Will backlash against loyalty card ‘fake inflation’ see customers shop around?

So, if people feel forced to use their loyalty cards, can we call it loyalty?

• What can brands learn from Kith’s ‘thoughtful’ loyalty program?

Tesco was the first major retailer to introduce loyalty prices when it changed its Clubcard program from a voucher-based system to a discount system. The Clubcard is now the only way shoppers can get a discounted price. It didn’t take long before other retailers followed suit; Sainsbury’s, Boots and Superdrug were the most notable.

In the UK, Sainsbury’s and Tesco account for 30% of all supermarket sales, meaning that loyalty pricing will be impacting a sizable chunk of people’s purchases.

But how happy are shoppers with this new system of loyalty? Retail Week commissioned Walnut Unlimited to survey 2,000 customers to find out opinions about loyalty schemes. 57% said they doubted if the loyalty price was genuine and 59% believe the discounts are made to look higher than they are.

The issue has caught the attention of the Competition Market Authority, leading to a consultation that kicked off in January. The regulator will be looking into the impact on consumers; asking if there are reasons why consumers don’t want to sign up and whether the non-loyalty price is the real price. The CMA will also review the implications of gathering data and assessing if it impacts the way shoppers switch between supermarkets. An update on the investigation is expected in July.

Rory Sutherland, vice-president of Ogilvy UK, recalls a pitch to a retailer in the 1990s in which he suggested making savings dependent on loyalty club membership. “They looked at me as though I were slightly nuts,” he says.

The idea that “exclusive savings may have a higher perceived value than savings that are available to all is technically called the ‘idiosyncratic fit heuristic,’” explains Sutherland. And there is nothing new about it. “You cannot buy from Amazon at all without allowing them to know who you are.”

While Sutherland doesn’t believe the practice is unethical, he does say: “You may need to consider that it runs the risk of annoying customers who have a strong aversion to loyalty cards.”

In a free market economy, supermarkets have the freedom to set their prices for products, so the retailers aren’t doing anything illegal. Unlike Sutherland, however, Geraint Lloyd-Taylor, partner and co-head at the law firm Lewis Silkin, does believe it to be “unethical behavior.”

He says record levels of inflation, coupled with supermarkets’ “dodgy” pricing strategies, means that people no longer understand how much things cost. “The supermarkets have taken advantage to make customers confused and get away with fake inflation,” he argues. “It feels like the supermarkets are now cashing in slightly on that loyalty in a way that feels unpleasant.”

Lloyd-Taylor says that these pricing strategies are deliberately confusing customers, which “disempowers” them from making informed decisions about what to buy. “It is contributing to this sense of utter confusion, and when people are completely confused by the prices, they stop looking at them and then it is easier for the supermarkets to confuse you into paying a little more for everything.”

Data to power retail media networks

Retailers need customers to sign up and regularly use these loyalty programs so they can capture first-party data to fuel their retail media networks. They need the data not only for targeting but also to attribute the sales and prove the value of their retail media offering.

Most major retailers are heavily investing in their retail media networks. Along with the retailers previously mentioned, Walmart, Walgreens, Carrefour and Asos are also scaling up their ad businesses.

Not all loyalty pricing will be set to incentivize shoppers to hand over data, explains Rob Sellers, ex-Grey and VCCP retail lead. Many of these deals will be part of a joint business plan with the suppliers and often help with the promotion of NPDs (new products). However, he cautions that a potential backlash against loyalty schemes “needs to be on the radar of retailers.” Sellers says that the voice of the customer is getting lost in this new way of operating loyalty schemes.

“Just because you can do it doesn’t mean you should. There are going to be a lot of people who just go, ‘Fuck off, I don’t want you to have my data, I didn’t like it when it was simply just getting some points and now I don’t like it as I don’t understand how much I’m going pay for anything. So fuck off, I’m going to go shop somewhere else’.”

Katie Streeter-Hurle, who is chief strategy officer at the retail media agency SMG, explains that loyalty schemes exist on the idea of value exchange. This means that people accept that their data will be shared with other businesses because they get something valuable in return – in this case, a lower price than non-members.

“People who share their information today with retailers understand that they are entering into that exchange. They’re comfortable in many cases that businesses will use their data, as long as they get good and fair prices, personalized offers and meaningful and relevant communications,” she explains.

In her experience of working alongside retailers to help them build their advertising networks, Streeter-Hurle believes they are “very mindful” of making the value exchange fair. “There is a commercial benefit from having these schemes in place, but there is also one which is intrinsically linked to their relationship with customers. So if that goes in the wrong direction, the retailers are very aware that won’t be a positive thing – they are not incentivized to get that wrong.”

During a cost of living crisis, shoppers hands are tied. I had to scan my Clubcard and pass on my data to afford that Colgate toothpaste and I’ll continue to use my Clubcard, albeit through gritted teeth.