Target Decides Payment Method Incentives Work
Written by Evan SchumanFebruary 24th, 2010
Changing consumer shopping behavior is about as easy as motivating a salesperson: Just speak with money. This is how you can tell the difference between what retail executives really care about and what they need to say they care about.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.
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4 Comments | Read Target Decides Payment Method Incentives Work
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February 25th, 2010 at 11:41 am
Target’s provision of a 5% discount for consumers that use their payment card is a significant development that must be watched closely by banking card issuers, payments executives and merchants alike. The success or failure of new payment mechanisms can more accurately be determined by assessing the balance of value propositions between the three constituents (rather than the traditional approach of offering lopsided value to just one or two constituents, which results in failure). Keep your eyes on this one!
February 25th, 2010 at 4:09 pm
Rewarding behavior to choose lower cost payment enablers is smart business for Target.
The math is pretty compelling and simple for Target.
First, encouraging customers to use the house card means Target avoids bankcard interchant/merchant discounts – even with costs of running a private-label portfolio, it is less than 3rd-party bank card costs.
Our research also shows private label cardholders spend far more on each visit, spend far more on higher margin merchandise, and stay customers far longer than all other customer groups.
Plus, those who revolve balances help offset cost of rewards.
February 26th, 2010 at 11:28 am
Now if TARGET figures out how to convince customers to grant access to their bank checking accounts and offers the in-store card as decoupled debit…look-out.
February 26th, 2010 at 3:06 pm
Compete for your customers Method of Payment! Do it today!
Retailers are rightly concerned about interchange fees. Merchant’s are given a choice either accept cards, or not. Retailers can negotiate the Merchant Discount Rate, but not the interchange fee which is the largest part of the cost. Alternative Payment providers who create disintermediation offer payment programs that bring significant savings. While disintermediation creates saving, these payment systems rely on the retailer for marketing and card issuing.