi retailers and given offers as an
incentive for them to visit.
Doing Well by Doing Good
Despite the growth of cause-related marketing,
PepsiCo’s effort was perhaps the first example of a major brand making social
responsibility the main theme of its campaign, rather than an add-on. This does
not downplay the efforts of companies like Target, which has given US$273
million to local schools since 1997 through its RedCard program. But PepsiCo’s
effort was built around a theme that drives the concept of “doing good” as much
as it drives the brand. Coca-Cola’s response to Pepsi Refresh, donating $1 to
Boys and Girls Clubs of America each time a visitor to Coke’s Facebook page
shares a virtual Coke gift, illustrates how most advertiser’s cause-related
marketing efforts are peripheral to other advertising activities.
Nooyi brought the centrality of Pepsi’s socially
responsible message into perspective.
Answer the following questions
Top of Form
Bottom of Form
Top of Form
Bottom of Form
Question 1 (20 marks)
“We
want people to be aware that every time you drink a Pepsi you are actually supporting
the Pepsi Refresh Project and ideas that are going to move this country
forward.” Considering that the Pepsi Refresh Project is a critical element of
Pepsi’s marketing communication program, what type of criticism might individual
consumers of Pepsi have of such a statement? Explain.
Question 2 (20 marks)
What type of product
is Pepsi in the societal classification of products? Many people enjoy drinking
Pepsi but are concerned about its possible negative effects on their long-term
health. Use your knowledge of the soft drink industry to explain how PepsiCo
has tried to address this challenge.
Question 3 (20 marks)
What
are the two main types of communication objectives PepsiCo had for its Refresh campaign? Use
the relevant buyer-readiness stages to explain your response.
Question 4 (20 marks)
What is the main target audience of the Pepsi Refresh Project? Explain your response using two key elements
of this communication program.
Question 5 (10 marks)
ListallthepromotionalmixelementsusedinthePepsiRefreshcampaign
and give supportive examples.
Question 6 (10 marks)
The PepsiRefresh campaign has received mixed reviews in the
media. Do your own research and explain
why it should be considered to be either a success or a failure.
