Target Revives Dropped Price-Matching Program
Target
dropped its price-matching program in 2002. That, as they say, was then
because now it looks as though the retailer may be on the verge of bringing
it back. Target has tested the program in two markets since March
15 and began a third in its own Minneapolis backyard on May 1.
The
retailer has been matching lower prices in its competitors’ ads at 22 stores
in the Orlando area and 28 others in Denver for the past two months. The
chain rolled out its "Unbeatable
Prices. Guaranteed." program
in Minneapolis and Medina earlier this month with the expectation that
it will result in a national expansion of the price-matching initiative.
Target
believes it has figured out a way to get around the problems it found in
2002. Then, competitor prices were verified at the checkout, causing delays
at the front-end. Now, all pricing will be verified away from the checkout
at the store’s service desk.
Delia McLinden, a spokesperson for Target, told the Minneapolis
Star Tribune that the program was being retested because they "want
to speak boldly about value and low prices and give customers peace of
mind."
The Minneapolis/St.
Paul Business Journal pointed out in an article that "Target has been ratcheting
up its emphasis on prices for the past year, as consumers cut back on
discretionary purchases during the recession."
Discussion Questions:
How much will Target’s "Unbeatable Prices.
Guaranteed." program help it achieve a stronger price image with
consumers? Does a program like this risk diluting the equity Target has
built for its brand over the years?
This should be good for Target in regaining some credibility. Target has lost some of its appeal by being a high-priced image retailer in a low-price format. Everyone likes one-stop shopping, so when you can simply bring in competitors’ ads and have the price matched, everyone wins. Walmart has always done this. I wonder how many billions in sales Target has lost over the years as consumers walked into a Walmart with a Target ad and Walmart matched their price? It’s about time Target stopped letting Walmart make sport of them.
“Unbeatable Prices. Guaranteed.” That a strong statement to make and is certain to reinforce Target’s pricing position in the minds of consumers.
I would think that even in today’s world, the price differential between Target and its competitors would have to be large enough for someone to go through the effort to go to the service counter, stand in line, and then go through the verification process (with it normal list of caveats). I saw no mention of extra staff being allocated and in my experience service counters encounters always take more time than expected. That being said, if it creates the perception of lower prices Target may benefit from the perception without having to live through the reality.
It’s all about psychology now. People who are looking to save some bucks think they won’t overpay at places like Walmart or Kmart (it’s not reality but that’s for another post). Target is simply becoming competitive by offering price matching.
I have to be honest with you. I didn’t even know they weren’t doing it. I just ‘assumed’ they did it like everyone else. Welcome back to the game, Target. Conveying the image of being on your customer’s side always helps.
Target seems to be having trouble with its core story. Is Target a fashion store, a home furnishings store, a grocery store, or a discount store? As management has tried on all of these personas, sales have slipped. Target needs to decide what it wants to be and then stick with that story. Otherwise, it just creates consumer confusion.
Target needs to be at or near the same price as Walmart for commodity types of items that are carried in both stores.
However, there are two shortcomings with Target’s price matching approach:
1. My experience has been that Target charges suppliers for ads and display space more often than does Walmart. Therefore the net net EDLP pricing structure doesn’t work as well for suppliers, which by the way, for many suppliers, are also achieving significantly less volume at Target, than they do at Walmart.
2. It’s my opinion that many consumers don’t like the price matching approach because they don’t trust it as well as they do a true EDLP approach. And besides, consumers feel as though the burden is being placed on them, not the retailer, to watch the market prices.
While it’s important for Target to execute this program more effectively in-store than in the past, the very need for its existence points out a competitive weakness. Clearly Target is dogged by the perception (true or untrue) that its prices are “high” relative to Walmart in particular.
This reminds me of the department stores who used to advertise that “We will not be undersold” and drew attention to their high prices as a result. Target might be smart to find ways to market this program in-store through signing, etc. rather than drawing attention to it in print and broadcast ads.
If Target is going to require that its customers verify the competitive pricing at the service desk, after they have checked out, this will become a customer service nightmare. This will prove to be an example of a great idea, executed poorly. It puts an unnecessary burden on the customer, and it will result in the customers revolting, and sharing their bad experiences with their friends.
