Representatives from Campbell Soup Co., General Mills Inc., KelloggCo. and others were told that the retailer doesn’t want to put as much money and effort into promoting some of their products as it did in the past, people familiar with the matter said.
Bottom line: Target said it wants to do less with Cinnamon Toast Crunch and Corn Flakes and more with granola and yogurt. Canned soup, a category facing a long decline, will be de-emphasized. The processed foods sold by Kraft Foods Group Inc. and others will move down the totem pole, while fancy sauces and oils will move up, the people said.
How can we understand these changes? In Chapter 12, we introduced the link between promotion and price by talking about the effects of promotion on price elasticity of demand:
- If "promotional pricing" makes demand more price elastic, a retailer can raise profit by reducing price during promotional periods.
- In contrast, brand building or "advertising" tends to make a demand less price elastic, so that it makes sense to raise price when the brand is advertised.
The article says that Target is switching part of its promotional budget from older brands to newer ones. One can infer that this switch is profitable, and from what we know about "promotion," it probably also means that demand for these older brands doesn't respond as much to promotional efforts as do the newer more trendy brands. If so, it would make sense to switch promotional dollars to products that respond more to promotion.
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ReplyDeleteOrganizations like Target must constantly adapt to meet the needs of their market. With recent trends in "organic" and "healthy" lifestyles, it is not at all surprising that granola and yogurt are the focus of promotional pricing. These are items typically higher priced to begin with. Promotional efforts to make these products more desirable than they already are is a great tactic to increase profits.
ReplyDeleteTarget has been able to create lasting promotional efforts. This includes the "made to matter" program. This program has created partnerships with manufacturers that create healthy products exclusively for target (Sozzi, Brian). It is efforts like this that continue to make the Target Company so successful.
These trendy products are also typically less expensive at Target than they are at other stores. Target is able to keep their customers coming back by offering high quality products at lower prices, as well as various promotional offers every week.
Sozzi, Brian. (16 July 2015). Target thinks outside the big box. Accessed 3 March 2016 at: http://realmoney.thestreet.com/articles/07/16/2015/target-thinks-outside-big-box
Target has an internal philosophy that they are an upscale retailer as compared to other one-stop-shop competition which it teaches to its employees. From a branding point of view, their focus on differentiation to a customer is based on customer service, cleanliness of their stores, and even down to the dress code. It’s not surprising that Target wants to focus efforts towards a growing market like trendy foods. Not only will this bring customer through the door to buy these products, giving Target increased profits, but also keeps the traffic within the store because of the array of other products, not promotionally priced, that are still available to the customer.
ReplyDeleteIt would not be surprising to see other retailers move in this direction as Target’s success is realized. There has already been a major switch in health conscious advertising outside of box stores and for retailers to figure out how to use this to their advantage will be a factor in their bottom line.