Target and Whole Foods Testing Loyalty Programs 

By Tom Ryan, RetailWire 

Target is joining Whole Foods Market in testing a points-based loyalty program. Target's REDperks mobile loyalty program rewards shoppers when purchases reach certain levels.

At its REDperks beta site, interested users are encouraged to:
  • Load Up: Request an invite to the Redperks app;
  • Rack Up: 10 points for every dollar spent at Target;
  • Save Up: Get five percent off an entire trip at 5,000 points ($500 worth of spending);
  • Live It Up: Other rewards and bonus perks along the way.

The REDperks beta will initially be available on iOS by invitation only in select markets. REDcard holders still gain a five percent discount in addition to any REDPerks benefits.

"We believe this loyalty program is a good addition to Target's offering as it can help reach less frequent guests who are not interested in opening a REDcard account or who are unbanked," Sean Naughton, an analyst at Piper Jaffray, told last week.

Some reports compared REDperks to Whole Foods' ongoing test of its Market Rewards affinity program at 12 stores in Princeton, NJ and the Philadelphia region. Available through a card or mobile app, points earned in the program can be exchanged for discounts or "experiential" rewards, such as free cooking classes. The type of rewards are based on individual preferences. The program hasn't been rolled out to any more stores.

"Our customers have wanted an affinity program for some time," spokesman Michael Silverman told USA Today last year. "With such strong existing customer demand for a program like this, we believe it will enhance existing customer loyalty and drive new customers to shop Whole Foods Market stores."

Toys "R" Us, Best Buy, and REI as well as many department stores and drug stores chains all use points-driven loyalty programs. Kmart and Sears share a points-based "Shop Your Way" program, but Walmart and Target haven't used them. Some grocers such as Safeway offer discounts for gasoline tied to purchase levels but points-based programs are not pervasive at supermarkets.

Discussion Questions:
Do points-based programs make sense for Target and Whole Foods? Do they work better in some retail channels than others?

Comments from the RetailWire BrainTrust:

With nearly 30 loyalty program memberships per household, the last thing consumers need is another "more of the same" loyalty program. Not in spite of this growth but perhaps because of it, nearly 60% of consumers believe that the programs lack relevance. Whole Foods is taking a smarter approach than Target, especially to the degree that benefits are attainable sooner, and that those benefits have real value. At the same time, Whole Foods is highly differentiated, even with its (real and perceived) price premium (disadvantage).

Target is more vulnerable to Amazon and Walmart, but their program alone is not going to fundamentally change its position.
Phil Rubin, CEO, rDialogue

Oh good! More loyalty cards. Looks like another way to give away profits. If you're not shopping regularly at these stores now, I doubt it's because they didn't have a loyalty program.
Dr. Stephen Needel, Managing Partner, Advanced Simulations

With all of its current problems, why would Target want to begin a loyalty program? Is it a Band-Aid meant to try to hide flaws? And Whole Foods seems to be trying to run away from their original brand message. Their loyalty program seems like a gimmick.

When so many retailers have loyalty programs they all feel alike and don't differentiate one store from another. Retailers don't want to spend the money necessary to truly mine the data that these programs acquire, resulting in the programs becoming stale and ineffective.
Max Goldberg, President, Max Goldberg & Associates

All retailers must design their loyalty programs within the context of their overall loyalty strategy and ensure the program consistently rewards customers for loyal behavior. Most loyalty programs typically have two main objectives: Provide a mechanism for identifying individual customers in order to understand their needs so the retailer can take consistent actions to satisfy those needs, and provide an additional marketing vehicle to deliver an incremental and differentiated value proposition that rewards customers for their loyalty. To these ends, they have the most success when they combine rewards for every day purchases with some rewards that are tailored to the specific needs of their most loyal customers.

What Target and Whole Foods are doing fits this approach. What's more, it fits the behavior and aspirations of their best shoppers.

A word of caution: Target and Whole Foods need to pay attention to the rate at which customers can earn points and how these points can be redeemed for rewards. Customers will quickly lose interest if it takes too long to earn sufficient points that they can redeem for a reward that has value to them.
Graeme McVie, VP & GM, Business Development, LoyaltyOne

Why even bother about loyalty programs? Because a five percent increase in growing the most loyal customers can result in 25 percent-plus in sales and profit.

