Target to test new loyalty program as Redcard growth has slowed

Target Redcard's 5 percent discount has been a powerful draw for many shoppers — so much so that nearly a quarter of purchases from the retailer are now made with one.

But as growth of its branded debit and credit cards has plateaued, Target is exploring other ways to generate more loyalty at a time when online shopping has exposed consumers to many more places where they can shop.

Toward that end, the Minneapolis-based retailer next month will begin testing a new rewards program in the Dallas-Fort Worth area. The pilot program is called "Target Red" and, unlike Redcard, is not tied to a payment card.

"We know not everyone wants another credit card," said Joshua Thomas, a Target spokesman. "So we want to find a way to grow our relationship and affinity with those guests."

Shoppers who sign up for a free Target Red membership can use 1 percent of their purchase totals toward their next Target runs. Members can also waive the $5 fee for Target Restock, the next-day delivery service for household essentials and dry groceries. Members also will receive half off the first year of a $99 membership to Shipt to access Target's new same-day delivery service.

Target Red members also will get to vote on which organizations Target should focus its charitable giving, a new twist on a now-defunct program previously connected to Redcard where shoppers could direct funds to the school of their choice.

For years, retailers have used loyalty programs to encourage consumers to shop more with them. In 2010, Target retooled its Redcard program to include the 5 percent discount off every purchase at Target. It also provides holders with free shipping from Target.com.

Redcard holders are now most of Target's biggest spenders and most loyal customers. The retailer's sales and profits got a boost in the first couple years after the 5 percent discount was added, with Redcard transactions growing from about 6 percent in 2010 to 19 percent in 2013. But its growth has moderated since then, beginning to level off around the same time as Target suffered a massive data breach.

"Redcard has been around for a long time," said Ben Antenore, an analyst with Kantar Consulting. "It's a known thing now. The people who want it have probably picked it up, and those who have not have made a conscious choice not to have it."

Meanwhile, Amazon has found a lot of success with its $99-a-year Prime program, which offers benefits such as free two-day shipping and access to streaming movies and music. About half of all U.S. households are now estimated to have a Prime membership. As one might expect, Prime members spend more at Amazon than nonmembers.

The success of Prime has encouraged other retailers such as Macy's, Kohl's and Target to simplify and strengthen their own loyalty programs.

"Amazon Prime has really become the benchmark for how a shopper looks at their loyalty programs," Antenore said. "Other retailers are trying to respond."

For Target, the growth of Prime is of particular concern since there's a high overlap with its shopper base. About 47 percent of frequent Target shoppers said last year that they were also Amazon Prime members, according to Kantar's shopper surveys.

In the last year, Target also has been dabbling with ways to strengthen its existing Redcard program by adding additional benefits. Last year, it gave Redcard holders access to about 100 Black Friday deals a day early online, a limited-edition Star Wars figurine that wasn't available to other customers and an invite-only midnight shopping event in stores to pre-shop the Victoria Beckham for Target collection.

Next month, it is for the first time going to give all Redcard holders first dibs on select pieces from its newest design collaboration with Hunter a week before they go on sale to the general public.

While Target continues to focus on Redcard, it also is trying to find a non-tender-based strategy.

In 2016, it tried another rewards program in a handful of markets called Cartwheel Perks in which customers racked up points every time they made in-store purchases. They could then redeem the points toward future discounts and specific products.

Target ended that test last fall.

"What we heard from our guests is that they wanted something that was simpler and more convenient," said Thomas, the Target spokesman. "They wanted something that was easier to understand."

The latest iteration, Target Red, has been designed to be complementary to the Redcard. While the 1 percent back is not stackable with the 5 percent Redcard discount, Target said Redcard holders can still benefit from Target Red's other perks.

And the hope, Thomas said, is that Target Red members might like it so much that they eventually decide to sign up for a Redcard.

Target Red, he said, also will help the retailer send more personalized promotions based on shopping patterns and preferences. For example, if someone hasn't bought pet or baby products from Target, the retailer might not inundate that person with discounts on those kinds of items.

"Consumers have so many choices today," Thomas said, "so any opportunity we have to better understand them is a win."

Kavita Kumar • 612-673-4113