China is an emerging force in the modern business world and its domestic market has a huge growth opportunity for international companies. In 2007, the country was ranked the sixth largest economy in the universe with a GDP of about $ 3241 dollars and a yearly rate of growth of about 9.8%. Economic studies have also revealed that China’s growth of real disposable income at a yearly rate of 11% has led to briskly growing of middle class. Having realized the potential opportunities presented by the Chinese economy, Target Retailers has decided to participate in the Chinese market. The company is a US-based retailer, which aims at expanding in other countries. Target has to advance rapidly in its internationalization strategy in order to gain foothold in developing countries, such as China. Against such backdrop, current report focuses on the Chinese industry and shows how Target can influence the Chinese retail industry.
To expand the Target market into the Chinese consumer market.
The competitive analysis for the Chinese retail market can be accomplished using Porter’s five forces: threats of new entrants, threat of substitute services or products, bargaining power of suppliers, bargaining power of buyers and rivalry among the existing companies.
The threat of new entrants into the Chinese market is moderately high due to relatively high cost of entry caused by the need to establish new channels of distribution. In addition, the Communist Party has strict laws that scare entrants. According to Dowling, Davydov, Melnicoff, Querol, & Rotsch (2010), entrants into the Chinese market might experience price retaliation or bad publicity by the competitors. The threat of substitutes is very high because every product sold by Target, except food, can be substituted ultimately. Another threat of substitution emerges from the fact that retailing can be replaced by the Internet shopping, which might consequently eliminate Target from the market (Dowling, Davydov, Melnicoff, Querol, & Rotsch, 2010). The tradition Chinese stores offering human contact can also substitute hypermarkets. The bargaining power of suppliers in the Chinese retail market is comparatively low. It is hard to locate suppliers confirming to global standards, which gives the existing suppliers a short-term bargaining advantage. The bargaining power of buyers is extremely high towards small suppliers, such as small farmers. The costs of switching from one supplier to another are moderate and are declining with increasing experience in the market. The fact that the company is also new to the Chinese implies that buyers will have more bargaining power. Nevertheless, the threat of rivalry among the existing competitors is extremely high. According to Dowling, Davydov, Melnicoff, Querol, & Rotsch, (2010), Chinese domestic retailers, such as Huarun, have a competitive advantage over other multinationals due to government protection. However, other multinationals, such as Tesco, Wal-Mart and Carrefour, have entered the market strengthening the competition. According to Armstrong & Cunningham (2012), the domestic competitors are also very quick at imitating working strategies and using them in their favor.
Chinese retail market can be segmented into various consumer categories using various variables. The four segmentation strategies that can be used in the context of China include geographic segmentation, demographic segmentation, behavioral segmentation and psychographic segmentation (Castronovo & Huang, 2012). However, marketers can combine the various strategies. Geographically, the Chinese market can be segmented in terms of provinces: Guangdong, Hainan, Zhejian, Yunnan, Sichuan, Shandong, Fujian, Henan, Hebei, Hunan and Gansu among others. Geographically, Target Retailers should target the poorer western provinces, such as Tibet, Gansu and Xinjiang, since such regions are destined to be primary contributors to the future economic growth of China. Demographic segmentation uses age, gender, level of education and occupation as segmentation variables. Demographically, Target will focus on consumers aged between 18 and 50 year, regardless of their occupation, gender or level of education, which are the majority of China’s population (Dowling, Davydov, Melnicoff, Querol, & Rotsch, 2010). Demographic segmentation perceives that different consumers purchase commodities differently based on their stage in the life cycle. The demographic strategy will ensure that the company targets the largest market possible in China. Behavioral segmentation is divided into categories based on the attitude, knowledge and rate of the product usage. Target will not use the behavioral segmentation strategy. Psychographic segmentation divides the consumer market according to their lifestyles. The age group targeted by Target Retailers exhibits wide-ranging lifestyles. Using the 18-50 years age bracket, Target will be capable of cutting across the Chinese market both demographically and psychographically, resulting in sustainable profits in the long run (Castronovo & Huang, 2012).
