Marketplace: Corporate Leap Frog
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'Attention Shoppers!' Have you heard that before? Where? As consumers, we shop in a variety of stores and for a variety of reasons. This lesson will help you understand how businesses compete for your attention through non-price competition. Non-price competition is what companies do by appealing to consumers on a non-price basis-- for example, by emphasizing product design, customer service, variety, and advertising.
This lesson will ask you to analyze the price and non-price competition strategies used by three discount retail chains (K-Mart, Wal-Mart, and Target) gain customers. You will form opinions about the successes and failures of each strategy and each chain. Your analysis will include a look at what caused the 2002 bankruptcy of K-Mart.
Companies compete with one another all the time. Similar businesses have to find ways to 'win' consumers in order to stay in business. Often this competition takes the form of lowering prices. But sometimes lowering prices is not enough. This lesson will help you look at other forms of competition -- non-price competition. You will identify and comment on different forms of non-price competition as used by three discount chain stores: Wal-Mart, Target, and K-Mart.
Listen to the Marketplace segment from January 22, 2002 that highlights the bankruptcy of K-Mart in early 2002. Play from 1:10 through 6:22.
Here are some websites you might want to use:
- What do the people in this radio report think are the main causes of the K-Mart bankruptcy?
- Why did K-Mart have such a hard time competing with Target and Wal-Mart?
How do companies that provide similar services or products compete with one another for customers? People interviewed in the story address some of the competitive strategies such companies use. K-Mart, Wal-Mart, and Target are all discount retail chain stores. Each one depends on a variety of 'non-price' competitive strategies because as discount stores, their prices are already about as low as they can make them.
Use this online tool to help you think through what competitors consider when they are designing their strategies. Each of these factors has a different priority, depending upon the audience and the company. After each question, click the arrow to continue through all the questions in the activity.
What do you think is the most important factor in choosing a store or product?
Does the way a store look inside attract you more or less than the prices of the products?
Is customer service an important factor to consider when you go into a store? Why or why not?
Do you like a wide variety of products, or do you generally buy the same products when you shop?
Are you influenced by advertising?
- What kinds of advertising catch your attention?
Visit the web sites of each of the stores you are analyzing. Look for examples at the various price and non-price competitive factors (price, quality, product design, variety, customer service, advertising) on the sites. Which chains seem to emphasize price more? Variety? Design/Quality? Use this chart, Comparing Competitive Factors , to help you organize your ideas.
When you have completed the chart, pick one of the three store sites to analyze in more depth. Considering each of the listed factors, create a presentation to share with the class in which you highlight those factors you think that company uses effectively and those that could use some work. Why do you think your company uses one or two strategies more than the others?
Present your findings to the class. Discuss with one another which factors all of you found to be more or less important in choosing a store. Do you agree with the radio assessment of K-Mart's quandary?
Which competitive factors do you think are most important in the discount retail business? Why?
"Rate" each company's use of the non-price factors you examined. For each factor, assign a 1, 2, or 3 for each company's use of that factor. For example, you might decider K-mart does the best job of offering variety (1), Wal-Mart does the next best job (2), and Target needs to do a better job of that (3). When you have completed your ratings, compare your answers with a partner to see where you agree or disagree.
Then, write a one page summary of how companies can use price and non-price competitive factors to compete with other companies. Include specific factors you examined during this lesson.
Compare your results and predictions with information about company earnings for each of the three retail stores. Use the companies' corporate web information pages to determine earnings and stock prices. Look for evidence of various strategies and their relative successes:
K-Mart emerged from bankruptcy in 2003. Use the internet to do some research on the challenges K-Mart faced coming out of bankruptcy, and some of the strategies it employed for meeting them. Did K-Mart change its strategies? Did the other companies have to change theirs?
Use these web sites as starting points for your research.
- Kmart Comes Out of Bankruptcy
- Kmart: Out of the Box?
- Ames, Kmart hit comeback trail; for bankrupt retailers, the road to financial recovery will be long and arduous
The retail industry is not the only one in which price and non-price competitive factors play an important role. Imagine that you are planning to enter the market. Pick two leading fast-food companies and visit their web sites.
Use this Fast Food Competition Chart to compare the strategies they use. Compare your answers with a classmate, and then work with that person to design a set of strategies you would use to compete with both of the companies you researched.