Most consumers sign up for supermarket loyalty card programs under the assumption they will receive discounted prices on their grocery items. While it may sound logical, it is far from it. How can grocery stores afford to lose millions of dollars by offering lower prices to loyal shoppers? The answer is simple: they can’t.
These card schemes fall into two sections, savings and segmentation. The savings issue applies to consumers in the present because they believe they are saving money on their purchases. The segmentation issue, however, will influence consumers in the future.
Savings: Real or Imagined?
Most customers sign up for loyalty cards without wondering how the operational costs of loyalty programs are covered. In fact, these money-saving campaigns are quite expensive, with some totaling upwards of $30 million. Companies aren’t going to forfeit that much money solely to save their customers money; the money to operate a loyalty program has to come from somewhere, and that somewhere is customers’ wallets.
What many consumers don’t notice is that before a company implements a new program, it increases prices throughout the store. That way, the “price with your card” is actually the old price before the increase. Those who refuse to sign up for loyalty cards bear the brunt of the increase, since they pay a higher price rather than the “sale” price. For example, a study was conducted regarding Velveeta cheese. Two stores marketed a manufacturer’s price of $3.99 without a store card. Two other stores with card programs had manufacturer’s prices of $5.99 and $5.59. The “sale” price was $3.99.
Stores try to capitalize on their programs by requiring cashiers to mark the “amount saved” on the receipt and state to the customer exactly how much was saved. While customers may seem relieved that they saved money, in reality, they purchased items at the regular prices. Companies break even, and may even make a small profit, by implementing this procedure., Most of the revenue, however, goes back into funding the program.
Segmentation of Consumers
Some consumers assume their profile information is used by companies for marketing purposes such as matching products with households and/or age groups. However, most stores have privacy policies in place that prohibit them from giving information to third parties. In addition, many consumers who sign up for cards do so by using aliases, rendering any retrievable data worthless.
The real purpose behind gathering data is to find out which customers purchase the most products or who the company’s “best” customers are. A company is then able to cater to the needs of its customers and directly increase profits. For example, if a store’s loyal, or high-profit, customers do not purchase a certain item, the item will be removed from the shelves, no matter how many other people buy it. This strategy negatively affects both poor and minority populations because more of their favorite items have the potential to be removed.
In fact, consumers may see a three-tiered system that includes a high-spending customer, a low-spending customer, and a new, moderate-spending customer. Although targeting higher-paying customers does not directly target certain people or classes, the end result is the same. Some customers may be offered special items such as a free turkey or reward points for discounted gas prices. While consumers may not read too much into these offers, they are precursors to a three-tiered system.
Some stores print coupons for customers based on items they are likely to purchase., Other stores, however, count on repeat purchases by customers who need or want certain items, regardless of price. These customers are unlikely to receive coupons because no incentives are needed for them to purchase these items. The real deals, in order to attract interest, will go to infrequent or occasional purchasers. Coupons will also go to shoppers who frequently buy one brand to get them to switch to a competing brand.
Consumers need to be more aware of what is going on in their favorite stores. If you notice prices of items you purchase every week increasing, but you’re able to get them on sale with your shopper’s card, you should be concerned. As consumers, we need to pay attention to what we buy and compare sale prices with and without customer loyalty cards.
Mallory Hall is a married mother of two blogging on family, financial and health topics. Visit her at Guru to if you'd like her to write for you.