Can Target Create True Customer Loyalty?

On the heels of announcing the wind down of its Cartwheel Perks loyalty program, Target is focused on gaining customer trust and restoring brand loyalty through a thoughtful strategy around pricing and promotions.

During the company’s second-quarter earnings call this week, Target CEO Brian Cornell discussed this theme.

“As we move toward a stronger everyday price proposition in our business and pullback on excess promotions, we can expect an adjustment period before value perception proves and consumers respond,” Cornell said. “While we continue to face the risk in future quarters as we expand the scope of this work, it’s notable that in the second quarter we saw a meaningful increase in the percent of our business done at regular price and a meaningful decline in the percent on promotion. This demonstrates the progress we have already made and gives us confidence we are on the right track.”

Target remains on track on its physical transformation agenda, which involves more than 100 stores in 2017, and transforming more than 600 stores over a three-year period.

Cornell stressed the need to focus on strong execution in every channel, every day.

“Second-quarter traffic, which was up more than 2 percent, was much stronger than our expectations and better than recent trends and the strength was broad-based across the country, across categories, and across channels,” Cornell added. “And while the consumer and competitive environment remains choppy, better-than-expected performance occurred throughout the quarter and wasn’t limited to a short period within the quarter, with better second quarter traffic, we saw improved performance across each of our five broad merchandising categories: apparel, home, food and beverage, essentials, and hard lines.”

Cornell noted Target’s progress on its digital capabilities.

“As a result of our comprehensive effort by our team to reduce friction and increase the reliability of our digital operations, we have seen meaningful declines in guest contact center activity related to digital,” he said. “This is a tangible reflection of our work to create a stable digital platform and successful collaboration between our digital operations and merchandising teams to create a more cohesive experience for our guests.”

Kate Hogenson, senior loyalty consultant, Kobie Marketing, told Loyalty360 that she’s not sure that Target can win brand loyalty through pricing alone.

“Despite all of the less-than-stellar predictions, Target had a promising second quarter with increases in both in-store and a significant boost in digital traffic, demonstrating the success of its online strategy,” Hogenson explained. “But there was also cause for concern, at least some of the boost in traffic stemmed from price decreases. Pricing almost always seals the deal for individual transactions, especially now that it’s so easy to compare prices online. But it really does not differentiate a brand or create true customer loyalty beyond a single transaction. Customers want to feel they’re valued, but also that they’re saving money. If Target can build up trust in its low-price value proposition and prove its transparency to customers, it can create an emotional connection built on reciprocity instead of a transactional relationship built on everyday low prices. And that is what creates true customer loyalty.”

Ron Orgiefsky, managing director at emnos, told Loyalty360 that Target has been a progressive retailer for years, continually tweaking and adapting to keep things fresh and to keep up with market trends.

“Target’s move to pull back on excess promotion is driven by the desire to change value perception among its shoppers,” Orgiefsky explained. “And both shopper segmentation and store segmentation help in the understanding of what to do and how to do it. It’s important to understand that value perception is different among different shopper segments, and even among those segments, often times different from one product category to the next. To maintain customer loyalty, balanced with sustaining necessary margin structure, both critical for the long-term success of a retailer, one must truly understand this right balance of promotions, not only in terms of to what degree to promote an item, but to whom an item should be promoted, and through which channel of communication.”

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