However, the last thing any consumer wants is another "card" to remember and keep track of.

What will work better for any retailer is a loyalty program that is tied to a customer's smartphone and is incredibly easy to use.
Chris Petersen, PhD, President, Integrated Marketing Solutions

From decades of experience, I am not a big fan of points programs. They demand way too much work and attention from the average consumer and those that take the time to indulge are the usually the "price-oriented" shoppers who are likely to load up on low-margin deals while earning their points.

Economically, points programs may produce early evidence of incremental sales gains, but over time they become shopper entitlements that bang away against margin without the benefit of measured sales increases.

In the case of Whole Foods, I would question whether "points" or deals are even on their top ten list of what shoppers value about that retailer.

I understand that technology has simplified points engagement programs and why they are alluring to retailers looking for an edge. With that said, I remain skeptical of their positive long term effect on the business, particularly in this age of shopper short attention spans and desire for immediate gratification.
Mark Heckman, Principal, Mark Heckman Consulting

Amping up loyalty programs is a smart focus for retailers as long as they keep their target customers in mind. As competition increases from retailers such as Wegmans and Trader Joe's, Whole Foods is wise to look at strengthening its brand relationship with shoppers. New ideas such as cooking classes as rewards will help differentiate Whole Foods' program from others.

For Target, it looks like the retailer is still testing some ideas. I'm not convinced five percent off one shopping trip after $500 in spending is enough of an incentive.
Debbie Hauss, Editor-in-Chief, Retail TouchPoints

Neither has a points-based fueling station. That's a problem. For Target and their pharmacy it would be great if they had a real points system (like Kroger stores have) that does actually give you points and coupons that matter. Other large drug chains have loyalty systems, but it seems that the gap between shoppers spend and seeing some benefits is too wide.

Whole Foods? Well, with the margins that they land they do have the money to support a good program. It will not draw logical shoppers to their stores.
Tom Redd, Vice President, Strategic Communications, SAP Global Retail Business Unit

Loyalty programs are always a good idea if (big if) they offer rewards that customers truly desire. Points? How are points implemented and what do they represent? Usually they translate out to free or discounted product. So when Whole Foods states "Our customers have wanted an affinity program for some time," it may very well be because they want (what amounts to) discounts on the higher priced products the company offers. In their case, it will be interesting to learn whether customers opt for discounts or the experiential rewards that don't stretch food expenditures.
Ken Lonyai, Digital Innovation Strategist, co-founder, ScreenPlay InterActive

I think they work well for products that a customer shops for on a weekly basis, so more so for Whole Foods. When there's a choice of retailers for the shopper to easily switch their visit to, a loyalty points program can be the edge to keep the shopper visits high. Or as Tom notes, those gas points seem to work well (at least they did when gas prices were higher ... )

Target as a weekly destination? Possible, but I don't see it being as likely as Whole Foods.
Peter J. Charness, SVP America, Global CMO, TXT Group

I was baffled this morning when I noticed that my local Neiman Marcus has a points program.

I'd love to get a bunch of regular consumers together and ask them whether they'd like a new points program, with a new password to remember or plastic card to carry around. I think I already know their response.
Cathy Hotka, Principal, Cathy Hotka & Associates

Whole Foods needed to do something different to maintain its leadership position. The company is betting on its loyalty strategy to improve its ability to engage customers, build relationships and enhance the customer experience.

It's clear that today's grocery shopper expects more than just access to discounts, and fails to respond to programs that lack differentiation or any emotional connection.

Incentives need to reinforce the brand, preferably by aligning with a differentiating product or customer experience. Whole Foods' answer is a blend of personalized rewards and enhanced experiences, allowing members the choice of using a rewards card or mobile application. The company has a tremendous opportunity to create excitement through singular experiences offered exclusively to its shoppers. Rewards such as personalized services and access to special events provide options that shoppers can't get anywhere else.

LoyaltyOne recently asked 1,034 U.S. consumers about reward program benefits in the grocery category. No less than 69 percent said an expert session with a nutritionist or chef would entice them to shop more with their favorite grocer. Among millenials, 84 percent indicated their strong interest.

The right loyalty strategy can de-commoditize grocery shopping, helping Whole Foods and other grocers enhance the customer relationship and generate long-term success.
Dennis Armbruster, Vice President, LoyaltyOne

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                                                                         Early March 2015