target case study

MGMT 3033W— SECTION 20—SALLY LEDERER

REDcards, Groceries, and Students Three avenues to achieve sustainable growth at Target

JRSW Consultants—Jonathon, Jaqueline, Alan, Zach

4/29/2013

[REDCARDS, GROCERIES, AND STUDENTS] April 29, 2013

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JRSW Consultants

321 19th

Avenue South

Minneapolis, MN 55455

612-455-5444

April 29, 2013

Target Case Study Judges

1000 Nicollet Mall

Minneapolis, MN 55403

Dear Target Judges:

We at JRSW Consultants are thrilled about the opportunity to work alongside Target. Our goal is

to make Target the preferred shopping destination for current and future guests. The focus of this

proposal is to increase the frequency of visits and build guest loyalty through all channels that

you serve. We believe that our proposal can enhance the shopping experience for guests by:

Creating a more engaging REDcard loyalty program

Making Target a “One-Stop-Shop” by expanding the grocery section

Building brand awareness in a younger demographic

We look forward to meeting with you to discuss this proposal in greater detail. Please contact us

if you have any questions, comments, or concerns prior to our meeting on May 10th

. We can be

best reached at 612-455-5444 or via e-mail at [email protected]. Thank you for your

time and consideration.

Regards,

JRSW Consulting Team

mailto:[email protected]


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Anne is a typical Target guest. She is 43. She has 2 children. She works full-time. She is also a health nut. Like the average consumer in today’s society, she needs to pick up groceries an average of 2 times per week. But as busy as she is, Anne prefers her local grocery store a few blocks from her house because of the convenience and the wide selection of grocery offerings. Anne’s trips to Target are much more infrequent—only about once per month to stock up on home essentials or fill her prescription in the pharmacy. The challenge facing Target is how to get guests like Anne shopping at Target more frequently and increasing the size of her basket so that she becomes a loyal guest across all multi-channel platforms. (In-store, .com, mobile)

Executive Summary Our multi-dimensional solution is designed to achieve the goal of increasing guest shopping frequency and basket size at Target while aligning with the overall strategy and mission of the company by providing value, continuous innovation, and an exceptional shopping experience to the guests in all channels. Our solution focuses first and foremost on the REDcard loyalty program but as a supplement—we are recommending improvements to Target grocery and a shift in thinking of the marketing campaign of the target guest.

Improve Guest Experience through a more engaging REDcard Loyalty Program

Currently, the REDcard program focuses primarily on providing value to the guests through the 5% discount, free on-line shipping, and an extended item return period. However, Target guests are looking for more than just saving a few dollars on their basket or on shipping costs. The REDcard loyalty program is lacking innovation and the component that improves the guest experience. Our dynamic re-design of the REDcard loyalty program will feature exclusive product and service offerings for cardholders, tuition reimbursement for students, VIP access to Target sponsored events, additional benefits during the holiday season and Black Friday, and more. These incremental incentives to the REDcard will increase the number of cardholders nationwide, and ultimately improve profit margins and guest’s satisfaction long term.

Make Target a One-Stop-Shop to Increase Guest’s Frequency and Basket Size

In an effort to make Target the preferred shopping destination for all guest needs, Target has the opportunity to capture more revenue by expanding its grocery and fresh produce offerings. Our solution will continue to emphasize converting the rest of the stores into PFresh and re-allocating floor space in each store to make more room for grocery and fresh produce as a way to attract more guests into the store on a more regular basis. Although Target will be sacrificing floor space that yields higher margins, the re-allocation of floor space to higher inventory turn grocery items will attract more guests in the store more frequently.

Build Brand Awareness in a Young Educated Demographic for Long-Term Growth

Although the primary audience for Target is a guest like Anne, Anne’s children who will be in college soon make up a secondary audience that deserves a lot of attention. College students are the future guests and also the guests that yield the highest margins for a long term strategy. A student’s first year in college is a great opportunity for Target to impress this younger demographic and start building the Target brand. Our strategy invests in this market segment in a variety of angles, all of which focuses on Target’s long term growth strategy.


