Will lower everyday prices boost Target’s traffic and sales?

Discussion
Photo: RetailWire
Sep 11, 2017
Tom Ryan

On Friday, Target said it had lowered prices on “thousands of items, from cereal and paper towels to baby formula, razors, bath tissue and more” in a move to reinforce its everyday low pricing positioning.

According to a blog post, the retailer will also be reducing the number of “As Advertised!” and “Temporary Price Cut” specials that can be “super frustrating” to shoppers.

“We want our guests to feel a sense of satisfaction every time they shop at Target,” said Mark Triton, Target EVP and chief merchandising officer. “Part of that is removing the guesswork to ensure they feel confident they’re getting a great, low price every day.”

Among the promised changes:

  • “Fill your cart with confidence” – Prices have been adjusted to make sure basics “from milk and eggs to crayons” are “priced right daily”;
  • “Watch for simple, easy messages” – More than two-thirds of its price and offer callouts, including “Weekly Wow!” or “Bonus Offer” specials, have been eliminated to help shoppers “more easily spot the savings”;
  • “Delight in the right sales” – Narrowing rather than “ditching” promotions, Target is “making sure to offer only our best, most compelling sales — when it makes the most sense for our guests.”

Target noted that the price transparency comes on top of the retailer’s “incredible exclusive brands, super-chic collaborations and one-stop shopping.” A visit to Target stores on Sunday in Manhattan and New Jersey showed little indication of the pricing changes.

Earlier this year, Target told analysts it was reducing prices to better compete with Walmart and Amazon.com. In August, Target reported its first positive comp-store gain in a year that management attributed in part to more sales being sold at regular price. Target has also found success online and with its small-format, urban stores.

Shares of Target fell $1.15 to $57.27 on Friday, reportedly due to the short-term impact of the price cuts on margins. Target’s move comes as Amazon has promised to lower prices at Whole Foods and aggressive moves by Walmart, Aldi and Lidl are expecting to drive down grocery prices.

DISCUSSION QUESTIONS: Must Target become more price competitive on an everyday basis to compete effectively? Do you think the chain’s “Temporary Price Cuts” and other weekly specials were undermining its EDLP positioning?

Braintrust
"Price does play a role in staying competitive in today's market, but it is not the only factor that wins business."
"It’s just sad when a former high-flying retailer like Target takes the lazy way out and “invests” in lower prices..."
"The key to making this work is to drive the higher-margin categories like apparel at the same time. "

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30 Comments on "Will lower everyday prices boost Target’s traffic and sales?"

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Neil Saunders
BrainTrust

This is one of the steps Target needs to take if it is to build a better grocery business. However, it is only a partial solution and needs to be accompanied by other initiatives — like improved layouts, better merchandising, more focus on convenience, etc. — if Target is to succeed. A focus on price alone would be a dangerous and ineffective play for Target.

Dr. Stephen Needel
BrainTrust

I’m not sure that price has been the issue for Target. They’ve tried competing with Walmart on price (my wife was a price checker for them for a couple of years) and that effort failed. Cutting back promotions may help the bottom line, but isn’t going to win them any consumer fans. Fix the website, improve the assortment and price between Walmart and traditional grocery — Target thinks they are more upscale than Walmart, let the prices demonstrate that.

Jackie Breen
BrainTrust

Price does play a role in staying competitive in today’s market, but it is not the only factor that wins business. While I think this will help, I prefer the tactics Target is taking to provide better consumer experiences and make shopping easier and more convenient. Amazon isn’t always the lowest price, but consumers will buy from there because it’s easier. If Target continues to focus on the technology required to deliver the ideal consumer experience rather than entering into a price war, they will win.

Mark Ryski
BrainTrust

Among the largest retailers, being price competitive is table stakes. Target, Walmart, Amazon and others have turned pricing into a science which is being continually optimized and this is just part of the landscape today. Naturally Target has to be mindful of how changes to pricing and price positioning like “temporary price cuts” are perceived by customers and relative to existing positioning. However, at the end-of-the-day, customers want lower prices and anything that enables this will be well-received by shoppers, even if it is somewhat confusing.

