A Peek Into Target's Mobile Check-In Pricing Strategy

As more retailers start to embrace check-in services—just this week, Target and Wet Seal both confirmed public trials of Shopkick, which adds their names to Best Buy, Macy's and Sports Authority's—a question has repeatedly cropped up: how much of a discount/credit should a barcode scan be worth?

On the "not much at all" side, we have the fact that it's barely 5 seconds worth of effort. Isn't $2 for a 5-second mobile swipe pretty good money? On the "quite a bit" side, it's a very different shopping action. To get consumers to engage in this beyond-comfort-zone new behavior will take a meaningful incentive. That will be triply-true once the novelty wears off.

Let's look at how Target is dealing with this. When we asked Target for examples of the incentives it is using with Shopkick, it cited four, with varying degrees of specifics. Target offered $5 off a Rubbermaid Reveal spray mop, which seems to be selling on their site for $39.99, as well as that same $5 off of the Guitar Hero Warriors of Rock Video Game, which sells on their site in various versions for $59.99, $99.88 and $179.99.

The chain's spokesperson also mentioned two more vague incentives. The first of those was 20 percent off individual holiday ornaments (which range in price dramatically, depending on how they define "individual"). The second was "when guests accumulate enough kickbucks, they can redeem for a Target mobile GiftCard." Specifics weren't offered as to how many kickbucks will be required for a specific dollar value of giftcard.

Like all pricing strategy, this is less about mathematics and more about psychology. Let's take the two specific examples. A $5 discount on a $180 video game comes to less than 3 percent, which feels cheap, while the same $5 represents almost 13 percent off of that mop.

Isn't $5 worth the same either way? If you find a five-dollar bill on a sidewalk, is it worth less if you use it to help buy a more expensive product?

Incentives get very tricky. First is the question of where the money is coming from. Is the manufacturer willing to pony up some bucks to fund incentives? Even if it is, the retailer has to set expectations that the chain can maintain. If one item has a temporary $25 incentive, is that a good thing or will it merely serve to cheapen the other incentives?

Pricing precedent is always important, but no more so than at the earliest stage of a new service. Consumers today have yet to develop a sense of how much a barcode scan is worth. They are going to look and see what most retailers offer and the average of those amounts will become a permanent price anchor, which will color the consumer perception of what's a good or bad incentive for a very long time.

Asked about its barcode-scanning price strategy, Target was mum on its thinking. "We do want to provide our guests with strong incentives and plan to test a wide variety of offers and point values," said Target spokesperson Molly Koenst.