Solution of Target Corporation

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1. FINANCIAL OBJECTIVE

For the first input, it compose of two quantitative components, the net present value (NPV) and the sensitivity of those projects which are useful to illustrate both the offense stance, showing how much value are added up to shareholders via positive NPV, and, the defense stance of projects, showing how vulnerable of those projects via the change of EBIT if the gross profit margin is dropped by 1 percentage in point.

The reason for choosing NPV as our offense measurement is to avoid the paradox of IRR and NPV, since NPV is absolutely add some value to the owner while IRR cannot if some projects yield 2 IRR. For defense gauging, gross profit sensitivity is picked here because it accompanies all the factors including sales and the cost associated.

Hence, our viewpoint as the top management, using quantitative value is much stronger than relying on the qualitative one. We assign the weight 40% to NPV scoring and 30% to sensitivity scoring (note here is the sensitivity is yield negative result for the total score). The rest weight of 30% are assigned for the rest 2 factors i.e. Brand awareness and Area attractiveness involving qualitative judgments.

2. BRAND AWARENESS

Brand awareness is one of the key factors which have influence on customers’ decision making as it is imprinting in their minds for what your brand is. This can help increase sale especially when it is difficult to differentiate among competitors. For this case we use strategic location to be a judgment for brand awareness boosting by assigning weight on major metropolitan area with an affluent and fast-growing population and the exposure to the new market.

3. AREA ATTRACTIVENESS

There are 2 major factors effecting the area attractiveness i.e. demographics and competition in the particular area. Demographics can be determined by many aspects such as number of population, income and education level. Since Target’s core customers are college-educated women with children at home and due to a limitation on information regarding to income, the number of adults with more than 4 college-years in the trade area (the geographical area from which 70% of store sales are realized) is used as the proxy of demographics. Another factor, the competition in the particular area, are evaluated by the number of competitors, the number of Target’s existing stores, and Target’s market share within the trade area as proxies for the intensity of market competition, sales cannibalization, and position of market leader within the region respectively.

Both factors are equally important, hence the weight assigned to both should be equal i.e. 7.5% which blend together forming the area attractiveness’s weight of 15%. Furthermore, the area attractiveness is as significant as the brand awareness leading to equal weight as well.

Result

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Our analysis reveal that the Barn is the most attractive location to invest follow by Whalen Court, Gopher Place, Stadium Remodel and Goldie’s square, respectively.

The Barn got the highest score, even the NPV of the project is not the highest one, it ranks no. 2. However, the sensitivity test of one percentage point decline in gross margin reveal that in case of uncertainty the Barn represents the lowest risk. Moreover, it gets almost the second rank for strategic location as it represents a new market for the company and the area still have low degree of competition and have more room to growth.