ECO365 Current Market Conditions Paper
ECO365 Current Market Conditions Paper
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Date Created: 11/15/15
Current Market Conditions Paper 1 Current Market Conditions Paper Christine Thompson University of Phoenix ECO365 Current Market Conditions Paper 2 Market Structure The market structure that Target operates in is that of an oligopolistic market, meaning that the market is dominated by a few large suppliers, that being Wal-Mart, Target and Kmart. Firms that operate in this type of market will produce branded products that you see on the shelves next to the name brands. Strategic marketing and advertising is a critical feature of competition within the oligopolistic market. There is a significant amount of interdependence between these three firms, because each firm must presume the possible reactions of the other firms when making any pricing decisions or investment decisions like where and when to build a new store. This generates ambiguity in such markets; seeking economist’s to model the use through the game theory. Game theory is applied in circumstances in which decision makers must assume the reasoning of other decision makers. This theory is used when determining business mergers, conglomerates, the optimal pricing in which to sell products and services, establish the best site for stores, manufacturing and distribution sites. Wal-Mart, Target, and Kmart compete for market share and demand from consumers not only in price competition, which entails discounting the prices of various products in an order to increase demand; but also in non-price competition which focuses on strategies to expand on market share. Such strategies include marketing and advertising, in store pharmacies, free or reduced home delivery/shipping, longer store hours, and internet shopping. Impact of New Companies Entering the Market Current Market Conditions Paper 3 Target competes with nationwide and locally owned and operated department stores, discount stores, grocery stores, drug, and specialty stores. All of which offer comparable products, but there are sizeable entry barriers in an oligopolistic market, which in the long run has given Wal-Mart, Target, and Kmart substantial amounts of profits. Entry barriers are decreasing but with the merging of such companies as Sears Holding and Kmart, the competition is increasing. Other competition that Target and others need to consider is how international trading has became easier, companies like Tesco (a global grocery and general merchandise retailer and the third largest retailer in the world) have looked into expanding from the UK into the US. Recognizing that they needed to expand, Target announced that they purchased 105 Zeller stores and will now have operations in 10 providences within Canada. Prices Target is known for his bull’s-eye sign and its slogan, “Expect more. Pay Less” Unlike Wal-Mart, Target does not compromise on quality, that’s what sets them apart from the competition. Instead of concentrating on price, they strive to be different by offering unique products. Many top designers have signed on with Target, thus attracting a higher level of consumer. Target customers average an income of $50,000 a year, where Wal-Mart customers average about $35,000 a year. (Target FY 2011). Wal-Mart has found it extremely difficult to offer higher quality products or private labels with its focus on low prices since these items come at a higher price. With a customer base earning a higher income such factors as the increase in energy costs and low demand in the Current Market Conditions Paper 4 real estate market seem not too effect the Target customer base as much as it does the Wal-Mart customer base. A market research firm, Kantar Retail IQ, released a report comparing Target prices with Wal-Mart prices. They compared a basket of identical goods purchased at each store, finding that overall Target was cheaper by 2.8% (Barlow, 2011). Technology Wal-Mart is known for perfecting real time inventory processes with advanced software and hardware systems in place. Target followed right behind them pairing up with NTE, a leader in e-transportation systems in 2001. Target needed to keep up with overwhelming business growth and increasing market demands. Target had low visibility to shipments and an excessive amount of shipment moves, plus the staff was manually entering shipments into their vendor management system that would then feed into their transportation management system. As you can guess this was costly in all aspects. By investing into NTE’s technology they gained higher visibility of shipments, were able to monitor vendors and order goods in a timely fashion, and reduce labor and administrative expenses. With the high demand of relaxed, uncomplicated online shopping, Target creating target.com to accommodate the demand. They offer special internet pricing, free or reduced shipping, and free shipping from site to store to where the consumer to notified by email when their product is available for pick-up. Target has also redesigned its stores to use less energy, being more environmentally cautious. This concept appeases to the consumer’s, especially those that appreciate the chic new environmentally friendly era that has evolved. Current Market Conditions Paper 5 Productivity As mentioned above, the advances that Target made in its shipping procedures, allowed them to increase productivity and decrease labor expenses related to the old way of doing things. Inventory maintenance is much more structured allowing for less warehouse workers and maintenance increasing the marginal output. High visibility of shipments and better control of vendors has decreased downtime and many overhead expenses. Cost Structure Wages and Benefits Target employs about 355,000 full and part time employees, offering a wide range of benefits depending on eligibility, from medical, dental, 401k plan, paid vacation, tuition reimbursement, life insurance, and merchandise discounts. (Target, 2010) Payscale.com, an online salary database, released employer information which is based off of various responses from employees from a multiplicity of companies which included Target and Wal-Mart. The findings were quite surprising to me, since Target is a more upscale shopping experience; I assumed that they paid their employees better than their competitor, not the case. Here are their findings: (Dishman, 2011) 1. Greeter/Floor rep’s Target: $6.77 - $12.06 per hour Wal-Mart: $6.98 - $12.18 per hour 2. Cashier Target: $7.37 - $10.27 per hour Wal-Mart: $7.30 - $10.40 per hour 3. Retail Store Assistant Manager Current Market Conditions Paper 6 Target: $48,003 per year Wal-Mart: $42,134 per year 4. Retail Store Manager Target: $65,960 per year Wal-Mart: $60,326 per year 5. Retail Pharmacist Target: $114,492 per year Wal-Mart: $106,138 per year 6. Department Manager, Retail Store Target: $48,457 per year Wal-Mart $29,211 per year 7. Customer Service Sales Associate Target: $7.34 - $16.76 per hour Wal-Mart: $7.79 - $12.75 per hour 8. Laborer, Freight, Stock, Material Mover Target: $6.93 - $14.08 per hour Wal-Mart $7.35 – 14.90 per hour Fixed/variable Costs Target Corporation has had a steady increase in net earning the last few years. In 2010 they ended the year with $2,920 million compared to 2009 which was $2,488 million. Their variable costs obviously increased slightly due to the increase in revenues. Below is a comparative break-out of Target’s consolidated Statement of Operations. Current Market Conditions Paper 7 Cost of sales for Target is the total cost of products sold including freight, vendor income, inventory shrink, markdowns, cash discounts, distribution center costs, compensation and benefit costs, and occupancy and operating costs. (Target, 2011) Impact of Government Regulations Any regulations regarding safety of consumers and employees, employment laws, security of personal information, EPA standards, and SEC regulations, all affect Target Corporation. They must comply with a wide array of federal, state, and local laws, any legislative changes are constantly monitored by the company. Current Market Conditions Paper 8 References Barlow, T. (2011, May 03). Is target cheaper than wal-mart? One survey says yes. Retrieved from http://www.walletpop.com/2011/03/03/is-target-cheaper-than- walmart-one-survey-says-yes/ Dishman, L. (2011, May 02). Target vs. wal-mart – which one is a better place to work? Retrieved from http://jobs.aol.com/articles/2011/05/02/target-vs- walmart-which-one-is-a-better-place-to-work/ Target. (n.d.) Retrieved from: http://sites.target.com/site/en/company/page.jsp? contentId=WCMP04-031697
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