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Contents Executive Summary .................................................................................................................................... 3

Improve Guest Experience through a more engaging REDcard Loyalty Program .......................................................................... 3

Make Target a One-Stop-Shop to Increase Guest’s Frequency and Basket Size .......................................................................... 3

Build Brand Awareness in a Young Educated Demographic for Long-Term Growth ...................................................................... 3

JSRW Research Approach Methodology ................................................................................................. 5

Pre-SWOT Analysis ..................................................................................................................................... 6

Strengths ...................................................................................................................................................................................... 6

Weaknesses ................................................................................................................................................................................. 6

Opportunities ................................................................................................................................................................................ 6

Threats ......................................................................................................................................................................................... 7

Pre-SWOT .................................................................................................................................................................................... 7

Recommendation: REDcard....................................................................................................................... 8

A more engaging REDcard Loyalty Program ................................................................................................................................. 8

Expect even more; pay even less with Target REDcard ................................................................................................................ 8

Current Benefits ............................................................................................................................................................................ 8

Added Benefits ............................................................................................................................................................................. 8

Structure Rewards Program around what Target guest’s Value .................................................................................................... 9

The Gold Membership ................................................................................................................................................................................. 9

The Platinum Membership .......................................................................................................................................................................... 9

The Diamond Membership ........................................................................................................................................................................... 10

The Student Membership ......................................................................................................................................................................... 10

Recommendation: Target Grocery .......................................................................................................... 11

Make Target a One-Stop-Shop to Increase Guest’s Shopping Frequency and Basket Size ........................................................ 11

Profitability .................................................................................................................................................................................. 11

Maximized Merchandising........................................................................................................................................................... 11

Recommendation: The College Demographic ....................................................................................... 12

Build Brand Awareness in a Young Educated Demographic for Sustainable Long-Term Growth ................................................ 12

Finding long-term value in College students ................................................................................................................................ 12

College Students shopping list .................................................................................................................................................... 13

Give them VIP Status during back to school shopping ................................................................................................................ 13

Rewards program for using online shopping ............................................................................................................................... 13

Feasibility Analysis ................................................................................................................................... 14

Organization and Staffing............................................................................................................................................................ 14

Schedule .................................................................................................................................................................................... 14

Financial Projections: .................................................................................................................................................................. 15

Findings and Recommendations ................................................................................................................................................. 17

Organizational: ........................................................................................................................................................................................... 17

Financial: ..................................................................................................................................................................................................... 17

Technology: ................................................................................................................................................................................................ 17

Marketing: ................................................................................................................................................................................................... 17

Conclusion ............................................................................................................................................... 188


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JSRW Research Approach Methodology Through JSRW Consultants 20 years of retail experience and through observing trends within the retail industry on everything from everyday to luxury goods, the Target REDcard and guest loyalty encapsulated the natural selection for our strategy. The use of credit and loyalty programs are increasingly popular in the industry, and in tough economic times and increasing competition-engaging consumers in more than monetary rewards are key. According to the 2011 Colloquy Customer Loyalty Census, of the $48 billion worth of perceived value in reward points and miles distributed by American businesses annually, one-third goes unredeemed by consumers. Companies lose money on time and effort, and customers get no more value from the businesses to which they are "loyal." So how do you keep Target out of that one-third segment? How do you convey enough additional value in your REDcard programs to keep your guests coming back? It’s time for us to look beyond convoluted rewards systems and offer actual value to customers using our loyalty program. This proposal will get you started; these are some ideas for customer loyalty programs that will work for your business. -The JSRW Consulting Team


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Pre-SWOT Analysis The pre-SWOT analysis depicts the current state of Target in relation to our proposal. By examining Targets internal strengths and weaknesses and external opportunities and threats we have identified strategies for taking advantage of opportunities and reducing external threats that can impact the organization.

Strengths

Target is known as one of the largest and most competitive retail companies in the U.S. The Target brand, the color red, and the bull’s-eye logo are recognized by more than 97% of the United States population. In addition, Target stores maintain a positive image for its store cleanliness, fashion, and design-forward thinking. Target also has also leveraged its ability to use social media as a way to interact with guests and enhance their shopping experience. Facebook and Twitter have allowed Target to gain valuable feedback from guests which has been used to improve decision making across the organization. As society has become increasingly hyper-connected online and on-the-go, Target’s IT department has introduced to its guests a state-of-the-art mobile app and an improved Target.com platform which have lead to increased sales in the multi-channel space.