SWOT analysis refers to a structured method of planning utilized in the assessment of strengths, weaknesses, opportunities and threats involved in a business venture. Target has several strengths that will facilitate its entry into the Chinese market. The first strength of the company is high quality products offered at low price (Target Corporation, 2013). The Chinese are price sensitive and may be influenced by such fact. Target also boasts of effective corporate management that is capable of fully optimizing its resources, including human capital and technology, in order to maximize profits. The wide variety of commodities offered by Target Corporation will ensure that the company meets various needs of its consumer, which will, in turn, improve profitability.
The first weakness faced by Target upon entering the Chinese market is the absence of strong sales. As a new company in the region, it will suffer from the absence of strong sales. The focus on product quality will make the Target’s products more expensive than competitors, which might scare away the price-sensitive Chinese consumers.
The first opportunity is retail market growth in China. According to Target Corporation (2013), the Chinese retail market grew by about 5% in the few recent years. It is anticipated to increase in the near future, as China tries to defend its economic position globally. The second opportunity is the high purchasing power among Chinese consumers. China’s growth of real disposable income at an annual rate of 11% has led to briskly bulging of middle class, which is a significant opportunity for Target (Dowling, Davydov, Melnicoff, Querol, & Rotsch, 2010). The emergence of new technologies, such as e-commerce is an excellent opportunity for Target, which can be used in reducing operational costs and targeting 18-50 year age bracket.
Target Corporation also faces the threat of competition upon entering the Chinese market. The various sources of competition include Alibaba, Jingdong and Huarun (Armstrong & Cunningham, 2012). Being a new player in the market implies that Target will spend much time to establish brand recognition among Chinese consumers. The last threat is the increasing cost of establishing a business in China, which might raise operational profits and decrease the profits.
There are various entry modes that Target can use in seizing the opportunities in the Chinese economy. However, most companies face difficulties in entering the Chinese market due to the stringent legal requirements. The government advocates for the protection of its local industries. Consequently, subsidiary entry mode might face significant hurdles compared to franchises (Castronovo & Huang, 2012). The fact that nationals of parent country manage subsidiaries in foreign countries might pose more challenges in entering the Chinese market. On the other hand, franchises can be comparatively an easy entry mode. In fact, multinationals, such as McDonald’s have used franchising as their entry mode into the Chinese market. Franchising refers to a business association in which the franchisor (Target Corporation) assigns to independent people (Chinese franchisees) the right to market and distribute its products or services and to use its business name. The franchisees pay royalties to the franchisor. Unlike subsidiaries, parent country nationals (PCNs) do not manage franchises. As a result, Target Corporation might face few rules (Target Corporation, 2013).
Target Corporations Marketing Mix (4Ps)
Marketing mix refers to a tool utilized in marketing. The tool is critical in the determination of product, rice, promotion and place (4Ps). With regard to products, Target offers a wide range of products, including women’s, men’s and children’s fashion and accessories, baby equipment, furniture, electronics, toys, luggage, outdoor sports and fitness, patio and gifts, lawn care products, entertainment products, health and beauty aids and automotive accessories among others. The company also offers various services: Target Photo, optical services, portrait studio, health clinics and food avenue restaurants. According to Armstrong & Cunningham (2012), the company’s product mix comprises of majority of the own private label brands.
In relation to price mix, Target offers discount prices for its high quality services and products. It is important to note that the company needs to know the prices of its competitors to assist in its own pricing strategy (Dowling, Davydov, Melnicoff, Querol, & Rotsch, 2010).
In relation to distribution mix, the company transports its items by trucks from warehouses to the stores. Target.com items are shipped directly to the consumers from the Target.com distribution center or directly from the vendor through Fed Ex. According to Dowling, Davydov, Melnicoff, Querol, & Rotsch (2010), the company sells its products to consumers through Target stores or its online store.
