Michael Porter's 5 Forces for Target - Research Paper Example

Five Forces Analysis for Target Under the North American Industrial System (NAICS), Target Corporation is ified as a Discount Department Store (Code no. 452112). According to the FindTheData website, this industry specifically focuses on department stores that have centrally located customer checkout areas and sell almost everything except certain types of foods (FindTheData). Porter’s Five Forces Model Porter’s Five Forces Model is used when an organization wishes to understand the dynamics of their direct competitors (Berry).

Potential opportunites can be discovered and an organization can differentiate itself from its competitors if the industry is very competitive.Threat of New Entrants New entrants are firms that have just entered into a market or will do so in the near future (Barney and Hesterly). Because Target just operates within one market, the United States, it is susceptible to new entrants trying to take away some of Target’s market share. Another reason is due to a reducttion in the barriers to entry, e.g. international trade.

It is becoming easier and easier for foreign competitors to enter markets because of liberalization of trade. The UK-based company Tesco is perhaps the biggest threat to the American discount deparment store market. Bargining Power of Suppliers Supplies assist firms by contributing raw materials and labor, among other things, to the process of finishing a product (Barney and Hesterly). The bargaining power of suppliers in the discount department store industry is relatively strong because of the wide number of competitors in the market.

If suppliers do not like their current relationship with a discount department store, then they can take their business somewhere else. Another reason that suppliers have greater bargaining power is through the increase in online stores. Now, consumers can choose to purchase a product directly from the supplier rather than through the retailer.Bargaining Power of Buyers Buyers are a key component of Target’s marketing schemes because they have the ability to stay with the company or leave if they feel prices are too high (Barney and Hesterly).

Because of the wide range of stores in the industry, customers do not feel loyal to one particular brand and can switch their loyalties if another brand offers a product of the same quality for less. As a result, firms are always competing to lower their prices, and this can only be good for the customer because it strengthens their position.Threat of Substitute Products Substitute products fulfill customer needs by do so by offering something extra (Barney and Hesterly). In the discount department store industry, the threat of substitutes is quite high.

There are many competitors in the market that are trying to offer products similar to Target. Target is one of the market leaders, but smaller firms trying to get their foot in the door will take advantage of this by offering similar products. Online stores can now offer similar products to Target, but at lower prices. This is because many of the transportation costs are not incurred.Internal Rivalry Rivalry among firms results in competitors doing whatever it takes to gain a higher market share (Barney and Hesterly).

The internal rivalry among discount department stores is high because many stores sell similar products to Target. Some of Target’s main competitors are Costco, Kmart, and Wal-Mart. However, without this competition, Target would have no incentive to continue to make better quality products at lower prices. Although the threat of internal rivalry may have a negative effect on Target’s sales, it the long run it helps the firm to perform better because they want to remain profitable for many years to come.

Works CitedBarney, Jay B. and William S. Hesterly. Strategic Management and Competitive Advantage. United States: Pearson Education, Inc., 2012.Berry, Tim. Using Porter’s Five Forces when creating your marketing plan. 2012. 04 04 2012.FindTheData. 452112 NAICS Code - Discount Department Stores. 2012. 04 04 2012.