Weaknesses

A weakness at Target is seen in their high employee turnover at the store level. The team members are the image of the store and can make or break a guest’s shopping experience. Another weakness is that not all Target stores carry a full grocery selection like the ones found at Super Targets or PFresh. Also, Target has had issues keeping prices consistent across all of their platforms and their prices tend to be slightly higher than other large retailers.

Opportunities

Target has the opportunity to create a stronger guest community through the REDcard program by providing guest with rewards and benefits unlike any other competitor in the retail industry. Team members need to inform Target guests of the additional benefits of the Red Card beyond the 5% off every purchase; Free shipping at Target.com, ability to manage account online and on a mobile device, donating to your child’s school, and their ability to track account for suspicious activity.

Guest should see Target as their one-stop-shop for all of their shopping needs. Target can get one step closer to that goal by providing a larger food and grocery assortment. Either converting into the PFresh concept or re-allocating floor space to allow for more groceries and fresh produce is a great opportunity to grow revenues and achieve Target’s goal of becoming a $100 Billion company.


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Another opportunity is to look beyond the typical target guest and into secondary markets to promote their brand. Specifically, Target should take advantage of the young educated demographic of college students.

Threats

Multi-channel retailing is rapidly evolving and Target must keep pace with changing guest expectations and new developments of the competition. Target needs to constantly be innovative with the multi-channel platforms and stay ahead of the competition in each channel.

Another threat is failure to anticipate and respond quickly to changing consumer preferences, such as the newest style of clothing, or large scale macro trends affecting consumers.

From a sheer competition standpoint, on-line retailing is becoming more accessible and the market has become extremely saturated. Not only is Target competing with the likes of Amazon and Wal-Mart but thousands of others across the globe. It is important to understand the threat of this competition and have strategies in place to hedge against this increasing risk.

Another large scale threat is the overall health of the US economy. The majority of the stores are located in the United States, making the success of the company dependent on United States economy.

Pre-SWOT

Strengths

•Superior service

•Excellent brand image and reputation-loyalty 97 % Americans recongize the Bulls eye.

•Social media as a two way communication to hear customer’s opinions

•Providing the mobile app and Target.com has catered to those customer needs

Weaknesses

•Different stores have different layouts

•High employee turnover at store level

•Not all Targets carry a full Food selection

Opportunities

•One-stop-shop by providing a larger food assortment

•Building a community through Target REDcard

•REDcard is a great way to ensure that guests use the multiple channels

•Increase Private Label Products- higher profit margin

Threats

•Economic status of the nation

•Technology changes so fast that something new can overtake.

•Failure to anticipate and respond quickly to changing consumer preferences


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Recommendation: REDcard

A more engaging REDcard Loyalty Program

Most can agree that everybody loves free stuff, which is why the average household participates with an average of 18 consumer rewards programs. These loyalty programs have taken over our wallet, but how do we make the REDcard loyalty program’s guests loyal to Target?

Expect even more; pay even less with Target REDcard

The new platform of the Target REDcard will not change its current purpose or user characteristics, but it will aim to further engage the current REDcard holders and additionally acquire new REDcard holders. The new Target REDcard will engage guests in more than just monetary rewards, but with experiences that will be exclusive to the Target store, website, mobile application, and the Target brand.

The essential idea is creating experiences for our Target REDcard guests. Many of Target’s competitors provide money back for purchases throughout the year (Wal-Mart, Amazon) but some of the most successful loyalty programs, Nordstrom and Saks, provide their customers with experiences. The ideas listed below provide some very unique opportunities for Target to differentiate from their immediate competition in a way that will be very appealing to their primary customer and secondary markets.

Current Benefits

The Target REDcard currently gives guests a 5% in-store discount off every purchase they make with their REDcard, free shipping on Target.com, the ability to manage the REDcard account online or on a mobile phone, suspicious activity is tracked and reported, 30 day extended return eligibility, and the ability to donate to local schools.

