By Nathaniel Meyersohn, CNN Business
Target is gradually expanding a free loyalty program that helps it gather key information about customers' shopping habits.
The program, Target Circle, started last April in Dallas. Target Circle has steadily gained members and sales, so the company announced on Tuesday that it's rolling out to five more cities.
Target Circle offers customers a handful of perks. They include: 1% back on every purchase that shoppers can redeem on following Target shopping trips; free next-day delivery on household essentials; and 50% off a first-year membership for Shipt, Target's $99-a-year same-day delivery service.
"It gives customers a little incentive to go to Target," said Neil Saunders, managing director at GlobalData Retail. In the ultra-competitive retail market, Target Circle is valuable for the company, he added.
The program replaced Cartwheel Perks, a points-based loyalty pilot, which Target ended in 2017. Target still offers Redcard, its own branded credit card that offers 5% off all purchases and free shipping. But Redcard cardholders are not eligible for Circle's additional 1% back.
Expanding Target Circle members is an important part of Target's loyalty strategy. It gives the company data about the 75% of its customers who don't shop with a Target card. Target can then use that information to email tailored deals and promotions to customers.
For example, if Target knows a shopper frequently buys diapers and products for her baby, Target could email the customer an offer for diapers. Target can also offer customers deals on their birthdays.
"This will help Target build a more complete picture of shoppers," said Saunders. Target Circle will now be available in Charlotte, Denver, Indianapolis, Kansas City and Phoenix.
Target joins several competitors that are also revamping loyalty and rewards programs. Retailers recognize that they need new tools to reward customers' spending and encourage them to keep returning.
Last year, Nordstrom, Macy's, DSW, Kohl's, Lululemon and J Crew either launched new loyalty programs or significantly changed their existing programs. Some, like Nordstrom, offer tiered memberships based on customers' spending. But even "Nordy Club" members who spend less than $500 a year get free basic alterations and early access to new clothing brand launches.
Lululemon announced in December that it's testing its first annual membership program for $128 a year. Perks include free access to workout classes and a pair of pants or shorts.
"It's clear that we can take [customer] relationships to the next level with the loyalty program," said Lululemon CEO Calvin McDonald.