Required: Read the Mini cases, Answer the questions at the end of the mini cases, One page for each mini case.
Marketing in Action Case: Real Choices at Target
When can offering too many choices become too much to handle? Target has gone through a period of bad press as a result of an unacceptable level of stock-outs that upset customers and decreased sales. The discount retailer believes that it can solve the problem by reducing the number of brands and varieties of product options on the shelves. Brian Cornell, CEO, believes that the increasedefficiency will allow for more focus on priority categories “like wellness, stylish home goods, apparel, and baby products.” Target’s distribution process became more complicated with the expansion of its grocery business to include perishables like meat, fresh produce, and dairy products. Then, the situation became even more complex when it began allowing online customers to receive orders directly from its warehouses or pick up their online orders in stores. Because of the mess, Target has committed to redesigning its supply chain to make it more streamlined.
Target has a rich history of success. In 1902, George Dayton founded a company in Minneapolis, Minnesota, called Dayton Dry Goods Company. Over the years the company went through various retail format changes and in 1962, the first Target store opened in Roseville, Minnesota. It called itself the “new idea in discount stores” differentiated by merging key department store features with the lower prices of a discounter. Target became “a store you can be proud to shop in, a store you can have confidence in, a store that is fun to shop and exciting to visit.” The retailer is the third largest U.S. store chain, operating over 1,800 retail locations throughout the United States.
Despite this lofty history, more recently growth at its established stores has been hindered by unacceptable stock levels because of their overly complicated supply chain. Target is spending more than $5 billion (yes, BILLION), to upgrade its distribution network and technology infrastructure to reduce stock shortages and facilitate the capability for online growth. In addition, the retailer is shrinking the number of different products it keeps in stock and reducing the number of sizes across those products. These changes will result in less overall inventory and improved handling efficiency. Amy Koo, an analyst with Kantar Retail, says, “In theory, everything can move faster, and they will have less stuff in the system.”
Target’s supply chain transformation includes other changes as well. Store shelves are being physically restructured to hold more product, pushing inventory out of backrooms and onto the sales floor. Suppliers are being required to adjust case sizes (how many individual items are inside a shipped carton) to increase inventory turnover and decrease the number of times a store employee has to handle the merchandise. In addition, Target wants suppliers to give a single-day arrival date for shipments to Target’s warehouses, eliminating the prior practice of a “grace period” that allows shipments to arrive a few days after the promised date without penalties. These and other changes will help Target achieve its goal of better inventory management.
John Mulligan, chief operating officer, thinks that including suppliers in planning and executing the transformation is a key to success. Stock-outs not only hurt Target, the lost sales also mean that everyone in the supply chain suffers. How well the company uses this reinvigorated supply chain to deliver its value proposition to customers will be critical to its future competitive success.
You Make the Call
Marketing in Action Case : Real Choices at Disney
What happens when you are no longer “the Happiest Place on Earth”? The Walt Disney Company doesn’t want to find out and is “reimagining” its pricing strategy. Responding to the ever-increasing demand for theme park tickets, especially at peak times, Disney has implemented “demand-based pricing” at both Walt Disney World in Florida and Disneyland in California.
Airlines and hotels have used demand-based pricing for years by charging higher prices during summer vacation season and around holidays when demand for flights and hotel accommodations is highest. Similarly, demand-based pricing has been in use by Disney competitor, Universal Studios, and other theme park operators in the United States. The idea is to redistribute customer demand by lowering prices during times with less demand to encourage more sales and increase prices at times when demand is higher to encourage customers to switch some of their visits to lower-priced times.
Visitors to Disneyland were previously charged a single-day ticket price of $99.00. Under demand-based pricing, there are three prices. “Value” tickets for Mondays through Thursdays during weeks when children are in school are only $95, a reduction of $4.00. “Regular” tickets for most weekends and summer months are $105. “Peak” tickets for visitors during December, spring break weeks, and July weekends are highest at $119. For Orlando’s Disney World, the pricing is similar but more complex as a result of having four different parks at the site. The new demand-based pricing is only for single-day tickets and does not affect the price of annual passes or multiday tickets, which most families buy when they travel to Disney.
The unknown is how consumers will respond to this new pricing strategy long term. Will they see it as a more equitable system in which you pay more if you want to visit Disney at the “best” times to travel and pay less if you can vacation at “off” times. Of course, consumers may perceive the new strategy as a pricing gimmick to gouge consumers during heavy travel times to increase Disney profits.
Certainly, demand-pricing tactics airlines employ are not thought of kindly and have contributed to negative consumer attitudes toward the airlines. Although Disney stresses that it is using the new demand-based pricing to more efficiently manage its customer experience, it should be obvious that this policy can also lead to greater profits. Even more important, how will consumers think of Disney and its theme parks long term? Will Disney still be the happiest place in the world?
You Make the Call
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