Added Benefits

The new card will be a tiered loyalty card of silver, gold, platinum, and diamond; based off the amount of points earned by transactions and purchases throughout the year. The point system will be simple: $1 spent = 1 point earned $1 spent on Target owned brands = 2 points earned


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Membership Points/Year Additional Reward/Benefits

Silver < 2,000 All current REDcard benefits

Gold 2,000 - 4,999 Exclusive product and service offerings on-line

Select 5K, 10K, Marathon, and triathlon discounts

Platinum 5,000 - 9,999 Select charity matches

VIP access on Black Friday and Holiday Season

$10 In-store store credit for birthdays

Diamond > 10,000 VIP access on Black Friday and Holiday Season

Trunk Show access for designer collection releases

Reserved Seating for Target sponsored events (Holidazzle)

Exclusive Test Panel members to review private label merchandise

Gift baskets with new product samples sent via mail

Limited edition gift with purchases for select merchandise

Student Card All college student cardholders

Tuition reimbursement (similar to UPromise)

Access to Target Back to School events

Contests and Prize bags during “Target Run” events

Structure Rewards Program around what Target guest’s Value The Silver Membership The Silver Membership is the entry level tier that all card holders will start at. It will include all of the current perks and benefits that are offered to a REDcard holder.

The Gold Membership

The Gold Membership is the 2nd tier in the loyalty program which card holders move into once they accumulate 2,000 points. In addition to every benefit offered to Silver cardholders, the Gold cardholders will be entitled to exclusive product and service offerings on-line. Gold level guests will receive discounts on select 5K, 10K, Marathon, and other triathlons. Target will pay a percentage of the entry fee for races. This initiative is to promote healthy living and fits in neatly with Target’s corporate responsibility of encouraging guests to live a healthy lifestyle.

The Platinum Membership

The Platinum Membership is the 3rd tier in the loyalty program which card holders move into once they accumulate 5,000 points. This level will include the benefits rewarded to both the Gold and Silver members. In addition, Target will offer Platinum guests VIP access to events on Black Friday and other Holiday season events. For example, card holders will have access to go into Target stores an hour earlier on Black Friday and exclusive holiday deals on-line and in-store. Also, Target will match guest donations up to $100 over the course of the year to select charities of choice by the guest. This strategy aligns with Target’s corporate responsibility of giving back to the community for charities that are of interests of the guests.


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The Diamond Membership

The Diamond Membership is the highest tier in the loyalty program which card holders can attain. Guests will achieve this level once they accumulate 10,000 points. As this is the highest level Target guests can reach, our solution wants to make guests feel important and exclusive. Diamond Level guests will be invited to exclusive Trunk Shows that feature the newest Target Designer collections, like Kate Young, Neiman Marcus, Jason Wu and more. These guests will have the opportunity to preview and purchase merchandise prior to it being available to the general public. For Target sponsored events such as the Holidazzle, Diamond guests will enjoy special reserved seating in the best available locations to watch the parade. Furthermore, Target will surprise these guests with special gift baskets that include the newest owned branded samples. Gift with purchases will be given on certain items as well. For example, if a Diamond level guests purchases $100 dollars merchandise from the Kate Young collection, the guest will receive a limited edition scarf that is not available for purchase.

The Student Membership

The student membership will be available for current college students. It will be paired with the levels listed above. Details about separate student benefits can be found on page 10. Turning your loyalty program into a game is a fun way to encourage repeat customers and help solidify your brand's image. The following are 2 examples of incentives to run during Back to School and 4th of July. Players would choose one of four checklists and have a 25% chance of winning a free Target gift card, Target REDcard credit, or other Target Merchandise.


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Recommendation: Target Grocery

Make Target a One-Stop-Shop to Increase Guest’s Shopping

Frequency and Basket Size

Although Americans spend about 10% of their annual income on food, supermarkets and grocery stores do not make much off of each customer's bill. However, some items in a supermarket can have a huge margin. Increasing the amount of floor space for grocery in Target locations will increase the inventory turn for grocery items, the frequencies of guest’s shopping, and therefore increase traffic in other more profitable areas of the store. These factors combined will increase revenues at Target and Super Target stores and further propel the idea of Target as a ‘one stop shop.’