If Target would properly train their front-end staff that works the cash register, and properly empowers them, all problems will be alleviated. But without this plan in place, this program will quickly become a non-starter, and will go the way of the 2002 initiative.
Price matching is a marketing gimmick. Maybe it adds to perception of being the lowest but how it is implemented at the store level is crucial. For most retailers, matching prices is a loss. Another retailer’s father may have purchased the land and building a long time ago so there is no rent while another may have financed the operation with a home equity loan. In those cases it is apples to oranges. Price fairly, give value, train sales people and leave the price-matching to the big boys to slug it out.
I’m not sure how important price matching programs are in today’s environment. Consumers who are trying to reduce costs have already moved to store brands and there is no way to compare them across retailers.
Lowest-price guarantees are standard fare for many successful retailers (see Home Depot, Staples, et al). It’s the expression of confidence in your prices to your consumers that makes it work. What these smart retailers know is that once a customer buys a product, they typically stop shopping for it!
Truthfully, I was a little shocked to read that Target had even dropped the policy a while back. This is too easy of a win for value-priced retailers.
In times like we are in right now, this should certainly help retain or attract the price-conscious consumers that like to shop at Target and in good times did, but now they have to watch their pennies!
I’m with Max Goldberg–Target needs to settle on a story and stick to it. More specifically, they need to stick to the story they settled on years ago, and have invested in so successfully over the years. This will do very little to move the needle perceptibly on either consumer opinion or sales. But it will probably make the management team a little more comfortable in front of the stockholder’s meeting this year.
All you have to do is look at their comp numbers compared to Walmart to see why this might make sense. Well, that and Target’s test of expanding their food offerings which is another reason for the comp difference. They do need to overcome the consumer’s perception that they might pay more at Target than elsewhere.
The downside could be upsetting their regular customers if the customer feels like they have to jump through hoops to get the lower price or a refund. Could the consumer decide instead of standing in two lines to just go and get the lower price at the other store? I think if you’re going to do this right, it has to be made easy for the consumer, and I’m not sure standing in two lines does that.
At this time, many retailers are moving away from time honored positionings as they struggle with the perceived “value perception” of their brands. I think it is ditch to ditch.
The Home Depot just dropped “You can do it, we can help” in favor of “More Doing, More Saving.” These are selling model shifts, take dollars out of payroll and offset margin loss. I suppose this is providing consumers permission to shop.
But Target is well known as a discounter. Their issue is “are folks open to discretionary shopping?” regardless of the price. Price match might send the signal of sharper value, but recent research shows consumers won’t make the trip without confidence of buying before they leave the driveway.
Stay smart Target! You are walking onto a slippery slope. Once you out there we all know, “retail ain’t for sissies!”
Target claims to comp shop Walmart and consistently stay within 2% of its prices so I’m not sure that the price-matching call-out would be any more effective with price-conscious shoppers. Loyal Target shoppers (especially that defiant group that loves telling you that they won’t “set foot” in a Walmart for various reasons) would hardly notice and I can’t see price matching having the power to make hard-core discount shoppers migrate. I often remind folks that there are tons of people living in the US for whom Walmart is a splurge. For them, Target remains out of the question.
Target has been doing fairly well in retaining the core customers who shop with them, it’s the basket size and trips that they should try to address. The price-matching program is likely to give a nice shot in the arm on this front.
Target has the brand equity and by re-committing to the price matching, it further solidifies its brand choice in the minds of consumers. Brands are more important than ever but so is minimizing pricing risk to customers, and Target should get a win-win here.
What this doesn’t address is profitability and their ability to shift share back and make up for margin erosion through volume…the age-old challenge when playing the price leadership game.
It is a SMALL step in the right direction. I say this as a loyal Walmart shopper who does make occasional trips into my local Target (they are about 1/2 mile from each other in Riverhead, NY).
I have NEVER found this Target to be competitive price wise with my local Walmart. In fact, the price differentials are often staggering, many times with a 20% or greater fluctuation.
Target is supposed to be a mass merchandise discounter with a more stylish edge. They need to cut out the arrogance, and get back to basics, before it’s too late. If Target wants to be more like a department store, than drop the target formula and go back to the business that you dropped a number of years ago.
