Target Corporation – Economic and Demand Analysis

Target Corporation – Economic and Demand Analysis

Target Corporation Demand Analysis

The main determinants of demand and the elasticity of demand for the products of Target Corporation are price levels, income, availability of alternatives and the number of customers. The elasticity of demand includes how sensitive a product’s demand is compared to changes in different economic factors such as income and price. In contrast, price elasticity is the measure of the level of a market’s reactivity to change in the price of a product. According to Prasad (2010), rice elasticity of demand determines the sensitivity to change in the amount of goods and services demanded relative to price changes. The type of service or product offered also affects demand elasticity. In most instances, comfort or luxury goods have a high price elasticity. However, essential goods such as food have no price elasticity because customers would still purchase food despite the changes in the price of food commodities.

Target Corporation sells products with high demand elasticity. Price, therefore, regulates the amount of products sold in Target Corporation stores. A price increase will result in a decrease in the amount of products demanded. The availability of substitutes or alternatives can significantly impact the elasticity of demand. Therefore, the demand for products with many substitutes increases price elasticity. A slight increase in the price levels of products may increase customers’ propensity to purchase substitutes. For instance, the demand for food products such as pasta is highly price-elastic due to a large number of substitutes. If the price of one type of pasta increases, customers can opt to purchase a cheaper substitute. The availability of substitutes also increases the sensitivity of the quantity demanded to changes in price levels and vice versa. Target corporation sells general merchandise that is also sold by other retailers hence increasing the number of alternatives that customers can choose from. The demand for the products sold at Target Corporation may decrease if other retailers sell similar products at a lower price. Maintaining a competitive advantage in the retail sector is challenging because most retailers sell similar products and services, and a vast price variation could affect profitability. Therefore, Target Corporation needs to regularly conduct market research to determine changes in market share, competitors’ strengths and weaknesses and what the company can leverage to stay ahead of its competitors.

Income plays a significant role in demand elasticity. An increased income increases the affordability of products and services, thus increasing demand, while reduced income decreases demand because customers look for the most affordable products (Syrovátka, 2012). Target Corporation offers discounts, thus regulating the demand for its merchandise. It may opt to reduce prices when there are economic issues affecting income levels to increase demand because customers will rush to take advantage of the discounts.

Target Corporation can also take advantage of its oligopoly market structure to increase its customer base hence increasing demand. The oligopoly market structure is characterized by a limited number of sellers whose actions affect the price of products and, hence, significantly affect competitors. An oligopoly market structure is also characterized by the interdependence of enterprises, high barriers to entry, and the power to control price and product differentiation. Firms do not compete based on price but unique aspects such as rewarding customers. Target Corporation focuses on acquiring long-term revenue, profits, and market value by managing its operations in different regions. The company can use its brand equity to retain existing customers and attract more customers hence increasing demand. It can, however, consider rewarding customers with coupons to increase demand.

Target Corporation Economic Analysis

Macro-environment factors such as interest rates, inflation rate, the rate of saving, economic cycle, and foreign exchange rate influence aggregate investment and demand in an economy. They influence important economic decisions, such as where to invest and the adjustments to make to operate within prevailing economic conditions (Marthinsen, 2017). Target Corporation can take advantage of economic factors such as inflation rate, growth rate, and economic indicators in the retail industry such as consumer spending. The company has already established a reputation for offering designer brands at low prices compared to their competitors’’ prices. Shelves at Target Corporation’s stores are also stocked with bright colors and patterns and neatly arranged in isles, giving customers a look of a more luxurious store when in reality, all items are discounted and sold at lower prices than the brand name retail stores.

The company has also managed to deal with complex economic issues in the past. In 2007, there was an economic slowdown that resulted in a significant drop in the company’s sales. The company’s sales growth was reduced below 1.5 percent due to changes in consumer behavior, as customers were sparing their money to spend it on essential goods. The company responded by reducing its workforce and suspending salary increases for senior management employees. Since then, the company has managed to maintain profitability even during economic hardships by investing in short-term securities to pay the obligations of long-term debt maturity.

The growth in Growth Domestic Product will significantly impact Target Corporation’s ability to meet long-term goals using selected growth tactics. An increase in GDP suggests that consumers have the capacity to spend more on luxury products (Marthinsen, 2017). Target Corporation’s profitability will also be affected by employment levels. High unemployment implies that there is surplus labor at relatively lower wages hence lowering the company’s production cost. The company should also consider the interest rates in the financial markets and their impact on borrowing attitude and ability because it will affect the circulation of money in the economy hence affecting the affordability of the products offered in the company’s stores. High interest will also encourage the company’s attitude toward exploring new ventures and increase its growth prospects. Fluctuations in the exchange rate can also impact the company’s international trade and profitability (Campbell, 2005). For instance, if there is a high fluctuation in local currency, the company may experience challenges in expanding and increasing its market share and influencing its market expansion entry strategies.

The company also needs to study and forecast the conditions in the labor market to recognize how it can attract talented employees and leverage their capabilities and skills to increase its performance. The efficiency of the financial market will influence Target Corporation’s global expansion tactics. Operating in highly resourceful markets will create a better liquidity position and a better ability to enter new markets. The productivity and health of the financial markets will also determine the company’s ability to raise the capital required to sustain the company’s operations (Marthinsen, 2017). The company also needs to review the regulatory and economic environment controlled by prevailing economic structures because operating with an oligopolistic structure is different from operating with a monopolistic structure. The cooperation may be required to switch to a monopolistic structure if they dominate markets, especially in developing markets that competitors in the retail industry have not yet explored.

References

Campbell, D. (2005). The economic environment I: Macro-economic management. Organisations and the Business Environment, 161-200. https://doi.org/10.1016/b978-0-7506-5829-4.50012-9

Marthinsen, J. E. (2017). International macroeconomics for business and political leaders. Taylor & Francis.

Prasad, A. (2010). Demand elasticity. Wiley International Encyclopedia of Marketing. https://doi.org/10.1002/9781444316568.wiem01019

Syrovátka, P. (2012). Income elasticity of demand within individual consumer groups and the level of income elasticity of the entire market demand. Agricultural Economics (Zemědělská ekonomika), 52(No. 9), 412-417. https://doi.org/10.17221/5044-agricecon

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Economic and Demand Analysis

Review the determinants of demand and the elasticity of demand for Target Corporation’s products. Relate the projection of future demand to the strategic plan of Target Corporation.
write two(2) pages of a demand analysis and two (2) pages of an economic analysis