Within the strategic management framework, an organization must define and continue to improve its generic, business-level strategy. A generic, business-level strategy is also called its generic competitive strategy, because it defines how a firm competes head-to-head against similar products and services in the marketplace. According to Michael Porter, a firm may pursue one of five generic/competitive business-level strategies. These are broad cost leadership, broad differentiation, focused cost leadership, focused differentiation, and best cost strategies. An important point of distinction is that business level strategies are viewed from the perspective of which consumer(s) are being targeted. It may be tempting to view business-level strategies in terms of the product lines, but the key point is to evaluate the business-level based on to whom the strategy appeals. In this way, a firm can target a broad audience with a single or a few products.
There are two primary decisions in a generic business strategy. Will the intent of the strategy be on a broad or focused target audience, and simultaneously, does the firm organize around a cost or differentiation approach? If selecting a broad cost leadership or broad differentiation strategy, the target market for the product or service is broad, meaning most people who buy within that industry. If the strategy is focused, that target market is narrow, a niche market, and not meant for most people in the industry. A strategy of broad cost leadership offers the lowest price in the market for that product or service. It appeals particularly to price sensitive customers. Firms pursuing a broad differentiation strategy offer something unique that differentiates their product or service from others. Typically this uniqueness adds cost and value to the product or service, allowing the company to charge more. If the strategy is focused cost leadership, then the firm attempts to provide the lowest cost to a narrow, niche target market. Focused differentiation provides unique or differentiated products or services to a narrow, niche target market. The fifth generic business-level strategy is called best cost, where the firm attempts to offer a hybrid of both lower cost and differentiated products or services, combining the two basic strategies. A firm pursuing this strategy must be careful to perform both strategies well, or risk not performing either well, and therefore becoming “stuck in the middle,” and losing customers to the competition.
Once a firm establishes its overall generic business-level strategy, the strategic management process helps the firm to continuously improve upon that strategy. The organizational performance, external, and internal assessments, and the development of the strategic issue(s) through the SWOT analysis are then used to plot strategies for the firm to achieve its vision through its business-level strategy.
The Competition Takes Aim at Target
On January 13, 2011, Target Corporation announced its intentions to operate stores outside the United States for the first time. The plan called for Target to enter Canada by purchasing existing leases from a Canadian retailer and then opening 100 to 150 stores in 2013 and 2014 (Target, 2011). The chain already included more than 1,700 stores in forty-nine states. Given the close physical and cultural ties between the United States and Canada, entering the Canadian market seemed to be a logical move for Target.
In addition to making its initial move beyond the United States, Target had several other sources of pride. The company claimed that 96% of American consumers recognized its signature logo, surpassing the percentages enjoyed by famous brands such as Apple and Nike. In 2020, Fortune magazine ranked Target twenty-second on its list of the “World’s Most Admired Companies.” But not all had been well with Target (Fortune, 2020). They pulled out of Canada in 2015 after just two years and $2 billion in losses. Concern also surrounded Target’s possible vulnerability to competition within the retail industry (Peterson, 2015). Since its creation in the early 1960s, Target executives had carved out a lucrative position for the firm. Target offers relatively low prices on brand name consumer staples such as cleaning supplies and paper products, but it also offers chic clothing and household goods. This unique combination helps Target to appeal to fairly affluent customers. Perhaps the most tangible reflection of Target’s upscale position among large retailers is the tendency of some customers to jokingly pronounce its name as if it were a French boutique: “Tar-zhay.”
Target’s lucrative position was far from guaranteed, however. Indeed, a variety of competitors seemed to be taking aim at Target. Retail chains such as Kohl’s and Old Navy offered fashionable clothing at prices similar to Target’s. Discounters like T.J. Maxx, Marshalls, and Ross offered designer clothing and chic household goods for prices that often were lower than Target’s. Closeout stores such as Big Lots offered a limited selection of electronics, apparel, and household goods but at deeply discounted prices. All these stores threatened to steal business from Target.
Walmart was perhaps Target’s most worrisome competitor. After some struggles in the 2000s, the mammoth retailer’s performance was strong enough that it ranked consistently above Target on Fortune’s list of the “World’s Most Admired Companies” (eighteenth vs. twenty-second in 2020). Walmart also was much bigger than Target. The resulting economies of scale meant that Walmart could undercut Target’s prices anytime it desired. Just such a scenario had unfolded before. A few years ago, Walmart’s victory in a price war over Kmart led the latter into bankruptcy.
One important difference between Kmart and Target is that Target is viewed by consumers as offering relatively high-quality goods. But this difference might not protect Target. Although Walmart’s products tended to lack the chic appeal of Target’s, Walmart had begun offering better products during the recession of the late 2000s in an effort to expand its customer base. If Walmart executives chose to match Target’s quality while charging lower prices, Target could find itself without a unique appeal for customers. As 2020 continued, a big question loomed: could Target maintain its unique appeal to customers or would the competitive arrows launched by Walmart and others force Target’s executives to quiver?
Fortune Magazine. (2020). World’s most admired companies. https://fortune.com/worlds-most-admired-companies/2020/search/?ordering=asc.
Peterson, H. (2015, January 15). 5 reasons Target failed in Canada. Business Insider. https://www.businessinsider.com/why-target-canada-failed-2015-1.
Target fact card. (2007, January). https://web.archive.org/web/20071128161431/http://sites.target.com/images/corporate/about/pdfs/corp_factcard_101107.pdf.
Target. (2011, January 13). Target Corporation to acquire interest in Canadian real estate from Zellers Inc., a subsidiary of Hudson’s Bay Company, for $1.825 billion [Press release]. https://investors.target.com/news-releases/news-release-details/target-corporation-acquire-interest-canadian-real-estate-zellers.
Figure 6.1: Lovable98158. “A picture of the grocery section of a local Target.” CC BY-SA 4.0. Retrieved from https://commons.wikimedia.org/wiki/File:Target_Store.jpg . Image edited to crop ceiling out.