The battle between Target and Amazon is an interesting case study in how to use your unique strengths against a much bigger competitor. It's also a demonstration of just how big the stakes are in both brick-and-mortar retail and e-commerce. Obviously, Amazon is the much larger, tech-savvy, data-driven Goliath, accounting for over 50 percent of all e-commerce transactions in the United States. Target, on the other hand, is the one with the cool stores, and hip brands. 

You might think that Amazon has a huge advantage with its scale and technology infrastructure. There's also the fact that it's building out its own shipping network to reduce the costs associated with one-day shipping for Prime members. But Target, for its part, has doubled down on its efforts to take advantage of its two greatest assets: its stores and brand. 

That may not seem like a lot, but it's working. I've already written about how Target is using smaller footprint stores to get closer to urban customers, and how it has leveraged its vast network of locations as a distribution system for same-day delivery and in-store pickup.

On Monday, Target rolled out an entirely new free customer reward program that capitalizes on their loyalty to the brand. That program rewards members for simply shopping in Target stores or online, and gives them 1 percent of their purchase back as a reward to use later. For many shoppers, that's likely to be a compelling reason to keep shopping at Target, instead of being enticed by Amazon's Prime benefits.

Here's how it works:

  • Anyone who already has a, Cartwheel, or RedCard account is already enrolled in the new loyalty program. If you don't have one of those accounts, you can join by simply creating a account, or providing your phone number when you check-out in store.
  • Circle members earn 1 percent on every Target purchase, which can be redeemed on later purchases. RedCard members who use their credit or debit card, won't earn the 1 percent back, but will still save 5 percent on purchases.
  • You earn rewards by scanning the Target app in-store, or by giving your phone number at checkout. You'll also automatically earn when you shop online using your account.
  • Members can redeem their rewards in the same way, by scanning the app, providing their number, or logging into their account online. Members also get an additional 5 percent discount to use on their birthday.
  • Target also provides exclusive deals and offers that are targeted (no pun intended) based on the products you buy most. 

By the way, one of the most interesting aspects of Target's Circle program is that with every transaction, members get a vote for how Target should give back, turning shopping into an opportunity for loyal shoppers to make a difference in their community. Target already works with over 800 nonprofits nationwide.

I've written about Target's battle against Amazon before, but here's why I think this is brilliant: instead of competing on Amazon's turf, Target is using what it already has to change the rules. It's in-store and curbside pickup are faster than one-day shipping and, if that's not fast enough, Target offers same-day delivery through Shipt, often in one hour. That service costs $99 per year, compared to Amazon Prime's $119 annual membership.

Target also started rolling out Disney mini-stores this month in advance of the holiday shopping season. The recurring theme here is that Target is using its stores as a competitive advantage, and one that Amazon simply can't match. No shipping network can match one-hour in-store pickup especially when customers actually enjoy walking through your store. 

Now, when they do, Target is rewarding them for doing more of what they came to do in the first place.