With regard to promotion mix, Target carries out intense advertising. For instance, the company spends approximately $ 1170 million in advertising (Dowling, Davydov, Melnicoff, Querol, & Rotsch, 2010). Its advertising comprises of mainly television commercials and newspaper circulars. The company delivers about $ 50 million Target circulars to households in the United States only. The company also advertises weekly on the Internet. With the declining usage of newspapers, the company is investing in Google AdWords to market itself (Dowling, Davydov, Melnicoff, Querol, & Rotsch, 2010).
Target Integrated Marketing Communications (IMC)
Target integrated marketing communication is the company approach of attaining the objectives of the marketing campaign, via a well-coordinated utilization of various promotional methods, which are aimed at reinforcing each other. The various ways that Target Corporation will use as its integrated marketing communication include organizational culture, advertising, e-commerce, direct marketing, customer service and sales, promotions and corporate philanthropy.
- Establish the research team to investigate the Chinese market in order to recognize the consumption habits in the Chinese retail industry.
- Learn the experiences of key players in the Chinese retail industry.
- To explore the opportunities and blank areas in the Chinese retail market that can be filled by Target.
- Coordinate with the Chinese domestic companies, such as Huarun.
Targeting individuals aged 18-50 years through social media, broadcasts and magazine will enable the company to promote its brand to the Chinese consumers. Majority of consumers in this group rely on social media and social magazines for making consumption decisions and sharing opinions among friends. It is the reason why social media will be used in targeting them. The creation of magazines will focus on specific culture and lifestyle relating to the Chinese. Advertisements in every medium will be designed to depict Target as one stop shopping retailer, where consumers can find various products.
Baidu will also be used in advertising during the initial launch of the company in China for a period of eight months. Baidu is the Chinese popular search engine. Such technique will assist in better identifying how the Target consumer category locates the company in the Internet and how they search for products (Dowling, Davydov, Melnicoff, Querol, & Rotsch, 2010). Since most of the people in the targeted age group depend on social media and opinion-sharing concerning products, placing advertisements on such platforms will be beneficial in reaching a large number of Target consumers. Social media accounts, such as 51.com and Renren, will also be opened if necessary in order to direct visitors to the company’s website. Unlike other countries, social media platforms, such as Renren and 51.com, are not popular in China. Renren and 51.com are among the most popular social networks in China, and therefore they will be convenient.
Public Relations and Strategies
The objective of public relation is to create exposure through media impressions for Target and its website. Due to the mass media exposure, offline and online sales will increase the sales of Target Corporation. The primary audience of such strategy will be the entire Chinese retail consumer group. Chinese radio talk shows, lifestyle print publications, television and radio entertainment news will be the key Target media to be used in connection to public relations. All the channels of communication will link back to both the offline and online stores.
Direct Marketing and Sales Promotion
In conjunction with public relation strategy, Target will capitalize on its relationship with locals by creating consumer-oriented promotional offers. Promotions will be more intense during certain selected times of the year, such as during traditional holidays. During such times, the Chinese are likely to engage in constant shopping. Again, all media promotions will be directed to the company’s website.
Current section offers a financial forecast of the corporation in relation to its market activities. It highlights the estimated sales and expenditures that will be witnessed upon the implementation of entering the Chinese retail market.
China poses a potential opportunity for growth of Target Corporation. However, Target faces is moderately high threats of new entrants into the Chinese market due to fairly high cost of entry caused by the need of establishing new distribution channels. The company also faces an extremely high threat of rivalry among the existing competitors, such as Chinese domestic retailers, Tesco, and Wal-Mart. Domestic retailers have a competitive advantage over other multinationals due to government protection. Demographically, Target will concentrate on consumers aged from 18 to 50 years, regardless of their occupation, gender or level of education, which are the bulk of China’s population. Some of the Target’s strengths that might give it competitive improvement include the high quality products sold at low prices and outstanding corporate management. As a new brand in the region, Target is likely to suffer from the absence of strong sales. With regard to the entry strategy, it is preferable that Target pursues the franchising strategy due to the stringent government regulations. The three main marketing strategies identified in the IMC that will enable penetration into the Chinese market included media, public relations and direct marketing.