If, as we suspect, implementing this program is not coordinated with increased labor at the customer service desk, and simply supported by marketing dollars…it will probably have a net positive impact. At least initially.
One caveat: in this age of instant communication, the KFC Grilled Chicken fiasco is the latest example of the negative power of poorly-executed programs. If, for any reason, the program becomes impossible for the consumer to benefit from (long lines, complicated procedures, etc) then look to Twitter for a rapid and loud bounce-back on the initial PR.
In other words…bad execution doesn’t appear to be lost in the mist anymore. So if Target gets this wrong, and the consumer is dissatisfied….
Worth doing, but not a big deal. Price matching often feels like the retailer is asking the consumer to do their job. In other words, why should I have to prove lower pricing somewhere else? Why don’t you do some research and make sure that I’m getting the lowest prices that are out there. If the retailer would be proactive and point out that they have indeed made the effort to be the lower price, it might resonate more. Right now it’s gimmicky. That said, it’s good to know and it doesn’t hurt the retailer to put the policy out there.
I just hope Target doesn’t lose sight of the fact that their positioning as a place to get something a little better (fashionable?) for a price doesn’t get lost in the short-term-thinking discount game that’s currently got us all in a bizarre “survival” frenzy. To me, that’s still a spot on, Blue Ocean strategy–long term.
After all, the real reason Target’s taking a hit is because they invested too heavily in apparel and not at all (hardly) in consumables, right?
That fact has nothing to do with price.
Also important is that with Wal-Mart’s continued assault on the Twin Cities, the last thing Target wants is to be #2 in Minneapolis to Wal-Mart. Target would do anything to avoid that hometown humiliation. Not only would I expect them to ad match, but even lower prices to Wal-Mart levels. Bottom line is not important here, but rather pride.
Target needs to continue to clarify and reinforce their market position. There is room to charge 2%-5% more than Walmart based on overall consumer perception and appeal, combined with specific category superiority–such as in apparel.
Target’s price-matching program should help the retailer better position itself as a partner to the Recession Shopper seeking thrifty buys. The program alone can’t do that, but along with the New Day ads, it’s a big step in the right direction, i.e., helping consumers navigate the downturn.
Re: whether the program dilutes brand equity, I don’t think so. Indeed, I’d say Target is being very smart in recognizing that shoppers have shifted to a savings mindset, not a spending mindset–and it’s a mindset that will dominate shopping behaviors for many years to come. Being a savvy shopper is where consumers are at and Target is responding in the right way by better positioning the chain as a smart shopping choice now and going forward.
Interesting to see so many comments on this topic. Clearly we are all shoppers in this segment!
I have always been a big fan of Target. I am “one of those” who avoid Walmart if at all possible due to the feel of the place. Target provides good prices (even if not as low as Walmart) with nice ambiance and some really cool product via their focus on design. Unfortunately, they have drifted in the last few years and lost some of their message. It didn’t change my enjoyment of the shopping experience there but clearly Walmart gained share as they stayed true to their low price message and dealt with much of their bad publicity.
I haven’t seen the new price-matching program in action, but I will assume the two test markets have shown strong results or they wouldn’t be expanding the program. Target is known for execution, so I will assume they have the bugs worked out of dealing with the customer requests. I think the marketing message is right for the times and as long as they keep to their design ethos, it will prove to be a good move.
Price-matching is painful for the store and for the shopper. It creates suspicion, encourages time-wasting debate, and does nothing for profitability. That’s why Target dropped it.
What shoppers want: a store called Loss Leader Headquarters, selling everything 10% below cost. What retailers want: a store called Blind Margin Trappers, selling everything at the highest prices in town, with sales of $10,000 per square foot, in a 40,000 square foot box.
Best price comparisons: go to the Progressive Insurance site. They’ll show you their price and all their top competitors’ prices, for the same policy. They maximize profit by selecting their customers.
Or look at Amazon, eBay and Barnes & Noble. Their sites encourage price comparisons.
But Progressive, Amazon, eBay and Barnes & Noble don’t match prices. They just show the comparisons.
Having to price match–a common practice–reinforces Target’s problem of not yet being looked at as a quality, value store.