When we think of Target, we usually visualize a middle market company that executes a low cost, high volume product strategy. To be sure, the chain does maintain a stylistically distinctive brand image, but it offers a very basic value proposition: to provide a modestly comfortable shopping experience while maintaining low sales prices.
Recently, though, Target announced a pair of highly unusual business initiatives that will dramatically differentiate it from the competition. First, it announced that it is collaborating with a major consumer electronics firm to form a joint venture; then, it reached out to its suppliers in an aggressive attempt to respond to a challenge from Amazon.
It remains to be seen, of course, which approach will prove to be the more effective one. Interestingly, though, each of Target’s initiatives appears to be based on a different assumption about its primary core competency.
The War On Showrooming
Last week, Target reached out to its suppliers and asked for help in combating the practice of showrooming. It’s an activity that has blossomed with the emergence of internet-based shopping; it refers to consumers who “scope out” products in a bricks-and-mortar store and then use the internet to purchase them from discount web sites like Amazon.
Because web-based retailers do not incur the costs of maintaining store networks, they can undercut the sales prices of chains like Target. And in many states, web-based retailers can avoid collecting sales taxes from customers as well.
Frustrated by the practice of showrooming, Target’s executives asked their suppliers to consider designing special edition products that would be exclusively sold through their stores. The executives also implied that they would welcome discount pricing arrangements with their suppliers, and would (presumably) pass along the lower costs to their customers.
By making such requests, Target’s executives signaled that they intend to continue battling Amazon and other online retailers. At the same time, though, Target is also taking a drastically different approach to managing the competition.
If You Can’t Beat ‘Em, Join ‘Em
Two weeks ago, Target and Apple jointly announced an innovative new venture. Apparently, Apple will soon begin to utilize Target’s floor space to create “store within a store” boutiques for its products and services.
Apple boutiques within Target stores? That might become a very uncomfortable arrangement! After all, the two firms compete directly with each other to sell computers, mobile phones, and other electronics merchandise.
Furthermore, with Apple dramatically expanding its own global retail store network, the two firms are probably heading for more intense competition in the future. And yet Target has decided to turn over a significant amount of its floor space to the world’s most admired company.
The Core Competency
How can we make sense of this dramatic divergence in competitive strategies? One approach, perhaps, is to understand the two different perspectives by which Target may be defining its primary core competency.
If a retailer focuses its efforts on the creation of an attractive shopping environment, then it wouldn’t necessarily be alarmed by the prospect of more intense product competition. Starbucks, for instance, comfortably sold Top Pot doughnuts in its stores for many years because it has always defined its primary competency as the creation of a social “third place” between home and work. It has never simply defined itself as a vendor of coffee and doughnuts.
On the other hand, if a retailer focuses on the maximization of sales volume, then it would always be concerned about more intense product competition. Automobile companies, for instance, often prohibit their dealers from affiliating with rival manufacturers because they define their primary core competencies as “selling cars” and not “creating an attractive environment for automobile buyers.”
If we apply these concepts to Target, it’s easy to categorize the retailer as a sales focused organization in order to understand their Amazon initiative. But is it reasonable to simultaneously define them as a “social environment” organization in order to understand their Apple initiative?
Welcome To Magnolia!
You may be struggling to envision an Apple boutique within a Target store, one that provides a typical Apple store environment to its customers. But other low cost, high volume retailers are successfully executing this strategy; Best Buy, for instance, has been hosting hundreds of similar Apple boutiques for several years.
In addition, Best Buy has been partnering with Magnolia Design Centers to host hundreds of high end electronics boutiques within their stores. The partnership continues to be a successful one; it may well have served as a model for Best Buy’s (and now Target’s) expanding joint venture with Apple.
In other words, although many may believe that Target would be better served by focusing on a single core competency of low cost, high volume sales, Best Buy has actually been doing so and simultaneously pursuing a successful boutique business strategy for several years. Apparently, Target shoppers will soon learn whether the retailer can manage to focus on two core competencies at once.