133 Target stores will be closing and 17,600 Canadians will lose their jobs - over a marketing retail crisis that could have been avoided if management had adopted a more cultural lens.
When I first came to Canada one of my colleagues said: "Be careful! Although we have highways and Coca-Cola here, we’re not the US." Canada is a unique market and a unique society with its own set of values, norms, and expectations. It is also an economy with a longstanding tendency to compare itself with the US and one with a long tradition of being misunderstood by the US.
What does shopping mean in Canada and how is it different from the US? What does it mean to graft a decidedly American business plan onto a new country?
Culture is a deciding factor when it comes to retail success. This is something we drill into Schulich’s Customer Experience Design students from day one. You can read their columns on how to successfully manage retail brands here.
Here are four ways in which failure to adopt to cultural conditions led to Target’s misery. Each issue is presented in terms of a widespread cultural retail stereotype. Each is a standard classroom item, at least at the Schulich School of Business.
Pricing
Cultural stereotype: Canadians are used to paying higher prices. Target was never really new to Canadians. In fact, for most Canadians, Target raised very particular American price perceptions. And Target US always meant lower prices. That changed when the chain came to Canada. That these pricing differences exist as a structural issue (taxes, exchange rates, etc.) is one thing and it could be argued that Canadian consumers had unrealistic price expectations from the get-go. But Target's management should have actively managed these perceptions head-on. It never did.
Competition
Cultural stereotype: In Canada, competition is less fierce. Target ignored that, after its announcement to enter the Canadian market, competitors would respond. Walmart had cut its prices and Shoppers and Loblaws expanded their offering to clothing. On a deeper sociological level, the battle was always about who provided the most Canadian shopping experience. Target never found its uniquely Canadian competitive identity. Walmart did.
Supply Chain
Cultural stereotype: Canadian consumers are less likely to complain. From day one, Target had serious pipeline management issues. In doing so, it confirmed a long held stereotype that American retail coming to Canada doesn’t give everything. Even worse, American staffers blamed Canadian employees - Target did not tackle this discrepancy on the level it actually occurred: national identity.
E-Commerce
Cultural Stereotype: Canadians don’t understand e-commerce. Rivals like Walmart had long expanded into this domain. Yet, Target still thought of the Canadian market like Amazon, Apple, and many others do: as a backwards bunch who would be happy to pay more for the same and who don’t know how to use an e-commerce platform.
@DrGiesler I enjoyed your Target article! Curious how you would've managed Canadians' price expectations.
— Ilan (@IronWhisk) January 16, 2015Hi Ilan,
Great question! I thought I’d address it in greater detail.
Price is a huge topic of study in marketing - a truly fascinating area where experts from economics, psychology, and sociology all have important things to contribute.
It all starts with economics. Economists have a pretty elegant way for finding the right price. Demand increases when price falls. Supply increases when the price increases. In this framing, the right price is where the demand and the supply curves cross. Downside: almost nobody has the data needed to model the perfect price (although, with big data, this is changing as well).
On a more practical level, I saw that you have a pretty awesome food blog. So let’s assume, for a second, that you want to put up a paywall. How do we know if your consumers think that they are getting a good deal for your collection of recipes and cooking tips?
It’s all a matter of comparison. How they value your offering is often relative to the subscription blogs they consider to be similar. Marketers call that reference pricing.
Many Canadian consumers, for instance, like to go to the States to shop. And Target was one of these iconic US retail brands where they could get amazing deals on good products. So when Target announced it would come to Canada, what was our reference point? Target US! That’s already problematic because labour costs, taxes, exchange rates along with a number of other things are different in the Canadian market.
But what if Target’s management team had ensured, already during the media buzz leading up to market entry, that Canadian consumers used a different reference point such as Canadian Walmart or Loblaws? That way, our perceptions on whether we’re getting a good deal or not would have been very different, right?
That’s also related to another really important marketing rule: under-promise and over-deliver. Target violated this rule.
Back to your paywall. So one good way to find a price that works is to listen to your visitors to figure out what their reference points are. How does your blog experience compare to Martha Stewart's , for instance?
Bottom line: most pricing is a matter of emotions and perceptions are built through comparison. Good news: marketers can influence the comparisons consumers make through emotional branding tactics. Sadly, Target didn’t.
Markus
