I’m not a fan of allowing companies to track every purchasing decision I make, but I’ve sacrificed some of my expectations for privacy in return for convenience. I use my credit card for most purchases, and over the years, credit card issuers could have created a database with my transaction history and could theoretically use that information to predict my future spending habits. In order to receive discounts on groceries, I shop at the supermarket using a loyalty card. Although the card isn’t linked to my address or name, preventing the company from identifying me personally, I’m practically giving away valuable personal data.
Years after these grocery store loyalty card programs started appearing, the amount they allow me to save as a percentage of the non-sale prices have decreased. Stores easily use the programs to lure customers into a false sense of good deals. The best prices are still offered to customers who make the effort to find and clip coupons. If I were to adopt the time-consuming obsessive-compulsive disorder commonly known as extreme couponing, I might be able to save much more money — for the compromise of buying brands I don’t like or much more than I need.
A friend of mine recently shared a photograph on Facebook her first extreme couponing haul: a ton of detergents and shampoo for under twenty dollars, with a retail price of almost $100. I can’t criticize her on the deal, but what would I do with 10 bottles of an expensive brand of shampoo, and where would I store them for the next five years?
So rather than spending my time clipping coupons, trying to find deals on the products I typically buy or accepting brand substitutions, I rely almost completely on scanning my store loyalty card for delivering discounts. This doesn’t pay off as much as it did ten years ago, but I get over the disappointment without dwelling.
Price discrimination sounds bad, but it has always been around. When stores offer coupons through the mail directly to nearby residents or inside newspapers, those who use the coupons get better prices than those who don’t. Shoppers who are willing to give up a small part of their privacy through the use of loyalty programs receive better prices than a stranger walking into the store off the street. Mobile phone applications make it even easier for the store to disseminate better prices to a subset of their customer base.
There should be no surprise now that grocery stores and supermarkets are now testing and implementing individually-targeted sales. While shoppers have accepted price discrimination between the class of those with coupons and those without and between store members with loyalty cards and shoppers without, now there’s concern that stores are crossing the line. Two shoppers with loyalty cards, identical except for their past purchasing habits, might receive two different prices for the same product at the same time.
The purpose of this pricing scheme is to change a shopper’s behavior to be more profitable for the store. If one shopper primarily buys one brand of cleaning product, but the store profits more on a different brand, the store can encourage that one shopper to try the new brand by introducing a personalized coupon. This is great for profit because the store does not need to entice every loyal shopper with the same discount. That one shopper’s next door neighbor might already be a fan of the more profitable brand of cleaning product, so a discount would affect her shopping habit.
These decisions regarding discounts to increase profits have always been made on a geographical basis, but technology is much more sophisticated than it was twenty years ago, and customers like myself have gladly shared their full shopping histories, enabling store managers to mine through an enormous amount of data.
New, highly individualized coupons will continue and increase price discrimination, wherein those drawing the short end of the pricing stick are inevitably those without leverage — families with low household incomes.
Overall, this has been the pattern for at least as long as I’ve been aware of the costs of groceries. Walk into a market in a depressed neighborhood, where the average income is low, most dwellings are rented, and the demographics feature higher numbers of minorities, and prices for basic items are often higher than they are at a massive supermarket in a thriving, mostly-white suburban neighborhood. There are certainly legitimate reasons for price differences, but the result is that poorer families pay more for the same groceries.
Personalized coupons will change that divide. Rather than just a store-to-store or neighborhood-to-neighborhood difference in price, this discrimination can happen within the same store. Again, this is just a continuation of what is already taking place. In the past, those who subscribe to newspapers have been the families graced with the best coupons. Households with smaller incomes have never been represented well in newspapers’ base of subscribers.
Stores primarily selling groceries in bulk also aided price discrimination. Those who could afford the annual fee, could drive to a big warehouse in the suburbs, had two or more refrigerators to store perishable items, and could take advantage of a large house for storage of non-perishables, have been blessed by the benefits of lower prices. Those who need frequent shopping trips to avoid spoilage and because they have less money at any one particular time rather than infrequent shopping trips to buy in bulk suffer the consequences.
At first, loyalty card programs actually leveled the playing field, with everyone who was willing to sign up receiving the same discounts, but once again, price discrimination finds a way to benefit those with more money. As prices for some items will be based on an individual’s spending habits, those with more money to spend will receive the best deals.
Coupons are psychological, and that’s why they succeed so much. They are designed for the store’s benefit in profit, but they achieve this by making the customer feel good about the price they “scored.” Game theory takes hold of consumer behavior, especially with extreme couponing. Feeling good as a result of making a frugal shopping decision is important, whether the shopping trip resulted in actual savings is not as important. The idea that you are getting a better price than someone else is psychologically fulfilling, even if it’s not true. With individualized coupons, we’re allowing stores to use personal transaction data to make us feel good, in an attempt to subtly modify our spending behavior for the store’s profit, with or without actual long-term savings. Is this a trade-off you’re willing to accept?
Published or updated August 10, 2012.