Lifecycle of Idea
The concept of the business lifecycle reflects the natural stages that all businesses go through, from the moment that the idea is developed into a business, until the moment that the business wraps up. For some businesses, the stages can last a long time, but for other businesses, the stages are relatively short, and the progression through them can be quite fast. In other cases, the business hits a point of maturity, starts into decline, and then is re-invented, to start the business life cycle over again.
The five stages of the business life cycle are development, startup, growth and establishment, expansion and, finally, the maturity and possible exit stage (Petch, 2016). Targetâ€™s business is in the maturity stage, but the company is highly successful as a competitor in the big box retail space, and therefore not at all considering exit. It is what would in the BCG matrix be considered a cash cow â€“ a large stable and consistently profitable business. It is precisely because of that maturity that Target is seeking to revamp and enhance its digital presence. The company needs to spur growth in an industry that is not experiencing a lot of that. This means that Target needs to not only defend its existing market share, but also to win share from its major competitors like Walmart and Amazon, and furthermore to win business from smaller players as well.
The e-commerce side of retail is a growing business still. This side of the retail business is growing at 15% per year, which means that it is not a mature business, but rather e-commerce exists in the expansion stage of growth (Ali, 2019). It is long past the startup stage, which was twenty years ago, but that is a much higher growth rate than the retail business or US economy as a whole, both of which are more in the maturity phase. This expansion stage is why Target is aiming to enhance its digital business, because this is one of the areas where there is much stronger growth potential than exists in the rest of its business.
The expansion stage is characterized as a situation where the business is firmly established, which is the case for e-commerce in general, but firms in the industry seek to capitalize on its stability by broadening their horizons. For Target, that is precisely what this strategy is about. E-commerce is seeing continual evolution in terms of technologies and consumer preferences, and these changes are a large part of what is driving this business forward. For retailers, staying on top of the latest e-commerce trends is critical to matching the growth of the industry as a whole, and a failure to keep modern will likely result in the company falling behind the competitors that are leading the way in terms of innovating new strategies and adopting new ideas.
Continued success during the expansion stage relies on the business having a plan to expand, but doing so with a degree of caution. Expanding too quickly, or too rashly, without a coherent strategy, is likely to result in difficulties or outright failure, as was the case for Target when it expanded into Canada. The new enhanced digital strategy for Target is rooted in leveraging the companyâ€™s existing brand strength, which generates traffic, and which also brings in loyal customers. With a better e-commerce experience, both on web and mobile, Target hopes that it can capture a greater share of the shopping dollars, and ideally start to bring in new customers as well. This is what the expansion stage is about, both getting more money from existing customers and attracting new customers, especially those who have heard of the brand, having positive associations with it, but might otherwise patronize other businesses that have a stronger e-commerce presence.
There are two ways for a business to increase its profits. One is to earn more revenue and the other is to reduce the costs of doing business. Ideally, a new business idea will allow the company to do both simultaneously. This is especially true of a venture in the expansion stage, because at this stage the company has a stable business and therefore is unlikely to want to pursue a strategy that is too risky, but yet it still wants to capitalize on some of the growth opportunities that exist in the marketplace.
The enhanced digital presence should generate new revenues for Target. The company has a strong brand, but its competitors do as well, and on top of that the major competitors like Walmart and Amazon have much larger e-commerce businesses. In a sense, Target is playing catch-up, so that its digital sales engine is as sophisticated and successful as its offline business. The fact that Target has made e-commerce a key part of its strategy is evidenced in the success of this channel over the past five years (Ali, 2019).
This growth is far beyond what the company is doing offline, as that business is more mature, but it is also growth at a far greater pace than the e-commerce industry as a whole. This superior growth illustrates that Target is starting to really find its stride in e-commerce and now at this point is in a position to accelerate this growth with its enhanced digital strategy. By continuing to tap into the superior growth potential that e-commerce offers it, Target can continue to use digital as the engine for its overall corporate growth.
The other side of increasing profits is to increase margins. The first assumption is that e-commerce does not affect Targetâ€™s pricing power. This is potentially false â€“ customers have demonstrated that they are willing to pay more for the convenience of shopping digitally. While Targetâ€™s major competitors are major e-commerce players, smaller companies have a more difficult time competing because they simply do not have the brand names and the traffic that makes them top searches â€“ e-commerce favors larger businesses, and that helps reduce competition, potentially allowing Target to enjoy more favorable pricing.
