A Peek Into Target’s Mobile Check-In Pricing Strategy
Written by Evan SchumanAs more retailers start to embrace check-in services—just this week, Target and Wet Seal both confirmed public trials of Shopkick, which adds their names to Best Buy, Macy’s and Sports Authority’s—a question has repeatedly cropped up: how much of a discount/credit should a barcode scan be worth?
On the “not much at all” side, we have the fact that it’s barely 5 seconds worth of effort. Isn’t $2 for a 5-second mobile swipe pretty good money? On the “quite a bit” side, it’s a very different shopping action. To get consumers to engage in this beyond-comfort-zone new behavior will take a meaningful incentive. That will be triply-true once the novelty wears off.
Let’s look at how Target is dealing with this. When we asked Target for examples of the incentives it is using with Shopkick, it cited four, with varying degrees of specifics. Target offered $5 off a Rubbermaid Reveal spray mop, which seems to be selling on their site for $39.99, as well as that same $5 off of the Guitar Hero Warriors of Rock Video Game, which sells on their site in various versions for $59.99, $99.88 and $179.99.
The chain’s spokesperson also mentioned two more vague incentives. The first of those was 20 percent off individual holiday ornaments (which range in price dramatically, depending on how they define “individual”). The second was “when guests accumulate enough kickbucks, they can redeem for a Target mobile GiftCard.” Specifics weren’t offered as to how many kickbucks will be required for a specific dollar value of giftcard.
Like all pricing strategy, this is less about mathematics and more about psychology. Let’s take the two specific examples. A $5 discount on a $180 video game comes to less than 3 percent, which feels cheap, while the same $5 represents almost 13 percent off of that mop.
Isn’t $5 worth the same either way? If you find a five-dollar bill on a sidewalk, is it worth less if you use it to help buy a more expensive product?
Incentives get very tricky. First is the question of where the money is coming from. Is the manufacturer willing to pony up some bucks to fund incentives? Even if it is, the retailer has to set expectations that the chain can maintain. If one item has a temporary $25 incentive, is that a good thing or will it merely serve to cheapen the other incentives?
Pricing precedent is always important, but no more so than at the earliest stage of a new service. Consumers today have yet to develop a sense of how much a barcode scan is worth. They are going to look and see what most retailers offer and the average of those amounts will become a permanent price anchor, which will color the consumer perception of what’s a good or bad incentive for a very long time.
Asked about its barcode-scanning price strategy, Target was mum on its thinking. “We do want to provide our guests with strong incentives and plan to test a wide variety of offers and point values,” said Target spokesperson Molly Koenst.
-Marc
November 18th, 2010 at 11:34 pm
Evan, as always, great article. Love your work! This whole space of location based in store loyalty is white hot right now between Shopkick and now several other companies that have sprouted up in the same space – targeting the CPG companies rather than the retailer. I’m following it very closely. Hats off to Shopkick and the others for inventing this concept and the technology around it. What I have to ask is – when will the retailers decide they can do this by themselves…or will they?
November 19th, 2010 at 9:50 am
Excellent point, Lori. Let’s stress this to the group: Why would you NOT do this yourself? You certainly have the CPG relationships already and, in theory, they aren’t even needed as you can choose your own promotions directly. (Although CPG funding is very pleasant.) Not only would it give you far more control along with a higher profit margin, but you bypass the dangerous competitive element of entrusting so much sensitive internal data to a company that is also taking oodles of dollars from many of your direct competitors.
The path of least resistance is to outsource this initially–to folk like ShopKick–to bypass the development costs until you know specifically how customers will react, but why not then take it inhouse? From the consumer perspective in November 2010, it’s not as though ShopKick (or anyone else) has a stronger brand than you do, as a major retail chain.
November 19th, 2010 at 1:02 pm
I tried my shopkick app at sports authority and target a few weeks ago on an iPad. The results…
Sports Authority associates were clueless, but I convinced them to enter a code on the register and save $10 bucks. The app did not work well at target, it just gave me shop kick bucks, but did not get anything off my purchase. The sales associate was clueless and said I could get coupons from target.com. I checked but the coupons were not valid for my purchase. I will try shop kick again at target. Also, the app needs to be rewritten for the iPad as you can only see part of the screen, fortunately the discount code showed for my sports authority purchase.
November 19th, 2010 at 1:14 pm
Going back to value, as with any promotion the question is will the retailer see sales from incremental customers drawn in by the promotion and/or increased basket size from existing customers to deliver positive contribution net of promotion cost + shopkick fees? Feels like a lot of people lost sight of this with Groupon style deals. As Evan points out, the hurdle rate is a lot lower here. So it will be interesting to see what direction things go after the test period is over with each of these guys.