Thursday, February 26, 2015

Is Target Off-Target With Cuts To Minimums For Free Shipping?



Target, the discount retailer, well-known for its low-lower-lowest pricing strategies and low-lower-lowest same-store sales, has instituted a 50% cut to its minimum online purchases for customers to qualify for free shipping. Now all consumers have to do is spend $25 to qualify for Target’s free shipping, although handling fees may still apply.

And no, it’s not out of the goodness of their hearts. It’s a short-term shot at Amazon and Walmart, which currently have higher minimums. Why “short-term”? Well, it won’t take long for Walmart and Amazon to institute the same free-shipping pricing. In fact, by the time you read this both retailers will have likely changed their policies, which is a really good example of “retail poker.” You play for table stakes, or you don’t play at all. Someone “raises” and then the other players in the category have to raise or blink, and nobody every blinks! They just keep raising. It’s also an attempt to meet consumers’ increasingly higher expectations about, well, everything. So all in all, what we call an “easy fix.”

According to our new 2015 Customer Loyalty Engagement Index, in the online retail category “free shipping” accounts for a 15% contribution to brand engagement, up a third from last year, and something that has become a high- expectation item in the retail category. Zappos, who instituted the free delivery, free return policy set the bar pretty high for the rest of the online retailers. And anyway, “free” has always been a great engagement mechanism. Way before the Internet.

According to our 2015 Customer Loyalty Engagement Index, here’s how online and discount retailers rate when it comes to meeting expectations for added value à la shipping costs for their Ideal retailer (100%):
  1. Zappos (100%)
  2. Amazon (95%)
  3. Walmart (87%)
  4. Overstock (85%)
  5. Target (79%)
  6. Kmart (75%)
Based on current customer views about this particular category value, Target really does need to do something, but a 50% cut probably isn’t going to do it. Not for long anyhow. Necessity may be the mother of invention, but so is desperation!

Consumers aren’t stupid. They have very high expectations. If retailers like Target can offer free holiday shipping, consumers figure they can do that all the time. Why should they pay more? It’s their right, after all. Don’t they deserve it? And if a retailer doesn’t recognize that, there are lots of other retailers.

Anyway, consumers are on to all the tricks, especially membership programs. Join Amazon Prime and you get free shipping. Overstock.com has a membership program too. For Target, all you have to do is join their RED card program. You can get free shipping on bigger orders from Walmart, but you have to wait a week or so to get your stuff. Don’t think that going to go too far meeting customer expectations.

Target’s been having a tough time of it. The 2013 data breach didn’t exactly instill confidence in consumers, although it did inspire lawsuits. And last month Target closed all of their stores in Canada, which in fairness didn’t have anything to do with shipping costs. Lack of sales had to do with the fact that they got the product-mix all wrong, which was a really expensive lesson for them! So for the moment it’s only a cut in shipping minimums.

It was Sam Walton that said, “High expectations are the key to everything.” The tough part is you have to accurately identify what those expectations really look like and then meet them.

And today, that’s the hard part.


Find out more about what makes customer loyalty happen and how Brand Keys metrics is able to predict future consumer behavior: brandkeys.com. Visit our YouTube channel to learn more about Brand Keys methodology, applications and case studies.

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