Earlier this month, Target announced plans to debut a new loyalty program called “Target Red.” The main focus of the new program was to offer something to consumers that was not tied to a payment card. Moving away from a one-card approach to a multitender loyalty program is a growing trend among the retail industry.
Some of the perks of the program include 1% off purchases and a waived $5 restocking fee on digital returns.
FierceRetail sat down with Howard Schneider, VP of loyalty strategy at Kobie Marketing, to discuss Target’s strategic move toward a tender-neutral program and what it means for loyal Target shoppers.
FierceRetail (FR): Why do you think Target switched from its payment-tied loyalty program to this one?
Howard Schneider (HS): Target most likely switched from a card-only approach to a multitender model to increase program engagement and market penetration. Financially, it’s a smart move: retail brands that don’t have a multitender program are leaving money on the table.
Although it may seem counterintuitive, this move will also help Target shepherd even more consumers into its existing REDcard program. In our experience, retailers with multitender programs tend to achieve higher penetration for their private label and co-branded cards. It’s a foot-in-the-door technique, so to speak. With a multitender program, you gain access to customers with unrealized potential, especially those who typically use multiple payment methods but are willing to consolidate purchases with a brand, given the right perks.
Once you have enticed a customer to sign up for one program, they become more incentivized to eventually adopt the ‘preferred’ form of payment, i.e. the store branded credit or debit card, if it offers more exclusive or higher return benefits.
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FR: Are other retailers making this type of switch?
HS: Yes, this is indicative of a larger pattern, and we’ve seen plenty of retailers making the switch to multitender and tender-neutral programs, including Nordstrom, Kohl’s and Bloomingdale’s.
We see this trend happening for a number of reasons, including best practice, evolving shopper preferences and the modern marketer’s imperative for more in-depth customer data. Younger generations, for example, are not using cards like previous generations. To create a truly polished program and to accurately target consumers by demographic and life stage, retailers need more insights into individual customers.
A multitender program has the potential to reach a whole new cohort of shoppers, which means more data and a better overall program down the line.
FR: Are there any retailers with payment platforms tied to their loyalty program that are maintaining their members?
HS: Brands can and do continue to use card-based programs and still perform well, but the market penetration for their program will almost always be lower than it would be if they were to take a multitender or tender-neutral approach.
Starbucks, for example, does not offer a multitender option and has still managed to create a program with high enrollment and high spend per member. This is thanks in part to its highly successful mobile app, which allows consumers to pay with their smartphones and earn and redeem points in real-time.
Starbucks also differentiates itself with a seamless customer experience, with perks like mobile ordering, exclusive rewards and personalized offers—all experiential elements that help boost participation and engagement.
FR: What do you think the future of loyalty looks like?
HS: The future of loyalty will be experiential and highly personalized. The one-size-fits-all approach no longer works. Brands must keep a close eye on technology adoption and adapt their strategies to target customers across different generations, channels, shopping habits and life stages.
Creating loyalty requires a combination of relevance, value, convenience and rewards. Benefits like free expedited shipping are much more enticing to consumers than simple cash-back and dollars-off rewards. It’s these experiential elements that create true brand affinity and keep customers coming back.
The brands that incorporate these elements into the shopping experience, across devices and channels, are the ones that will win out.
FR: What else can you tell us about this Target move and the loyalty space in 2018?
Since Target’s program has just launched, we will be watching to see how it’s executed and tweaked over time. To deliver a well-designed program, Target will need to offer more varied and experiential benefits along the way to offset the relatively low 1% cash back earn rate.
Moving into 2018, we’re seeing a few different trends impacting the state of loyalty marketing. Subscription services, for one, are growing in popularity. We see this as the natural evolution of continuity marketing, which has been part of direct marketing for years. Today, these services have a new level of sophistication, and retailers are harnessing consumer data to curate products and experiences for customers in a way that wasn’t previously possible.
We’re also seeing retailers exploring the potential of blockchain technology for loyalty programs. Blockchain promises greater security, convenience and transparency. But because blockchain is best known for enabling cryptocurrencies like Bitcoin, some people confuse the technology with the notion of a universal loyalty currency. That’s a scary concept for loyalty marketers, because if a truly universal currency gained traction, it could mean the end to loyalty as we know it—a universal loyalty currency that could be redeemed anywhere would essentially undo a customer’s loyalty to individual brands.
Points and discounts alone never have and never will keep customers coming back. While new trends and disruptions are certainly exciting, I cannot stress enough the importance of creating experiences that tap into customer emotions and establish a sense of reciprocity and trust.