Target's cheap chic re-captivates discount customers

By Robert Passikoff, President, Brand Keys

We've said this a thousand times, but here it is again, once more wrapped up with an in-market validation ribbon: Emotional aspects of a category count more to consumers than rational ones when it comes to consumer engagement and brand profitability. 

That's true in B2C and B2B categories. The only time rational category aspects, primarily on their own, create the kind of consumer behavior that substantively boosts the bottom line is if you're talking about a commodity, like selling bags of sand. Here's another proof positive: It's going to end up a marketing case history at some business school somewhere; that's the only time rational category aspects on their own, or primarily on their own, create the kind of consumer behavior that substantively boosts a bottom line, but here it is now. 

In our Brand Keys Customer Loyalty Engagement Index (CLEI) for the Discount Retail Category, Target has generally appeared in the No.2 spot—after Walmart and just ahead of Kmart. Those are the only three national discount retailers, so the list isn't long. 

Target, a division of Dayton Hudson Corporation, grew, and finally the company went with the name "Target" for all its divisions. 'Round about the early '90s, Target began to differentiate its stores by offering more upscale-feeling, trend-forward merchandise at lower costs. It created a category unto itself, even if just perceptually, called "cheap chic," in direct opposition to the Walmart model of focusing on low-, lower- and lowest-priced goods. Kmart didn't actually have a strategy other than locations with low prices, with prices not quite as low as Walmart's. 

Back then Target was rated No. 1 in our CLEI, and it worked out pretty well for them because their engagement strategy relied on the emotional value of style, rather than the rational value of price. People felt good about themselves when they shopped at Target. They saw themselves as having good taste and they were getting a good deal.

Target held the cheap-chic positioning for a decade or so and did pretty well, but when the recession hit, Target panicked and walked away from style and turned to a low-price strategy positioning, hoping the Target logo alone would speak to their style heritage. Alas, logos only go so far and only speak so loud, and consumers' memories of bygone strategies (however once-engaging) are short. Target seemed to perennially become No. 2.

Whether by design or happenstance, Target has recently returned to its cheap-chic strategy. They've refocused on the kind of fashion and style that resonated with consumers years ago, who, when asked where they had shopped, would say "Tar-ghay," with a faux French accent, putting an ironic spin on shopping for style at a discount retailer. So, has the return to an emotional strategy worked?

Mais oui! Target has been posting better-than-predicted earnings, and just did again—a day after Walmart posted their own disappointing numbers. This is the third straight quarter of sales growth for Target. They reported a 52 percent increase in profit, with revenues up nearly 3 percent. Along with a return to a more emotional positioning is the recognition that the retail game will be won according to what share-of-wallet and frequency of visits a brand can engender, which are, of course, rational aspects of business, only in this case they're driven by an emotional connection to the brand. 

And sure, everyone shops everywhere, but as the brand has returned to style and chic for its differentiating position in discount, it's selling more expensive items to more shoppers who have more money to spend more frequently. In light of that, Target CFO John Mulligan has noted, "We're letting consumers lead us to the right answer," which is always the smart thing to do and the kind of thing that shows up in business school case studies where brand success is the bottom line—and usually the result of increased consumer emotional engagement with the brand. 

Robert Passikoff is the founder and president of Brand Keys.

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