By Nicole Leinbach-Reyhle / www.forbes.com / February 25th, 2015
Target TGT +0.18% announced this past Monday that effective immediately, all online orders of $25 or more would qualify for free shipping. With virtually no exceptions to this consumer perk, this new shipping policy is half of what it use to be – previously a $50 minimum – and positions Target as the leader in free shipping requirements against two of its main competitors, Walmart and Amazon. Target’s free shipping policy is half of Walmart’s minimum and $10 less than it is on Amazon.
While consumers are undoubtedly pleased to this recent announcement, the bigger question is whether or not this move was necessary. Antoine LaFromboise, a Target Spokesperson, had this to say when asked about this recent announcement and it’s impact on the competitive e-commerce space in general.
Target is taking bold steps to be an e-commerce leader. We know that shipping costs are a major barrier for online purchases, and making our free-ship minimum one of the best in retail is just our latest effort to enhance the online shopping experience for guests. The decision to lower the year-round free shipping threshold to $25 was made based on the success we saw from creating the $50-threshold site-wide last summer, and the great guest response to our free shipping offer on all purchases this past holiday,” shares LaFromboise.
The holidays helping to shape this decision by Target is not surprising. Target offered select free shipping incentives over the 2014 holiday season, which led the company to hitting new sales records on both Thanksgiving and Cyber Monday. Additionally, Target reported that these shipping promotions also helped Target gain a sales increase during Q4 in 2014.
Will Free Shipping Really Help Win the Retail “Rat” Race?
While staying competitive is important for any business, is a constant race to offer the lowest prices the way to win consumer dollars? Paula Rosenblum, Managing Partner at RSR Research and also a fellow Forbes blogger, believes that this constant race among merchants is worrisome – introducing new challenges for retailers and consumers alike.
The retail “race to the bottom” is worrisome. No one wins that race. Best Buy BBY +0.63% implemented price matching with Amazon because it had become perceived as higher priced but without any reasonable level of customer service. So by taking price off the table, the company was able to start re-differentiating on its customer service offerings. But price matching was never going to be the linchpin of a successful strategy. It just hit the table stakes and established a baseline,” shares Rosenblum.
Additionally, Rosenblum stresses the value of merchants standing-out on their own versus trying to be one-of-the-same.
Right now I see Target still trying to fight an enemy that, let’s face it, doesn’t make very much money. So by setting free shipping hurdles even lower than that enemy, does it think it will make more money? The most important thing Target can do is re-establish its general merchandise caché. Tar-zhay was interesting. Target the commodity seller? Not so much,” Rosenblum states. Additionally, Rosenblum adds that “if you look at Target’s home page, there’s a lot more basic product than there is cool stuff,” which validates her point that Tar-zhay simply isn’t what it use to be.
Keeping Rosenblum points in mind, will a decrease in shipping minimums be what it takes for Target to lure customers in? After all, isn’t that the goal Target has in mind?
We’ve made tremendous strides to make sure Target is priced right against online competitors in recent years. We will absolutely maintain that focus so that Target’s industry-leading digital growth will continue. In regards to the competitive landscape, I can tell you that Target’s $25-free shipping minimum is one of the best shipping offers in all online retail,” Target Spokesperson LaFromboise explains.
Expanding on this is Jason Goldberger, president of Target.com and Mobile.
Lowering the free shipping threshold from $50 to $25 is one more way Target is putting guests first and making it easier for them to shop Target when and where they want. Whether guests are stocking up or doing fill-in shopping, we’ve enhanced our year-round shipping offer to be one of the best in all of retail,” Goldberger states.
Year round shopping at a retailer that is increasingly blending in among its competitors may appeal to some, but for the Tar-zhay loving consumers, Target isn’t the same destination it use to be. Sure, free shipping is great, but can it keep customers returning for the reasons they use to, such as for the exclusive items available at Target only? The savvier displays than their competitors? The more stylish finds – even among the most basic items?
Time will tell what this new shipping standard will set among competitors, consumers and Target, as well, but for everyone involved, there’s no doubt this is just another race that will repeat itself again and again with new hurdles, obstacles and goals to set along the way.
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