Analyst: Price-matching could backfire on Target
Target recently announced an extension of its price-matching policy to include more than 20 additional online competitors. The decision should give shoppers more confidence they are getting best possible prices. But in the long run, one analyst thinks the announcement could lead to long-term negative consequences for the Minneapolis-based retailer.
Currently, about 2 percent of shoppers obtain price matches. But as prices become more transparent, the number of shoppers seeking price matches could accelerate.
"The central problem with price matching — particularly against Amazon.com — is that Target is virtually assured of losing money on the transaction," wrote Mark Miller, an analyst for William Blair & Co. "And not just in the short term, but probably always, because Amazon does not make money on first-party transactions."
Miller explained that Amazon makes its money on third-party transactions and from Amazon Prime memberships. Without that kind of revenue, Miller speculates Target would have a hard time maintaining profitability online.
Miller laid out a best-case scenario for Target in which they hold onto their most price-sensitive consumers at lower margins "while hoping the rest of us will not notice, or not care" that general merchandise prices are higher than Amazon and other online sites.
Patrick Kennedy
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