Dr. Stephen Needel
BrainTrust

Mark — I’m not sure how much Target and Walmart have “turned pricing into a science.” Walmart wants to be the lowest and squeezes its vendors. Target has rarely shown they are doing anything scientific in their pricing.

Max Goldberg
BrainTrust

Rather than cut prices in an effort to compete with Amazon and Walmart, Target needs to find a brand message that resonates with consumers. Then they need to deliver on that message. Trying to compete on price has not worked for Target in the past and it won’t work going forward. It just shrinks margins, and Target’s lowest prices are still higher than Walmart’s.

Carol Spieckerman
BrainTrust

We retail watchers are in the loop about Target’s pricing moves but shoppers will only know about it through experience. That means Target will really have to walk the talk to make any kind of impression. Target joins J.C. Penney and other retailers that are eschewing convoluted pricing schemes in favor of simplicity. The timing is interesting (and perhaps late) given Whole Foods’ well publicized, and already executed, price reductions and Walmart’s ongoing EDLP promise.

My guess is that Target is reducing prices because it can. Not only through its recent massive private label overhauls and introductions but also through (hopefully) more sophisticated data mining. Will national brands that are available elsewhere bear the brunt? That’s where the comparisons are harshest and price reductions most noticeable.

Bob Phibbs
BrainTrust

Reminder: Sears 1989 and J.C. Penney 2012. Both touted “lower everyday prices” as the way forward — and retreated fairly quickly.

What does EDLP even mean in 2017? There’s always someone cheaper — always. This just continues the trend that retailers are merely warehouses dependent on the shouting price. I call it warehousization, not retailing.

Phil Chang
BrainTrust

Unless Target has a different way to market this, it’s not going to make the impact they want. They’ve always been competitive with Walmart on price, but have hesitated to commit and make pricing a key tenet for themselves. This feels like more of the same.

Pricing is really great for consumers, but they need to know that you’re doing it. That’s the key to these initiatives. You also need to have deep pockets and need to be committed to the long run. Walmart and Amazon have a war chest full of discounting and hot prices and are prepared to go head-to-head with each other and to keep Aldi and Lidl from getting strong footholds.

The funny thing is, Target has a hold of experiential. Of the big box stores, they have a really solid grasp of pop-ups and how to make the shopping experience a fun one. I’m not sure why they keep going back to discount pricing when they have a more valuable asset in their toolbox.

Kim Garretson
BrainTrust
2 months 11 days ago

I agree with Neil Saunders. There has been a lot of discussion in this forum about Target and its poor-performing grocery segment. The highlight in grocery at Target for me is the private label brands, with high quality and competitive pricing. I wonder if Target can get more creative with the promotions for these brands.

Obviously Target succeeds in creative execution with its TV campaigns on fashion and seasonal items. What might Target do on TV around filling your basket with its exclusive brands? And would this put its relationship with its vendors and their trade dollars at risk? Hard to say.

Art Suriano
BrainTrust

Remaining competitive is important, but all businesses need to be careful with how low they make their prices. Store traffic has declined, and the only way to make up the difference in lower prices is by selling a lot more items. So the challenge becomes, can I generate more sales when I reduce costs to the consumer? We have seen many retailers slash prices significantly during the holiday season and other key selling periods, and they sell a lot of merchandise, but then we look at overall sales and realize they did not do well. When you use price alone as the reason for customers to shop you, you run the risk of losing the customer once prices go up.

Find other reasons to attract customers, keep the prices competitive but not necessarily the lowest and you’ll have a better opportunity to build customer loyalty. It always comes down to “wowing” the customer and giving them a great customer experience. Do that and you’ll win. Think that price alone is the answer and you’ll lose every time.

Kai Clarke
BrainTrust

Yes, lower prices will certainly help Target grow traffic and sales. EDLP (Everyday Low Pricing) has been a mainstay for Walmart and other retailers for years. In the omnichannel age, where shop online and pickup at store is becoming a goal of more retailers, Target has to be able to react quickly and have competitive prices on all of their items, since comparison shopping is just a click away.

Dick Seesel
BrainTrust

Target periodically needs to reset its prices on commodities because of customers’ nagging perception that it charges too much. This has always been an issue with Walmart as its key competitor, and now Amazon adds to the challenge with its dive into the grocery price wars.

