How Target is upping the ante in loyalty with its Red card

Although it's still a month away from officially launching, Target’s Red card loyalty program is already shaking up the Canadian retail landscape.

The Red card, with its offer of a flat five per cent discount on almost all purchases made with the chain’s debit or credit card, will be available in February, a full month before Target even opens its first Canadian stores, according to a Globe and Mail report.

To prepare for Red, domestic retailers have been revamping existing loyalty programs or developing new ones all playing on the Target card’s message of “five per cent off every day”.

The Globe reported that Shoppers Drug Mart’s Optimum card’s slogan is now “free feels good,” while HBC MasterCard touts “now earn double everywhere” from the gas pump to the grocery store, highlighting the fact that it will give the same level of rewards for using its plastic in other stores as in HBC.

Loblaw, meanwhile is set to relaunch its loyalty program in 2013.

All this hoopla isn’t for nothing.

In the U.S., Target customers who pay with a Red card spend an average of 50 per cent more than those who don’t have a card. Livia Zufferli, marketing director at Target Canada told the Globe that customers who collect Red card points “do see the five per cent as significant value and something that does add up.”

Target's Red card will put significant pressure on existing loyalty programs according to Toronto retail consultant, Ed Strapagiel.  He said the Red card shouldn’t be called a "loyalty program"; instead it should be "reward program".

“Red card rewards are much better than what incumbents are offering now. Whether it's a 'game changer' will likely depend on how well Target promotes it. But we Canadians love our reward programs, so Canada is very fertile territory for Red card.”

Strapagiel also pointed to how the Red card’s U.S. program however has some big advantages for consumers, namely it's much more generous than incumbent Canadian programs with its 5 per cent discount versus rewards of anywhere from 0.2 per cent to 2 per cent of purchase value under other programs.

To respond to Target’s Red card, the Globe reported that for the first time Canadian Tire and Hudson’s Bay ran promotions offering five per cent back on purchases with their respective credit cards.

And Canadian consumers are looking for more from loyalty programs than just rewards’ discounts thanks to the digital technologies that can provide personalized offers.

Canadian Tire, for example, is mining customer data to understand shopping preferences with a test in Nova Scotia that sees cardholders getting more than seven times higher rewards than the its “0.4 per cent returns from its funny money,” reported the Globe.

Meanwhile, Shoppers Drug Mart Corp. is piloting a program that gives customized offers to its Optimum loyalty card holders, based customer purchasing habits.

These new programs will have to compete with Red's simplicity. Red card is clear and simple, while most of the other programs won’t say what the percentage saving is, and the discount is immediate, said Strapagiel.

“There's no waiting to collect mysterious reward points for however long, and no going through some redemption process to actually use the points,” he added.

The Red card in the U.S. also comes as either a debit or a credit card, so consumers get the benefit of that too. “On the debit version, it's up to $40 cash back. The credit card is a Visa that can be used anywhere Visa is accepted,” said Strapagiel.

In addition, Red card provides additional pluses such as free shipping for online orders, and an additional 30 days for returns.

To date, more than 30,000 Canadians have a Target Red card.