Target Takes Some Tentative Steps into Discounter Loyalty Card Programs
Discounters have been watching supermarkets flood the market with loyalty card programs and have been trying the waters themselves lately, with Target (TGT) the latest to take the plunge, if a little halfheartedly.
Target is shifting how it rewards holders of its REDcards to reposition them in the loyalty card vein. REDcards include the Target and Target Visa credit cards as well as the debit vehicle that the retailer refers to as a check card. Under the new program, the retailer will provide five percent off any in-store or online transaction processed on its REDcards. The per-use discount replaces a rewards program that offered cardholders a 10 percent-off coupon for signing up and the chance to earn more 10 percent-off coupons with purchases.
Critically, the five-percent off deal rewards customers for showing up at the store and shopping, or, in other words, for their loyalty. It doesn't require customers to collect coupons and return to the store again, which seems less about loyalty and more about wringing one more shopping visit out of them. Target asserted that the five-percent off program improved sales results in the Kansas City, where it has been in test since October 2009, and gains were consistent across merchandise categories through the trial period. In expending the program nationally, Target expects to add about one percentage point to fourth quarter comparable-store sales, those at locations open for at least a year, with minimal impact on earnings.
Beyond the holidays, the per-visit discount should boost sales in the retailer's growing food operations. An automatic five percent discount not only provides shoppers with a compelling reason to try the expanded food departments at Target's P-Fresh discount stores but also to check out the even more extensive food offering at Target supercenters. About a third of the retailer's Kansas City stores are supercenters.
Loyalty cards should be simple to get and to use. They should provide consistent rewards that give consumers something any time they do substantial shopping. And they should appeal particularly to a retailer's top shoppers. According to Target, the response to the test was particularly strong among customers it rates as better and best.
With the cumbersome coupon redemption step gone, Gregg Steinhafel, Target chairman and CEO, identified its "simplicity" as a quality that would entice customers to use REDcards for more purchases.
Still, the REDcard initiative has some shortcomings as a loyalty card program. Target competitors that offer conventional loyalty cards â€" supermarkets mostly â€" don't tie them a payment method. So signing up and using them doesn't pique concerns about credit qualification or managing an account. That barrier to entry will turn off some Target customers, limiting the gains from increased shopping and purchasing data generated by the program. Ultimately, that data is what a retailer wants and what sophisticated loyalty care operators such as Tesco (TSCO) in the United Kingdom and Kroger (KR) in the United States use to guide operations and target discounts to customers more efficiently.
Kmart (SHLD) has launched a loyalty card program more closely based on the supermarket example. It isn't tied to a payment vehicle, anyone can sign up and it provides one percent cash back on every purchase. While not as deep as the Target discount, Kmart is making the card more attractive with occasional sweepstakes and other deals that kick in at the checkout. The Kmart program isn't focusing rewards on customer purchasing preferences, but it has that potential.
Walmart (WMT) is experimenting with an even more rudimentary version of a loyalty card, one limited to holders of its prepaid Visa. The program provides cash back for purchasing gasoline, with the immediate benefit of discounting or eliminating the monthly $3 fee associated with the card. Walmart's program is the most modest of the three, but the retailer often launches limited tests of new ideas then expands them, sometimes rapidly. Walmart understands the competitive advantages of loyalty programs, having been hammered for years in the U.K., where Tesco remains the unassailed market leader. Kroger uses the same consultants Tesco did to build its loyalty card program and may have Walmart, Kmart and Target worried about falling behind on a potentially potent marketing vehicle.
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