Is MasterCard Really Changing The World?

Have you ever noticed that business and news organizations love to compile lists?

The U.S. News and World Report, for instance, draws the attention of the education industry each year with its Best Colleges lists. Forbes generates attention and envy with its World’s Billionaires list. And Dow Jones influences the global markets whenever it changes the composition of the thirty corporations in its Industrial Average list.

Fortune has repeatedly indulged in list compilation activities as well. Its annual Fortune 500 list of the top American companies, for example, has been garnering significant press coverage and scrutiny for decades. And last month, Fortune extended these activities by publishing its first Change The World list.

Change The World? What does that mean? In its Methodology and Credits statement, Fortune explains that the list consists of “companies that have made a sizable impact on major global social or environmental problems as part of their competitive strategy … (and that are) doing good as part of their profit-making strategy … (in order to) improve the human condition.”

That sounds quite noble, doesn’t it? The companies on Fortune’s list should be engaged in extremely impressive activities. And yet, considering its own methodology, at least one of Fortune’s choices may strike us as a bit odd.

Take Mastercard, for instance, which appears at #11 on the list. Along with Visa, American Express, Discover, and every bank that issues debit cards, Mastercard helps people avoid paper currency by paying with plastic instead.

Of course, people have been carrying plastic in their wallets since Diners Club issued the first charge card in 1950, and since Bank of America followed with the first general consumer credit card in 1958. The BankAmericard later went global during the 1970s and was spun off into the firm that became Visa.

But this decades-long progression of e-commerce didn’t deter Fortune from heaping praise on today’s MasterCard for services that simply “distribute social benefits on debit cards … (and thus help people) switch to electronic payments…” In addition, Fortune didn’t mention the ongoing controversies about excessive service fees that some financial institutions have placed on such cards.

To be fair, Fortune does note appropriately that the use of plastic cards in place of paper money can reduce cash theft and deter untaxed “off the books” transactions. But Fortune does not acknowledge that electronic payment systems are often plagued by hackers, thieves, and tax cheats as well.

On the one hand, it might indeed be true that the transition from paper to electronic payment transactions is helping to change the world. But isn’t it a little odd that Fortune has decided to focus its plaudits solely on MasterCard? After all, this is an evolution that has been progressing for well over half a century, and that has been jointly driven by numerous financial institutions.

Don’t they deserve some plaudits too?

Target vs. Target: Clashing Strategies

When we think of Target, we usually visualize a middle market company that executes a low cost, high volume product strategy. To be sure, the chain does maintain a stylistically distinctive brand image, but it offers a very basic value proposition: to provide a modestly comfortable shopping experience while maintaining low sales prices.

Recently, though, Target announced a pair of highly unusual business initiatives that will dramatically differentiate it from the competition. First, it announced that it is collaborating with a major consumer electronics firm to form a joint venture; then, it reached out to its suppliers in an aggressive attempt to respond to a challenge from Amazon.

It remains to be seen, of course, which approach will prove to be the more effective one. Interestingly, though, each of Target’s initiatives appears to be based on a different assumption about its primary core competency.

The War On Showrooming

Last week, Target reached out to its suppliers and asked for help in combating the practice of showrooming. It’s an activity that has blossomed with the emergence of internet-based shopping; it refers to consumers who “scope out” products in a bricks-and-mortar store and then use the internet to purchase them from discount web sites like Amazon.

Because web-based retailers do not incur the costs of maintaining store networks, they can undercut the sales prices of chains like Target. And in many states, web-based retailers can avoid collecting sales taxes from customers as well.

Frustrated by the practice of showrooming, Target’s executives asked their suppliers to consider designing special edition products that would be exclusively sold through their stores. The executives also implied that they would welcome discount pricing arrangements with their suppliers, and would (presumably) pass along the lower costs to their customers.

By making such requests, Target’s executives signaled that they intend to continue battling Amazon and other online retailers. At the same time, though, Target is also taking a drastically different approach to managing the competition.

If You Can’t Beat ‘Em, Join ‘Em

Two weeks ago, Target and Apple jointly announced an innovative new venture. Apparently, Apple will soon begin to utilize Target’s floor space to create “store within a store” boutiques for its products and services.

Apple boutiques within Target stores? That might become a very uncomfortable arrangement! After all, the two firms compete directly with each other to sell computers, mobile phones, and other electronics merchandise.

Furthermore, with Apple dramatically expanding its own global retail store network, the two firms are probably heading for more intense competition in the future. And yet Target has decided to turn over a significant amount of its floor space to the world’s most admired company.

The Core Competency

How can we make sense of this dramatic divergence in competitive strategies? One approach, perhaps, is to understand the two different perspectives by which Target may be defining its primary core competency.

If a retailer focuses its efforts on the creation of an attractive shopping environment, then it wouldn’t necessarily be alarmed by the prospect of more intense product competition. Starbucks, for instance, comfortably sold Top Pot doughnuts in its stores for many years because it has always defined its primary competency as the creation of a social “third place” between home and work. It has never simply defined itself as a vendor of coffee and doughnuts.

On the other hand, if a retailer focuses on the maximization of sales volume, then it would always be concerned about more intense product competition. Automobile companies, for instance, often prohibit their dealers from affiliating with rival manufacturers because they define their primary core competencies as “selling cars” and not “creating an attractive environment for automobile buyers.”