But even if Target does not enjoy more favorable pricing, e-commerce is a more efficient business model, at least when done at scale. There are higher costs associated with shipping, and consumers will often expect the vendor to cover these costs, at least with a major company. However, there are also cost savings associated with the reduced physical infrastructure of an e-commerce business, relative to a bricks-and-mortar store. Offline, Target needs to have stores in areas that are convenient to consumers, and these often come at a premium. With its digital business, Target has far fewer locations â€“ a handful of warehouses nationwide can suffice â€“ and these can be located in areas that are much cheaper in terms of land cost, because consumers are not going there.
Furthermore, the digital model relies heavily on scale. It is a more efficient business overall because it relies on a few large warehouses, and these take advantage of economies of scale, in ordering, in inventory handling, and even in terms of shipping, because they process a larger amount of goods than a more traditional bricks-and-mortar store. Target does not necessarily even need to carry a larger inventory.
Thus, there are significant cost savings associated with economies of scale, and the reduced need for physical infrastructure, by expanding the e-commerce business. For Target, this business is not only growing at a much faster rate than the rest of its business in the physical stores, but it comes with higher margins because of the more efficient cost structure. Therefore, this initiative should work on both sides of the profit equation, to make Target a more profitable company overall.
Digital commerce is here to stay, and Target needs a strategy to ensure that it can continue to succeed in this sector over the long run. Because this part of retail is still in the expansion phase, there is a lot of market share still up for grabs, as consumers increase the amount of shopping that they do online. That said, there is also a continuous state of innovation in e-commerce that means businesses need to constantly work to stay at the front of the innovation curve. When Target made its last major investment in e-commerce several years ago, it had allowed that part of the business to stagnate, and it needed the massive investment to get back to parity with its competitors.
The enhanced digital strategy that Target is now implementing is an ongoing effort. There are obviously some up front costs, but the structure of this initiative is that it will continue over the course of many years. Once the company goes to the trouble of bringing in top digital talent, it needs to retain those people and invest in them so that they can continue to innovate. Target can sustain this part of the business through continual innovation, and competitive benchmarking.
The latter strategy is a recognition of two things. One is that other companies are still better than Target, and Target needs to understand what its competitors are doing and adopt the best ideas. The other thing is that consumers already benchmark their digital experiences between major brands, and Target needs to view the digital experience that it is offering through this competitive lens. Thus it is recommended that Target should set up a permanent digital innovation unit.
By setting up a digital innovation unit, Target is going to put itself in a position to sustain this enhanced digital initiative. The company cannot simply innovate in 2019 rest on its laurels â€“ it will quickly fall behind the market. As such, Target needs to aim to be the innovative leader in digital marketing, digital commerce and become the benchmark that other companies look towards. This requires a permanent and sizeable investment, and a commitment from the top leadership to make digital the most important aspect of the company. It is already the main engine of growth for Target, so this is not a big stretch, but the company is much more associated with bricks-and-mortar retail, and that is still the major revenue driver, so shifting focus to digital leadership would definitely be something that has to be done on a strategic level, and driven by the companyâ€™s leadership.
The digital innovation unit should operate separate from the unit that runs the companyâ€™s digital properties. One of the reasons for this is that fostering innovation is difficult to do, and some people are more suited for that, while others are more suited for the day-to-day running of things. Target needs to ensure that its builds a culture of innovation, but this is easier to do with a smaller, more nimble team that is comprised largely of innovative people, and where the culture can be a little bit more innovative. Target is a reasonably innovative company, but innovation is not a historical strength, and it is unlikely that innovation and creative problem-solving will ever become a major part of the overall corporate culture. But this culture can be fostered within a given unit, and that is what is recommended.
All told, the enhanced digital initiative builds on what Target has done before, and helps to build out the infrastructure and culture to allow Target to continue to improve its digital presence, and become more of an innovator in the field. With the right approach, Target can make digital not just a point of strength, but a point of sustainable competitive advantage. That should be the goal â€“ for this to be truly sustainable, Target needs to bake digital enhancement and innovation into the company culture, and create the conditions on the ground that are most ideal to sustaining this.
Ali, F. (2019) Targetâ€™s web sales grow more than 25% for five years in a row. Digital Commerce 360 Retrieved April 28, 2019 from https://www.digitalcommerce360.com/2019/03/05/targets-web-sales-grows-more-than-25-for-five-years-in-a-row/
Ali, F. (2019) US e-commerce sales grow 15% in 2019. Digital Commerce 360. Retrieved April 28, 2019 from https://www.digitalcommerce360.com/article/us-ecommerce-sales/
Petch, N. (2016) The five stages of the business lifecycle: Which phase are you in? Entrepreneur. Retrieved April 28, 2019 from https://www.entrepreneur.com/article/271290
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