Target reassesses AI strategy as usage-based pricing forces cost trade-offs across operations

Target AI Strategy Faces New Economic Reality

Target is navigating a fundamental shift in how it deploys artificial intelligence across its operations, driven by changing economics in the AI industry. Andrea Zimmerman, Target India President, told Reuters that the retailer is moving from "using AI to running on AI," but a concurrent shift to usage-based pricing by major AI providers is forcing the company to rethink its entire AI deployment strategy 1

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. The pricing transformation reflects a broader reset in AI economics that's raising costs for enterprises across industries.

Deeper AI Adoption Meets Token-Based Pricing Challenges

AI firms such as Anthropic and OpenAI are increasingly shifting to token-based pricing that charges customers based on usage, instead of subscription-based services 2

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. This transition is prompting Target to evaluate AI tool costs more carefully. "It is forcing us to re-evaluate our strategy," Zimmerman explained, noting that discussions around AI pricing now sit "at the highest level in both our architecture forums as well as in our senior leadership forums within technology" 1

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. The retailer's size and scale mean it must carefully consider trade-offs between employee needs and demands when making costly AI tools available across its workforce.

Running on AI Requires Intentional Integration

Despite cost pressures, Target is making "significant investments" in ensuring teams have the right tools for their jobs, Zimmerman said 2

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. However, the approach emphasizes strategic deployment rather than blanket implementation. "It's about the intentional use and integration of AI rather than deploying it everywhere," she explained 1

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. This measured stance acknowledges that while "AI is fun, exciting and interesting to think about," change isn't immediate and "certainly not free" 1

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Target India Expands Analytics Capabilities

Target India, which employs about 5,600 people across merchandising, digital, stores and supply chain verticals, represents about 40% of Minneapolis-based Target's tech workforce in Bengaluru 2

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. The company is ramping up investment in its analytics teams to turn growing volumes of data into actionable insights faster. "We work to adapt really quickly when we see that consumer demand or sentiment start to shift," Zimmerman said 1

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. This focus on agility comes as the $57-billion retailer has struggled with three straight years of declining revenue, with cost-conscious shoppers trading down to cheaper alternatives 2

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$2 Billion Investment Signals Commitment Despite Headwinds

Under new CEO Michael Fiddelke, Target plans to spend an additional $2 billion this year on new stores, remodels, and AI initiatives 2

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. This substantial investment demonstrates the retailer's commitment to AI adoption even as it grapples with pricing pressures and revenue challenges. The company's strategic reassessment of its AI deployment strategy suggests it's balancing aggressive innovation with financial discipline, seeking to maximize return on AI investments while managing the escalating costs associated with the shift to usage-based pricing models from providers.