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Marketplace: Corporate Leap Frog

Key Economic Concepts:

• Advertising
• Competition
• Non-price Competition
• Price

Description:

This lesson will focus on competition among sellers and the factors that can make one company more successful than another in the same market. Competition between K-Mart, Wal- Mart, and Target will be examined to see what kinds of competition (price and non-price) can help one company 'leap' ahead of another.

Lesson Objectives:

Students will:

• Describe the competition among three major discount store chains: K-Mart, Wal-Mart, and Target; and draw conclusions about how this competition, in part, led to K-Mart's bankruptcy in 2002.
• Identify examples of price and non-price competition among discount
  store chains and how this competition influences consumer behavior.
• Evaluate companies' uses of the various price and non-price strategies on their web sites.

Introduction:

[Note to teacher: This lesson will discuss how competition, and K-Mart's difficulty competing with Wal-Mart and Target contributed, among other things, to K-mart's bankruptcy. Be prepared to discuss with students the fact that companies who file "Chapter 11 bankruptcy" (a specific type of bankruptcy, and the term students will hear in the audio clip) are often allowed to continue operation while they reorganize to try to salvage the company. K-Mart did this, and was able to come out of bankruptcy in July 2003.]

'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 students understand how businesses compete for their 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 quality, product design, customer service, variety, and advertising.

Resources:

• NPR's Marketplace Radio Segment - January 22, 2002:
  This radio segment discusses the factors that influenced K-Mart's decision to file for bankruptcy in early 2002.
  http://marketplace.publicradio.org/shows/2002/01/22_mpp.html ^[1]
   
• K-Mart:
  Students will explore the web site of this retail chain to identify and evaluate examples of price and non-price competition examples.www.walmart.com/ ^[3] www.kmart.com/shc/s/home_10151_10104 ^[4] www.walmart.com/ ^[3]
• Wal-Mart:
  Students will explore the web site of this retail chain to identify and evaluate examples of price and non-price competition examples.
  www.walmart.com/ ^[3]
   
• Target:
  Students will explore the web site of this retail chain to identify and evaluate examples of price and non-price competition examples.
  www.target.com/gp/homepage.html ^[5]

Process:

Explain that companies compete with one another all the time. Businesses that are similar to one another 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 students to understand other forms of competition -- non-price competition. They will identify and comment on different forms of non-price competition as used by

Activity One:
Listen to the Marketplace segment from January 22, 2002 http://marketplace.publicradio.org/shows/2002/01/22_mpp.html ^[1]
Play from 1:10 through 6:22.

• 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?

Activity Two:
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 different priority, depending upon the audience and the company. After each question, click the arrow to continue through all questions in the activity.

Activity Three:
Visit the web sites of each of the stores you are analyzing. Look for examples of the various price and non-price competitive factors and (price, quality, product design, variety, customer service, advertising) on the sites. Which chains seem to emphasize price more? Variety? Design/Quality? Have the students use this chart, Comparing Competitive Factors ^[2] , to help organize their ideas.

When the students have completed the chart, have them pick one of the three companies to analyze in more depth. Considering each of the listed factors, they are to create a presentation to share with the class in which they highlight those factors they think that company uses effectively and those that could use some work. Ask the question: Why do you think your company uses one or two strategies more than the others?

Conclusion:

Students will present their findings to the class. Have them discuss with one another which factors all of them found to be more or less important in choosing a store. Ask them if they agree with the radio assessment of K-Mart's quandary.

Which competitive factors do they think are most important in the discount retail business?

Assessment Activity:

Have students "Rate" each company's use of the non-price factors examined. For each factor, they are to assign a 1, 2, or 3 for each company's use of that factor. For example, they 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 the students have completed your ratings, they will compare their answers with a partner to see where they agree or disagree.

Then, have the students write a one page summary of how companies can use price and non-price competitive factors to compete with other companies. Be sure they include specific factors examined during this lesson.

Have the students compare their 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:

Extension Activity:

Activity One
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 class research.

• New Kmart: Out of bankruptcy but competition may be tougher ^[6]
• Kmart: Out of the Box? ^[7]
• Ames, Kmart hit comeback trail; for bankrupt retailers, the road to financial   recovery will be long and arduous ^[8]

Activity Two
The retail industry is not the only one in which price and non-price competitive factors play an important role. Have students imagine that they are planning to enter the market. Have them pick two leading fast-food companies and visit their web sites.

Use this Fast Food Competition Chart ^[9] to compare the strategies used. Be sure that students compare their answers with a classmate, and then work with that person to design a set of strategies that would be used to compete with both of the companies researched.

Links Used:

1. ^{^ ^} "http://marketplace.publicradio.org/shows/2002/01/22_mpp.html" - (marketplace.publicradio.org)
2. ^{^} "Comparing Competitive Factors" - (interactives.mped.org)
3. ^{^ ^ ^} "http://www.walmart.com/" - (www.walmart.com)
4. ^{^} "www.kmart.com/shc/s/home_10151_10104" - (www.kmart.com)
5. ^{^} "www.target.com/gp/homepage.html" - (www.target.com)
6. ^{^} "New Kmart: Out of bankruptcy but competition may be tougher" - (www.cbsnews.com)
7. ^{^} "Kmart: Out of the Box?" - (www.cfo.com)
8. ^{^} "Ames, Kmart hit comeback trail; for bankrupt retailers, the road to financial recovery will be long and arduous" - (findarticles.com)
9. ^{^} "Fast Food Competition Chart" - (interactives.mped.org)

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