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Target Leans Into Same-Day Delivery in Paid Membership Launch
Following the playbook of Amazon and Walmart, Target launched its first paid membership program that combines its RedCard credit card and Shipt membership programs under the Target Circle umbrella.
The program, foretold by a Bloomberg article earlier this year, particularly focuses on Target’s investments in same-day delivery, which includes its Shipt acquisition, build-out of curbside pickup, and efforts to fulfill over 95% of online orders from stores.
“Here’s the takeaway,” said CEO Brian Cornell Tuesday on Target’s fourth-quarter earnings call. “Without huge investments in stores, supply chain, and tech, there is no drive-up or order pickup, which were monumental growth drivers during COVID and today. And without stores, supply chain, and tech and providers like UPS, FedEx, and Shipt, there is no home delivery, which is ready for a step change in guest acquisition, satisfaction, and loyalty. As we move forward, we’ll leverage our 2017 acquisition of [Shipt] to help us build unmistakable recognition for Target same-day delivery.”
The launch of the paid membership program, called Target Circle 360, is part of a broader revamp of its loyalty program.
The free Target Circle program, which launched in 2019 and has grown to more than 100 million members, will become easier to use and more personalized. Previously, shoppers searched the app for Circle deals and then added them to their app. Now, deals are automatically applied at checkout through the app. The deals include those provided by partners like Ulta and Apple.
According to Target, Circle members spend five times more than non-members and shop five times more often.
Target’s RedCard is also getting rebranded to the Target Circle Card with the same benefits. Cardholders get 5% off every Target purchase, free two-day shipping on thousands of items, and an extra 30 days to make returns.
The paid Target Circle 360 program’s big perk is unlimited free same-day deliveries through Shipt on orders of more than $35. Members also gain access to the Shipt Marketplace, which offers same-day delivery from more than 100 retailers. Available at a promotional rate of $49 a year through May 18, the annual rate for Target Circle 360 is $99 a year. Target Circle Card members will continue to pay the $49 rate.
Membership programs from Amazon ($139 per year), Costco (Gold Star, $60 a year; Executive, $120 a year), and Walmart ($98 a year) have proven to be effective traffic drivers. While many competing membership programs have more perks, ranging from streaming services to gas discounts, Target Circle 360 has the best offer around same-store delivery.
Target’s comparable sales, down 4.4% in the fourth quarter, declined for the third quarter in a row, but a bright spot has been same-day services (in-store pickup, drive-up, and Shipt), which represented more than 10% of total sales and expanded 13.6% in the quarter, led by curbside pickup.
In an interview with CNBC, Cornell said the Target Circle 360 program is positioned to capitalize on the increased appeal of same-day delivery. He said, “There’s a guest who’s looking for the ease and convenience of having something brought right to their home — in some cases, within an hour — and we just want to elevate the awareness that we can do that.”
Discussion Questions
Does Target Circle 360 offer enough appeal to compete against Amazon, Walmart, Costco, and other subscription offerings?
Do you agree with Target’s CEO Brian Cornell that home delivery is “ready for a step change in guest acquisition, satisfaction, and loyalty”?
Poll
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Michael Zakkour
Founder - 5 New Digital &International Marketing Lead at UNILEVER
Katie Riddle
Global Retail Strategist, Verizon
Target’s new membership program is more of an exercise in tidying up existing programs than creating something new and truly innovative. The free tiers are just an adjustment of the current Circle scheme, while the paid Circle 360 tier is basically an adaptation of an existing program from Target owned Shipt.
Certainly the program may appeal to those who use Target a lot online and have regular deliveries. For most other people, I do not think there are anywhere near enough benefits to entice them into spending $49 or $99 a year. Nor do I think this is powerful enough to entice people to switch from Amazon (which has better delivery speeds across many more areas than Target and a whole raft of other Prime benefits) or from Walmart (which is far better for groceries).
So, this is a good start for Target. But it needs to add a lot more bells and whistles if it wants to grow this program.
This is a smart move by Target. Five years ago they were leaders in building a unified commerce ecosystem, but have since fallen behind Walmart, Amazon and a few others.
Linking loyalty, delivery, logistics, IT, and physical/digital store fronts is pure UC and will pay off handsomely for Target going forward.
“a bright spot has been same-day services …, which represented more than 10% of total sales and expanded 13.6% in the quarter, led by curbside pickup.” But is it? (A bright spot, that is) If it’s more profitable; but I have a hard time believing it is (I struggle to believe it makes money at all). This sounds more like a “gain sales at any cost” approach. I don’t see it ending well.
Target is playing catch-up when it comes to loyalty programs, and Circle 360 certainly ups their game. But while the value proposition appears strong for existing Target customers, I wonder if it will deliver new shoppers to Target – I’m not convinced that it will. At least not in the numbers that the Target team would like. Is home delivery ready for “step change”? I don’t see it. Home delivery has become a core expectation for shoppers of the largest retail players, and Target seems to be offering a solid ‘me too’, but positioning it as something extraordinary.
I see the power of this for certain categories, such as groceries/convenience items that might be discovered as urgently needed, and for furniture because bringing that home is such a pain. Beyond that, I’m struggling to find the value in this considering many consumers look forward to going into physical Target stores. Further, I would think that getting customers into physical stores drives more impulse buying, so even though Circle members spend more, pushing them towards delivery might cut into some of that.
I’m still hoping to understand the mix of compelling customer benefits in a paid Target membership program, especially how it can pull from competition who launched their own programs several years ago.
It may be that Target is starting small, only focusing on existing customers to drive paid memberships. And thus this becomes a wait and see game for development, growth.
