Pros and Cons of Supermarket Loyalty Programs

Do Shoppers Really Save?

Cashier swiping loyalty card for mother in grocery store
Steve Debenport / Getty Images

At first glance, supermarket loyalty programs look like a worthwhile way for shoppers to save money, but is giving up control over personal information worth the savings?

How Companies Define Loyalty Programs to Customers

Loyalty programs are strategic marketing concepts designed to retain existing customers through various rewards exclusive to members, while at the same time attracting new customers.

How Marketing Companies Define Loyalty Programs to Retailers

There is a difference between how marketers reach out to companies about the necessity of developing a good loyalty program and how retailers reach out to customers about the benefits of their loyalty program and why they should sign up.

Marketers enlist companies by telling them that a well-designed loyalty program will:

  • Increase customer loyalty, which is more cost effective than putting all marketing resources towards focusing on finding new customers.
  • Increase a feeling of goodwill with existing customers because they are being rewarded for being loyal.
  • Entice customers to spend more money so that they can increase their rewards.
  • Improve a company's insight into the spending habits of the customer through customer data collection, demographic profiling, etc.

How Data Collection Works

Here is an analogy. Imagine coming home from work and discovering that things  you consider very personal; including credit card bills, doctor bills, prescriptions, what you have in your liquor cabinet, and how you went off your diet last weekend--all that information is shared with people you do not know.

And those people share it with other people you do not know, and get paid for the information.

Your private world turns into a clump of data that people from around the world slice and dice for a profit.

What Do Grocery Stores Want With Customer Data?

Grocery stores want shoppers to join the loyalty programs so that they can start tracking:

  • What each shopper buys.
  • What individual shoppers stopped buying.
  • What time they came shopping.
  • How much are they willing to spend on dog food?
  • How much are they are willing to spend on milk, eggs, and other products?
  • How much do they spend on food each week?
  • How much do they spend on personal products each week?
  • Have they ordered a special occasion cake in the past year? What was the occasion? 
  • What kind of wine do they buy? What beer do they prefer?
  • How much alcohol do they buy each week?
  • Do they live in a house or an apartment?  
  • What is the average income of people in the area in which they live?
  • Do they have children?
  • Do they use the bank or other services offered in store?

The list of details gathered through loyalty programs is long. Over time, all of that information builds into valuable individual demographic files that are constantly grouped and analyzed for the purpose of ultimately increasing profitability. Retailers can then use the information to make various adjustments, such as:

  • Increase or decrease the inventory levels of specific products
  • Hike prices based on what their shoppers are willing to pay who live in specific zip codes
  • Lower some prices based on the same information
  • Alter promotional efforts

And it does not stop there.

Some grocery stores are even meddling in their customer's poor eating habits, weight issues, and possible substance abuse problems. Some consumers may feel that there is nothing wrong with this. Other shoppers resent going to the grocery store to be stripped of their privacy.

Even Non-Loyalty Program Shoppers Are Targeted

Shoppers who have decided not to join loyalty programs are also tracked, depending on their payment tender. Many of the major credit card companies have privacy policies that inform credit card users that the data collected based on their purchases may be shared and even sold.

For example, JPMorgan Chase & Co. states that Chase will collect information on credit and debit card users' card activity, including purchased products and the places where the card has been used. Personal information, any purchases, and "experiences" are shared with other financial companies, JPMorgan Chase & Co. subsidiaries, JPMorgan Chase & Co. affiliates and non-affiliates, and (ambiguously included) "other" companies.

Cardholders can opt out of having a small portion of their private information shared by going to the Chase website. Most credit and debit cards issued by other U.S. financial institutions have similar policies.

Companies Make Money Selling Data

Perhaps the biggest insult to a customer subject to data collection through loyalty programs is that much of the collected information has monetary value and can be sold to other companies, processed and then resold repeatedly to other companies around the world.

The Bottom Line

A lot of value-conscious shoppers enjoy loyalty programs because of their member-only discounts. Others enjoy having promotions tailored to their personal shopping history.

However, many customers resent that their personal information can go to the highest bidder, just because they decided to join a loyalty program to take advantage of lower prices or mobile coupons. In fact, some are so offended by the process of being forced to participate in a loyalty program to get advertised sale prices that they end up shopping at other stores.

Everyone has the right to decide if the benefits that come with sacrificing privacy outweigh the downsides. Knowing what type of information is collected, what happens to that information, and what safeguards are in place to protect such information, should be the right of all consumers. A company not disclosing this information discredits all their loyal customers.

Additional Reading:

Transparency Establishes Trust 
Read this brilliantly researched article about the need for companies to make both the private information that they collect on consumers and the use of that information transparent.

Everyday High Prices
This in-depth study of standard prices at stores with loyalty card programs discovers that prices are significantly higher than prices at stores without cards.

Loyalty Cards: Reward or Threat?
Is your grocery store profiling you based on what you spend? This article answers that question and much more, plus explains how this trend can be damaging to loyal customers in the long run.

Alternatives to Loyalty Cards
If you prefer to not join loyalty programs, you can still get decent deals. Here is a roundup of some of the major supermarket and shopping outlets that don't offer loyalty cards and what they do offer instead.

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