Profitability The average supermarket has a profit margin of about 1 percent, according to Stacey Vanek-Smith of National Public Radio. Some experts suggest this figure might be as high as 3 percent. Either way, supermarkets are a volume business: selling mass amounts of low margin necessity products. Target will make up for its low margin by selling large quantities of product and drawing customer into other more profitable areas of the store through store layout and merchandising tactics.

Maximized Merchandising Anne has been converted into a Target grocery shopper. She runs to Target after work on her way home to her family to pick up some essentials for dinner. While she is in the store she buys ground turkey, Archer Farms pasta and pasta sauce, milk, Chobani yogurt, and eggs. While she is walking to the checkout she sees an advertisement for new Essie summer nail polish colors, she picks up 2. Aveeno lotion is on sale, and when you buy 4 you get a $5 gift card. She grabs 4, one for each member of her family. Nature Made multivitamins are also on sale, Anne selects the Men’s Health for her husband, Women’s Health for herself, and VitaGummies for her sons. While in the actual checkout line she grabs 2 packs of Energizer batteries and 3 magazines. Her purchase has been converted from under $50 to over $100. Target has about a 70% markup on batteries and other impulse buys like magazines because it wants to take advantage of the rash decision to purchase these items. Target has mastered the art of merchandising and it continues proves to be effective with huge differences in mark-up sometimes occur within the store.


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Recommendation: The College Demographic

Build Brand Awareness in a Young Educated Demographic for

Sustainable Long-Term Growth

The primary target audience is a guest like Anne—who we met earlier. Currently Target is emphasizing providing value and convenience to her. However, her children will both be in college soon and Anne would love nothing more if she knew could depend on Target to be a go-to place to shop for her children when they leave for college. Her children, and other college students are the future guests and our recommendation is to invest and market towards this segment through a variety of angles which will help to build brand loyalty and drive growth for Target long term.

Finding long-term value in College Students

Once a student opens up a REDcard they will have the opportunity to sign up for a student

account online through their university that will give them exclusive savings and access to

events that only they can receive with their student REDcard account online. Students will still

keep all of the other REDcard benefits such as free shipping, 5% in store discount and extra 30

day return. We hope by offering this account we will be able to hook students by making their

everyday college essentials more affordable. By doing so we hope that once they find Target to

be there one-stop-shop in college they will continue that habit for years to come.


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College Students Shopping Lists For the average student, college is the first time they are on their own and have to shop for

themselves. We hope to make the transition of shopping independently a seamless experience.

Students’ value convenience and affordability as many are on a tight budget. Through their

student account they will be able to create their shopping list online before they enter the

store. The student will have access to his or her account through the mobile app or target.com.

The mobile app and target.com will know that they are a college student and push deals geared

to that demographic while promoting owned brand items such as Up and Up. Once students

make their shopping list it will be automatically updated to their smart phone app so they can

take it to the store with them when they shop. There will also be the option to have items that

can be delivered for free to their home as one of the benefits to the REDcard.

Give them VIP Status during back to School Shopping

We want to make Target the preferred location for students as they shop for back to school

supplies and living essentials. During the months of August and September students will receive

5% on all items related back to school and an additional 5% back toward funding their tuition.

The 5% back on tuition will be sent back to a college savings account linked through their

REDcard. There will also be incentives to order earlier on-line through Target.com as savings

will start out high during August and decline closer to the start of school. There will be student

nights advertised at certain Targets close to campus where students can receive double the

savings on items with their REDcard. So instead of 5% saving they will receive 10% on

designated items.

Rewards program for using online shopping

We know not all college students have a car or have time to go to the store. On top of that,

generally, the younger college generation is tech savvy. For this reason, we recommend to

pushing mobile app and .com usage for college students and incentivizing them to use it

beyond the above stated benefits.


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o

Feasibility Analysis

Organization and Staffing

The new REDcard campaign is not anticipated to significantly affect the organizational structure of the company. There are, however, additional training costs required to successfully educate team members how to better promote the REDcard. The re-design of floor space to add more groceries and produce will result in increased costs. It will not require any restructuring of the organization from a strategic standpoint, but it will require resources to make that design happen.

