At last, the conclusion to our three-part series, illustrating how an earnings call transcript can be an excellent source of insight for marketing strategists. Lest we led you to believe in Part 1 and Part 2 that it’s all wine and roses for Target, here we show how you can also spot the “bad news” that management doesn’t always make obvious.
During the discussion, Target management touted its fairly new loyalty card program:
“Red Card guests save 5% on practically every purchase, receive free shipping every time they shop on Target.com, and benefit from an extended return policy.”
Sounds nice. But then some comments that seemed to counter Target’s loyalty program appeal:
“Our fourth quarter gross margin rate went about 60 basis points below last year, reflecting the ongoing impact of 5% Rewards…”
Translation: The loyalty program isn’t ROI positive.
Why? Because EVERY Target customer is eligible.
Loyalty programs need to discriminate. They need to focus on the highest-value customers first and foremost, to make sure they spend every next penny “with us,” not “the other guys.”
When you invite everyone to the party, the bottom feeders end up working the program to their advantage. Here’s more evidence that indeed happened at Target in the previous quarter:
“…[for the loyalty program] the debit card is the one that has really surprised us…we’re doing three accounts to one debit to credit now…that’s really what has driven the significant increase in our Red Card sales.” This debit imbalance implies lower-quality, lower-value, less-profitable customers in Target’s loyalty program.
“…sales results have been softer than expected so far in February.” This implies that the program is diluted – not enough focus on the highest spenders.
“…comps in hard lines declined in the midsingle-digit range and were softest in electronics.” Again, a one-size-fits-all loyalty scheme is not going to get Target the uptick it needs in the higher-value categories.