Subscription fatigue is real. Although this was likely a long time coming, this seems past due. I anticipate the die hard Target followers to participate but don’t see this being a revolutionary change. Walmart has already been pioneering innovative new options for home delivery. Not sure what is truly new here, except for the Shipt access to other retailers which drives traffic elsewhere.
Let’s not get too excited. Circle members spend five times more than non-members and shop five times more often. It isn’t because they are Cir4cle members. It is quite the opposite. They are Circle members because they were already Target loyal/
So, Let’s tone down the expectation. All Target is doing is playing catch-up. This is not a matter of bringing in new customers. Who needs another paid membership? It is a matter of keeping customers from leaving. Does Target offer me movies and TV shows?
Same-day delivery may be a headline grabber, but who uses it? Ironically, I just made an Amazon purchase and clicked the usual 2-Day Free option. I got the item in 12 hours.
While this will likely appeal to core Target shoppers, and perhaps makes for a more coherent offering, I’m not seeing enough value to pull shoppers away from Amazon or Walmart programs.
Smart move by Target to integrate Shipt into their loyalty program. For Shipt users, this is a better deal than the $120/year Shipt monthly membership. I will be curious to see how many target loyalists who are currently using curbside pickup cover to delivery with this program.
Methinks Target is seriously starting to thrash. Get all the right product in stock, have the right number of employees in the store, make them neat….retail 101. Paid memberships are swell, but they’re not the root of target’s resurgence
This is way more a case of playing catch-up than it is a “step change”. But of course nobody says they are playing catch-up in the headlines. And it’s aimed directly at those negative comps, recognizing that the same day services are in big demand. But customers don’t want same day services on product they don’t want. They want same day services on most wanted/most needed product. And since Target was already pretty good at the services stuff, it sounds to me like they have a product problem somewhere. Which frankly comes as a surprise.
I think we are learning that offering the customer convenience can get very expensive, very quickly. And of course the word “free” has to be used somewhere. These are never “prepaid delivery programs”. It’s a membership or loyalty program with free delivery. Free…one of the most expensive words in retail.
On paper, membership and subscription models make great economic sense by increasing lifetime customer value. They’re a great way to establish a baseline of predictable revenue and diffuse the costs of service improvements like same-day delivery.
In Target’s case, it may be a way to lock-in more wallet share with existing high-frequency shoppers, but as Neil and others have suggested, there’s not much here to persuade a member of Prime or Walmart+ to add another recurring membership fee. Target needs to refine its more fundamental value proposition before membership has much potential to rekindle growth.
Target is playing catchup here. While I applaud the effort to bring same-day delivery to customers, and I’m sure they will have a ton of interest in this, they need to get better at making sure that the products in their customers’ orders are available. Instore or for delivery.
A “step change”? That is right out of the official CEO idiom guide… This smells more like keeping up with everyone else to me.
I think these companies (Amazon being the main one) have done a thorough job of selling benefits you don’t fully realize. I mean, sure, I get another $.25 off grapes at Whole Foods. But stream Amazon Prime, now with ads? Nope. Listen to Amazon music on our Sonos? Nope. Take advantage of free or discounted delivery? About 4 times a year, sure. There is no way we are realizing $150 or so of savings. But cancel it? Are you kidding?
Finally-are we so lazy that we need to have instant delivery across different aisles? Obviously we are, because it is happening, however this is a trend (fad?) that I think will weaken.
Subscriptions/memberships are great for the core consumer, but can alienate new customer acquisition if they don’t see the value or have enough value offered to them upfront. Target does need to offer a program to be competitive with the big box retailers but should be cautioned that long term growth cannot come from raising the membership prices or offering a premium service to do so–Netflix….
Catering to customers with same-day delivery will help Target stand out with speed and convenience. While rivals’ subscriptions are more robust, Target’s prompt service, limited-time promotional pricing and strategic partnerships like Ulta differentiate this loyalty program.
Service excellence and speed can help Target demonstrate leadership in the home delivery step change. If Target nails its processes by making delivery fast and reliable, more consumers will make it a habit to skip the store.
The same-day shipping benefit should cement shoppers with urgent needs ie: grocery while the store experience and private label products continue to attract browsers and aspirational shopper.
If you are going to play in the big leagues, you have to play big. In this case, the big league players (Amazon, Walmart, etc.) offer same-day delivery. Customers love convenience. Same-day shipping is super convenient and will give a retailer a competitive advantage over those that don’t offer that level of service. And, as you see from the fees, customers are willing to pay for this.
Target’s low $49 annual fee is one indicator of the challenges facing Target.
Target doesn’t have the extensive offerings and value of the more expensive Amazon prime membership. Multiple sources put the paid Prime subscriber base at over 165 million in 2023. Why subscribe to both when Amazon offers so much more membership value.
Target doesn’t have the grocery sales levels or options of Walmart. Grocery baskets drive same-day delivery demand and frequent repeat purchases.
Target’s offerings are generally higher priced which is a challenge for generating ecomm or store trips in an inflationary economy.
Tough work ahead for Target to rise above those formidable challenges. They need s strong point of differentiation to justify interest in and value from a paid membership program.
Keeping up with the competitors is hardly a step change. It does, however, help secure your own customers who may stray. It also diminishes another store’s advantage.
Costs of membership are objective. Price shoppers will compare one against another. This means it’s a game that can be won when the time is right. Needless to write, don’t get too used to the fees.
On the other hand, brands that leverage satellites are already watching where most active shoppers live. This allows them to focus promotions to take market share. Watching trucks make home deliveries is even easier.
This will be fun to watch.