boasting price points and value messages. Similarly, weekly newspaper circulars featured strong value headlines, fewer products, and clearly labeled price points. In fact, Target’s ads began looking very much like those of Walmart or even Kmart. Further recognizing the consumer trend toward thriftiness, Target increased the emphasis on its own store brands of food and home goods.
While making the shift toward “Pay Less,” Target was careful to reassure customers that it would not compromise the “Expect More” part of its brand. Target has always been known for having more designer partnerships than any other retailer. From the Michael Graves line of housewares to Isaac Mizrahi’s clothing line, Target boasts more than a dozen product lines created exclusively for Target by famous designers. Kathryn Tesija, Target’s executive vice president of merchandising, assured customers that not only would Target continue those relationships but also add several new designer partnerships in the apparel and beauty categories.
MOUNTING PRESSURE
Although Steinhafel’s “Pay Less” strategy was aggressive, Target’s financials were slow to respond. In fact, things initially got worse with sales at one point dropping by 10 percent from the previous year. Target’s profits suffered even more. It didn’t help matters that Walmart bucked the recessionary retail trend by posting revenue increases. When confronted with this fact, Steinhafel responded that consumers held perceptions that Target’s value proposition was not as strong as that of its biggest rival. He urged investors to be patient, that its value message would take time to resonate with consumers. Given that Walmart had a decades-long lead in building its cost structure as a formative competitive advantage, Steinhafel couldn’t stress that point enough.
While Target continued to struggle with this turn-around challenge, it received a new threat in the form of one of its largest investors. Activist shareholder William Ackman, whose company had invested $2 billion in Target only to lose 85 percent of it, was holding the retailer’s feet to the fire. Ackman openly chided Target for failing to deal effectively with the economic downturn. He charged that Target’s board of directors lacked needed experience and sought to take control of five of the board’s seats. “Target is not Gucci,” he said in a letter to investors. “It should be a business that does well, even in tough economic times.”
Making the changes that Ackman and others were calling for was exactly what Steinhafel was trying to do. Steinhafel refused to give up on his strategy. Instead, he intensified Target’s “Pay Less” emphasis. In addition to aggressive newspaper advertising, Target unveiled a new set of television spots. Each ad played to a catchy tune with a reassuring voice singing, “This is a brand new day. And it’s getting better every single day.” Ads showed ordinary people consuming commonly purchased retail products but with a unique twist.
In one ad, a couple was shown drinking coffee in what appeared to be a fancy coffee house with the caption, “The new coffee spot.” But the camera pulled back to reveal that the couple was sitting in their own kitchen, with a coffee pot on the stove. The caption confirmed: “Espresso maker, $24.99.” In another segment of the ad headlined “The new salon trip,” a glamorous woman with flowing red hair appeared to be in an upscale salon. The camera angle then shifted to show her in her own modest bathroom, revealing a small bottle sitting on the sink with the caption, “Hair color, $8.49.” Every ad repeated this same theme multiple times, with takes such as “The new car wash,” “The new movie night,” and “The new gym.”