The key to making this work is to drive the higher-margin categories like apparel at the same time. (That’s really the key to the company’s success, not its grocery business.) Target’s reset of its private brands needs to accomplish this goal, otherwise the lower prices on food and household goods will only erode the company’s profitability.

Robert DiPietro
BrainTrust

Price drops alone won’t change behavior. Customers want a fair price and good shopping experience. I didn’t notice many signs on Sunday touting the price drop and I expected a forest of signage … disappointing! It seems like it is a combination of EDLP and promotional pricing and that will just cause confusion. The one thing I did notice in Target was the new promo display which is in the shape of a carry basket. This display is horrible! It doesn’t hold inventory well, looks like a clearance bin and is an operational nightmare I’m sure.

Nir Manor
BrainTrust

Offering better deals for consumers at this current time of transition in U.S. grocery retail sounds right. However, this move looks like a tactical short-term reaction to the Amazon move rather than a real strategic move.

Adopting more personalized and data-based pricing would create a more sustainable competitive edge than TPRs and weekly specials.

Frank Riso
BrainTrust

I do not think it will help all that much. Target should not attempt to compete on price. They cannot beat Walmart on price. They can beat Walmart on the experience and even quality in many items and they should concentrate on the areas where Walmart is weakest.

Lee Kent
BrainTrust

Yes price is a factor however, something has to make customers choose Target over Walmart and Amazon. Price alone is not the answer. Target’s chic, affordable collections used to be a big draw for example. Being competitive does not mean being just like the others, it means offering something different that the customer wants. Right? And it also means having the goods when the customer walks in the door. And that’s my 2 cents.

Richard J. George, Ph.D.
BrainTrust

Target recognizes that its pricing is not in line with its major competitors, namely Amazon and Walmart. The real question is how to convince customers that Target is a viable grocery shopping alternative, at least from a pricing perspective. Keeping in mind that pricing is only one variable, albeit a huge factor in consumer decision making, the issue then becomes the best tactic(s) to employ to let the market know that its prices are now lower. I like the concept of price transparency, without forcing customers to play the shopping or even the shell game of figuring out the real price of “As Advertised!” and “Temporary Price Cut” specials.

Lee Peterson
BrainTrust

They kind of have to, unfortunately, due to pressure from the expansive Aldi and others. We always say, for Americans, price is priority number one through number five, everything else is after that. It’s a mentality ingrained in the U.S. consumer’s psyche, which is why some European grocers, like Tesco, had a hard time here but European fast fashion, like Zara, works (I mention Europe due to their lack of “discount” insanity in terms of how they run retail).

Having said that, Target definitely has more permission to push margins with their private label. The Target brand is not built on price alone, which, if played right, could be a great thing for them in the long run. Sooner or later, most retailers are going to have to leave the commodities to the 800-pound gorilla and turn to the strength of their own brands. Target is ahead in that regard.

Phil Rubin
BrainTrust
2 months 11 days ago

Lower prices might drive traffic and even sales, but it won’t drive profit increases. It’s just sad when a former high-flying retailer like Target takes the lazy way out and “invests” in lower prices versus delivering a better customer experience. Target will be stuck in between AMZN and WMT and create opportunities for more focused retail leaders who are investing in other strategies beyond low prices.

Ken Morris
BrainTrust

Competitive prices are imperative to survive in the battle for the share of the consumer wallet for commodity grocery and other convenience items.

Most consumers have identified their favorite stores for certain product categories like produce, meats, paper products and staple items. With their favorite stores identified, they become creatures of habit and shop a specific list of stores on a weekly basis and have a standard unique shopping list for each store: traditional grocery (discount or upscale), discount warehouses/department stores, specialty produce stores, butchers and dollar stores.

When it comes to products that consumers purchase on a regular basis, they know what a fair price is. If they see it priced noticeably higher at Target than what they can get if for at another store, they will not include that on the weekly Target shopping list.

I think Target’s new EDLP strategy is a smart approach to keep more items on consumers’ Target shopping list and not alienate customers with items that seem “over-priced.” The days of Target being know as “Targé” are over and they need to agressively compete.

Shep Hyken
BrainTrust

Retailers that constantly advertise low prices must realize that many of their customers who appear to be loyal to the store are actually loyal to the price.

