Target's Canadian (and American) price perception problem

Target Corp. CEO Gregg Steinhafel acknowledges that the retailer suffers from a "price perception" problem in Canada. Consumers readily buy Target's "discretionary" merchandise like clothes and home.

But when it comes to "non discretionary" items – such as food and healthcare – shoppers assume Target's prices are much higher than that of Wal-Mart or Loblaws.

For that reason, Target's Canadian sales have fallen below the company's original projections. Still, the company's price perception woes are not exclusive to Canadians.

Over the past three years, Target has struggled with weak U.S. sales during the crucial holiday shopping period. Part of Target's problem is that the company has not cut prices as aggressively as its competitors, analysts say. Holiday is largely about discounting, but Target has refused to chase what it calls "temporary market share" at the expense of profit margins.

In any case, Target's prices are probably not materially more expensive than rivals. The company already offers 5 percent off each individual purchase with a REDcard. And Target recently decided to match online and in-store prices of competitors like Wal-Mart and Best Buy, and offer free shipping.

"There isn't going to be a meaningful change in our [holiday] strategy, because day-in and day ... our prices are competitive," Steinhafel told analysts during a recent conference call. "We have a very strong value proposition and our circular pricing is even more aggressive than that and we take market leading positions."

But perception doesn't always match reality. Target's prices may be competitive, but Americans looking for deals will likely assume Wal-Mart and Amazon have lower prices, analysts say.

"We do remain concerned that its less aggressive promotional posture during the biggest quarter may contribute to a loss of mind share with its core customers," Binder wrote.

In other words, for all of its marketing prowess, Target doesn't effectively communicate to consumers its holiday prices are just as good if not better than everyone else's.

To address soft sales in Canada, Steinhafel promised to take quick action to educate consumers.

"We're going to make sure that our prices get more notice than they have been up to this point," Steinhafel said. "Part of that was a conscious plan on our part to make sure that we really won in home and apparel and we feel real good about where we're in those two businesses today, so we're proud of that fact."

"Now we have to just turn on the gas a little bit on the other side of the equation to make sure that we're getting the Canadian guest to understand what great values we offer," he said.