Schedule

The revamping of the REDcard campaign is expected to take six months from project approval to launching and implementing the new REDcard loyalty program. The base of this project already exists, as there are many REDcard users already. Once this project is approved, project teams both in the business and IT will meet to gather requirements, define specifications, and create the point and tier system. There will also be design requirements necessary from an internal CRM and to the guest facing mobile app and .com platforms.


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Additional training for store level team members will be required for the new REDcard campaign to be a success. This initiative is expected to take six months to implement as well because it is intertwined with the new REDcard program. Additional training will not be hard to implement; as Target team members already have to go through training. It will be necessary to add this training into the regular training protocol for new team members, alongside taking some time to train current employees. The following schedule highlights significant milestones for the two programs: June 1, 2013 Develop a project charter and start to gain support and buy-in from senior leadership July 1, 2013 Project kickoff meeting, continue to gain support and buy-in from senior leadership August 1, 2013 Start gathering requirements, creating rewards program, building design specs, analyzing business process and IT infrastructure changes September 1, 2013 Finalize edits made to REDcard system processes and begin re-training of current team members, begin a marketing campaign to advertise the new REDcard October 1, 2013 Pilot program in select stores and gain feedback from test groups. Make additional changes November 1, 2013 Launch program nationwide

Financial Projections

The financial projections for the new REDcard loyalty program and team member training intertwined with it are highlighted in the table below. These figures account for online and in store sales projections, promotional costs, increase of multichannel use, additional training costs, increase to REDcard, increase of grocery sales, increase of store visits by a younger demographic and REDcard users.

The assumptions for these projections are as follows:

• All milestones are performed in the first year and in accordance with the schedule • All transactions are closed yearly with no carry-over to subsequent years


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Measure Year 1 Year 2 Year 3 Year 4

Online Sales Projections (millions of $)

250 300 350 400

In Store Sales Projections (millions of $)

70,000 80,000 100,000 120,000

Promotional/Advertising (millions of $(

10 8 4 2

Increase of Multi Channel Use (%)

5 12 15 22

Additional Training Costs (millions of $)

10 6 3 2

Increase of REDcard users (%)

10 20 25 30

Increase of Grocery Sales (%)

10 25 30 35

Increase of Store Visits by younger demographic (18-24) (%)

8 12 20 20


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Findings and Recommendations

Based on the information presented in this feasibility study, it is recommended that Target improves their REDcard loyalty program, diversify their grocery section, and target a younger demographic. The findings of this feasibility study show that this initiative will be highly beneficial to the organization and has a high probability of success. Key findings are as follows:

Organizational

Minimal increase to staffing required with no changes to organizational structure

No new facilities, only additional training

Financial

Target will be in position to capture greater market share by maintaining and improving both their in-store and online presence

Benefits of long term growth outweigh the upfront costs

Technology

Will utilize existing technology which lowers project risk

Will make updates to current app and .com to support new initiatives and functionality around the REDcard and enhanced features geared toward college students

Marketing

This initiative to train employees in order to further promote the REDcard will allow Target to effectively retain current consumers

Target will be able to differentiate itself from competitors with its more reputable loyalty program; this will build brand awareness and result in new consumers


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With the proper expansion and marketing of the grocery section, Target will become more of a “One Stop Shop”; luring in consumers with its wide array of groceries and increasing sales in other areas of the store as well

Promoting to the college aged demographic is beneficial in the long term

Conclusion Our solution to re-design the REDcard loyalty program paired with our supplemental solutions to improve the grocery segment and promote the Target brand in a younger demographic will help Target achieve sustainable growth for years to come. In such a competitive retail landscape, these solutions will give Target a competitive advantage over its competitors. Tailoring the REDcard loyalty program so that guests get more than just cost savings will be the key to making this program successful creating loyal guests. Adding a wider grocery segment will increase store visits and increase the size of guest’s baskets. Marketing to a younger demographic of college students will help build brand loyalty long term. Together, these three solutions will make Target the preferred shopping destination for all guest needs and keep Target a leader in the retail industry.

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