Stefan Weitz
BrainTrust

This is an obvious response to Amazon’s Whole Foods acquisition and their moves on the first day of ownership to cut prices massively on many staples. I can only imagine what this will do their margins long term — competing with someone who doesn’t have a profit motive is difficult. Target will have to look for other ways to monetize customers beyond their core retail business.

Cynthia Holcomb
BrainTrust

With the purchase of Whole Foods, the new flavor of the day is groceries. And commodities. Cheaper, lower. Target used to focus on great, very cool, private branded products like clothes, linens, home furnishings, stationery, makeup and the like. Design teams created the great products. People went to Target to purchase inexpensive, fun things to update their homes, wardrobes and the like.

I shopped my local Target this past weekend. I noticed an abundance of produce and grocery options I had not seen before. Like Target’s version of Whole Foods. I wonder how many of us think of Target as a grocery destination.

Personally, I am skeptical of buying fresh food at Target. The challenges of rebranding to become everything to everyone, cheaper, are tough. But The GOOD NEWS: Target has revamped its apparel offering, going back to the days when it was exciting to find new and fashionable products designed and priced with the Target vibe! Floor displays, mannequins, a total re-merch of floor layouts. Good stuff Target. Analysts take a second look at Target apparel.

Jeff Sward
Guest

Be the lowest price, or at least price competitive where you HAVE TO BE, and get higher margins where you CAN. Easier said than done, but the several comments about Target’s differentiated apparel offerings point to the margin opportunity. Walmart has already promised the lowest prices … “always” … so promising “lowest” is a little dangerous. More race-to-the-bottom stuff. “Best value” might be an easier sell. If consumers feel that they are being treated fairly on price and Target can offer the better shopping experience, on and off line, they will do great.

W. Frank Dell II
BrainTrust

Every time is see one of these “we are lowering our prices on thousands of items,” I get the message we have been ripping you off for years. This does not build trust with the consumer it reinforces miss-trust. It is wholesale notification of overpricing. This is even more damaging if the retailer has been pushing EDLP for years. A much smarter way if to promote results for consumer. Make the change and then build on dollars going forward or basket cost verse competition. For Target their image is chic at great prices. Build on the chic and selection differences coupled with a superior shopping experience oh and by the way, we are very competitive on prices.

Christopher P. Ramey
BrainTrust

Lowest price on “thousands of items … ” isn’t nearly as powerful as a giveaway price on what the customer needs to buy. Where are the merchants?

Oh wait, this is just marketing. Surely they don’t really mean this.

Peter Luff
BrainTrust

Offering price clarity is a necessary part of everyday retailing today and Target’s decision to limit its product promotions will help its customers spot the bargains. But I agree with others that value for money is just one of the building blocks needed to be a successful retailer and it will need to respond on other fronts to be able to grow market share. Quality of experience, product range and availability, customer service and ease of shopping also play their part and Target will need to launch a multi-faceted approach that is noticed and approved of by its shoppers

Paul Donovan
BrainTrust

Target’s grocery segment is a small part of their operation, at least according to grocery estimates from industry magazines. This is the area in which the shopper would notice the price the most. It seems that Target also needs to think through a new form of experience in their stores. My local store really has not changed much in the last several years and therefore it doesn’t have that destination appeal needed to overcome price-only decision makers.

Min-Jee Hwang
BrainTrust

Cutting back on promotions and aiming to provide great prices each day is a worthy strategy for Target to try. At a time in which Amazon took over Whole Foods and immediately lowered prices, no-nonsense pricing is a requirement. Shoppers don’t want to swim through numerous sales to figure out what is a good deal and what is merely an instance of psychological pricing. At least when it comes to in-store shopping the “Tar-zhay” appeal helps it stick out from the crowd. It might not be the lowest price you could get that item for, but their assortment helps shoppers walk out with add-on items that weren’t on their lists. If Target can get more shoppers in the door with EDLP, then they will most likely succeed in increasing average cart size (especially in-store).

wpDiscuz
Braintrust
"Price does play a role in staying competitive in today's market, but it is not the only factor that wins business."
"It’s just sad when a former high-flying retailer like Target takes the lazy way out and “invests” in lower prices..."
"The key to making this work is to drive the higher-margin categories like apparel at the same time. "

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