Contactless payment, biometric payment and self-checkout are just some of the more obvious examples of payment processes that retailers have said they want to push, and yet they have never done the only thing that's almost guaranteed to work: sharp discounts. If a grocery chain decided it wanted to push more consumers through its self-checkout lanes, all the chain needs to do is announce that product prices in self-checkout are sharply less than those rung up through staffed lanes. It can even dictate the percent of change by deciding the percent of discount.
Target, for example, has decided that its in-house payment cards are a priority, so it's trialing a program in Kansas City that—in part—offers customers who use the card "5 percent off on every item, every transaction, everyday," Target CFO Doug Scovanner told analysts in a Tuesday (Feb. 23) conference call discussing the chain’s earnings.
The card incentive is one of two payment trials Target is running, Scovanner said, adding that the tests "could shape the future of this business segment. In one test, we're exploring the idea of returning to issuing cards solely for use in our stores. In another, we're testing a totally different reward structure in two markets, offering guests who use our card in Kansas City, for example, 5 percent off on every item, every transaction, everyday."
The results thus far? "Sharply higher penetration" and "sharply higher credit quality of the guests asking for cards, sharply higher pace of guests asking for the cards. The whole question in Kansas City is whether all of those benefits are sufficient to (justify) the incremental markdowns."
There's nothing surprising in those results. We’re talking about an installed base, so these are already customers you've won. They're already in the store, and they have chosen products based on the prices marked on the shelf. At this point, why not use the store card? Incentives like a one-time $50 store credit deliver a very short-term boost and then the numbers on those cards plummet.
The Target plan is for a program that keeps on giving. It's aggressive, and it assumes that Target's margin figures won't be diluted by something else. But it's also the best way to change consumer behavior. Why don't more chains opt for it? It's because the programs are generally not that important to the senior management who need to sign off on a global discount.
That, plus a lot of confidence in spreadsheets. If you're offering a 5 percent off-the-top discount, you had better be darn certain that you're getting at least a 9 percent margin. That's hard to do. But Target officials have decided that they’re confident about the chain’s numbers and that shifting payment methods is a priority. Well, at least for Kansas City.