Do Loyalty Cards Raise Prices?

A blog about business and economics.
Aug. 10 2012 3:17 PM

Do Loyalty Cards Raise Prices?

Supermarkets and lots of other stores these days tend to charge two prices for things. There's the loyalty card price and there's the higher non-card price. And Kevin Drum is mad as hell about it:

This is the price we pay for the loyalty card revolution. If it actually saved us all money, maybe that would be an acceptable price to pay. But you all know that's a mirage, right? The aggregate price that supermarkets charge is about the same as it would be without loyalty cards. How could it not be? So now our shopping choices are restricted; we have to jump through a growing number of hoops to get the best pricing (it's not just clipping coupons anymore!); anyone who's not especially computer savvy is routinely ripped off; and gigabytes of your personal consumption data is available to anyone willing to pay a few pennies for it. What's not to like?

I've been able to find surprisingly little empirical research on this, but I don't see why he's so sure the discounting is illusory. Think of it this way. Stores like to get money, which can be used to pay employees and dividends. Stores also like to get information, which can be sold for money or used to increase the efficiency of store operations. So since the information is valuable to the store, the store is willing to offer discounts to people who are willing to pony over the information. If it wasn't possible to offer the information, then everyone would pay the higher non-card price rather than the lower price. It seems fine.

Of course insofar as retailers face limited competition (which is sometimes to case) they can charge monopolistic prices and screw you over. There's a Safeway on my block and a Harris Teeter a 20 minute walk away, so the practical limit of Safeway's ability to exploit me is the hassle margin involved in walking over to the Harris Teeter. The loyalty card has nothing to do with it. Compared to, say, airline frequent flier programs the whole transaction also seems admirably transparent—Safeway wants to track what its customers are buying so offers a lower price to those who are willing to be tracked than those who aren't.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.


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