If we apply these concepts to Target, it’s easy to categorize the retailer as a sales focused organization in order to understand their Amazon initiative. But is it reasonable to simultaneously define them as a “social environment” organization in order to understand their Apple initiative?

Welcome To Magnolia!

You may be struggling to envision an Apple boutique within a Target store, one that provides a typical Apple store environment to its customers. But other low cost, high volume retailers are successfully executing this strategy; Best Buy, for instance, has been hosting hundreds of similar Apple boutiques for several years.

In addition, Best Buy has been partnering with Magnolia Design Centers to host hundreds of high end electronics boutiques within their stores. The partnership continues to be a successful one; it may well have served as a model for Best Buy’s (and now Target’s) expanding joint venture with Apple.

In other words, although many may believe that Target would be better served by focusing on a single core competency of low cost, high volume sales, Best Buy has actually been doing so and simultaneously pursuing a successful boutique business strategy for several years. Apparently, Target shoppers will soon learn whether the retailer can manage to focus on two core competencies at once.

Goodbye, Black Friday!

Do you remember the Blue Laws? They were based on Christian religious doctrine, and were designed to prevent any retail business from operating on Sundays. Instead, Sundays were dedicated to attendance at church services and associated religious gatherings.

Prior to Henry Ford’s adoption of the five day work week in 1926, factory workers in sweatshops would work six days a week and then rush to their neighborhood stores (and saloons) to purchase merchandise (and libations) on Saturday evenings. They needed to do so because the establishments would be closed, by law, every Sunday.

Most stores now remain open seven days a week, and many operate 24 hours a day. But despite the abolition of Prohibition (i.e. the criminalization of liquor sales) in the United States during the early 1930s, certain states still outlaw the sale of liquor on Sundays, as well as any sales in supermarkets on any day of the week.

Interestingly, other relics of the Blue Law era have survived as American traditions, if not as legal restrictions. One such policy, though, is quickly coming to an end, and is taking the tradition of Black Friday down with it.

The Thanksgiving Tradition

Thanksgiving Day, for instance, has been viewed as a sacrosanct time for family gatherings since it was established as a national holiday by President Abraham Lincoln during the Civil War. Thanksgiving actually replaced an older holiday called Evacuation Day, celebrated in the northeastern United States on November 25, as the day when the British Army formally withdrew from New York City after their loss of the Colonies in the American Revolution.

It is not illegal to ask employees to work on Thanksgiving, or on other national holidays, in the United States. In fact, retail stores have always remained open on many national holidays throughout the year, such as Veterans Day on November 11. Nevertheless, to respect the tradition of Thanksgiving Day, most retailers have shut down in order to grant their employees time to spend with their families.

The unusual closure, quite conveniently, gave those very stores the opportunity to stage “grand re-openings” on each Friday after Thanksgiving  to kick off the Christmas shopping season. The weeks between Thanksgiving and Christmas were (and continue to be) so lucrative that the stores would willingly lose money during all of the weeks before Thanksgiving in order to gear up for the holiday sales season.

The Friday after Thanksgiving would thus represent the day when most stores “broke into the black” and began reaping profits for the year. And so the term “Black Friday” evolved as a connotation of profits and prosperity in the retail industry.

Now It’s Black Thursday!

During much of the twentieth century, retailers opened for business at their customary times on Black Fridays. But then, in order to beat the competition, many store chains opened earlier and earlier on those mornings. And the “grand opening” specials become more and more extravagant, with many stores offering customers prices on popular products that fell well below their wholesale costs.

Last year, several chains opened during the wee hours of Black Friday morning, well before sunrise. But only this year did two different retail chains actually cross the midnight hour and open for business before midnight on Thursday evening. Toys R Us decided to open at 9:00 pm and Walmart followed at 10:00 pm; Target and others followed by opening precisely at midnight.

Many citizens were aghast at this intrusion on the tradition of Thanksgiving dinner; 200,000 Target employees and other concerned citizens actually signed a public petition to protest their employer’s decision. But most simply considered the shift of Black Friday’s opening times to Thanksgiving evening to be an inevitable reflection of evolving social values.

It’s Always Money

The reason for these shifting values? It’s always a matter of money. And it’s not just a consideration for retail stores and supermarkets; many other industries are witnessing the decline of cultural traditions as well.

The Commonwealth of Massachusetts, for instance, has just passed legislation to legalize large-scale casino gambling projects; New York State is continuing to pursue similar projects too. And the tradition of prohibiting obscenity from broadcast television programming is continually eroding through court decisions and other causes.

Furthermore, although many online retailers promote Cyber Monday (i.e. the Monday after Thanksgiving, a regular business day) as a day of special offers, they all — including such titans as Amazon — routinely remain open in a virtual sense 365 days a year. In other words, they’ve never been constrained by any blue law limitations whatsoever.

With the tradition of special Friday offers now migrating to Thanksgiving Thursday in “real world” stores, and to Cyber Monday in online stores, it is difficult to expect that Black Friday will continue to exist in its historical form. For citizens who actually appreciate the support that such laws give to people of faith and to their family values, the tradition will be sorely missed indeed.