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Individualized Coupons Aid Price Discrimination

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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.

Grocery storeA 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?

Photo: SodanieChea
New York Times

Published or updated August 10, 2012.

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About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 14 comments… read them below or add one }

avatar 1 Anonymous

I always try to do what’s best for me, not for the store. You can do this by keeping the exact information in mind at all times: That stores (and manufacturers) aren’t giving this away out of the goodness of their heart. Their has to be a win for them.

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avatar 2 Anonymous

Ditto. Our best defense has always been a shopping list, to not be deviated from. The wife and I have developed a cycle: Costco for certain things (mainly meat and the occasional rotisserie chicken), Walmart for other branded goods, dollar store for almost all dry goods, and local supermarket at the end of the chain. The things we buuy outside of the supermarket almost always beats the couponed prices.

I signed up for the Safeway thing because the guy had an iPad in his hand and I wanted to see how their system worked (very well). We rarely use coupons, custom or otherwise, because we know what we want, and we know where the best deals on those are. Some things, like soda, are best at the supermarket over the big holidays, so the basement always has a few fridgepacks in inventory. I have a rule of 25 cents a can, and so far I’ve been able to stay there with the holiday/inventory system. :)

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avatar 3 Anonymous

You make this sound so sinister, when it is a really sound business practice. Since I would rarely change brands based on coupons or (heaven forbid) buy something I don’t need because it is “on sale” I don’t associate these practices with discrimination or dark intent. I do use one of those big-box stores and acquire an ample supply of paper products and laundry “stuff” so now, thanks to you ;-) I feel guilty because I don’t really care what other people are paying. Spendthrifts will find a way to race to a zero balance regardless. Forgive the sarcasm but I just think we’ve identified far too many victims and then gone off to write laws to protect them from themselves. BTW: It’s the internet ads that bug me – look up one item and then spend the next three weeks bombarded by ads for the same thing – geez… I bought it already guys!!

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avatar 4 Anonymous

I can’t go into Safeway without being bombarded with that new program of theirs (ads on the PA system, accosted at the register). I go to Safeway less often because of it, and in about two weeks I won’t be going there at all anymore.
I have zero interest in this type of program, and I won’t sign up for it. I hope these programs fail, because for now there are plenty of places I can go shop without it.

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avatar 5 Anonymous

This was really a well written post. Personally, I do what’s best for me. I really don’t have time to submit myself to the obsession of couponing. I buy what I need or I might price compare between one brand or another. But my goal is not to trying to save on grocery shopping as I truly buy what I will eat.

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avatar 6 Ceecee

I don’t care if the store knows what I buy—-it’s just ordinary, boring stuff. When they give me a discount, they may expect me to switch brands from that point on. That doesn’t always work. The discounted item has to be superior to my current brand and not much more expensive. I have tried some items because of the discount and thought, “meh, that’s something I don’t have to buy again.” I buy a lot of stuff at Aldi….. they don’t have cards, their brands are ones you’ve never heard of(mostly good stuff) and their prices are the lowest in the County where I live.

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avatar 7 Anonymous

My wife puts coupons on her Von’s Club card and receives a discount of 20-30% each week. If that is the price I pay for the store to have our spending habits, so be it.

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avatar 8 Anonymous

I’ll sign up for the cards to save money on my purchases. At Winn Dixie the stores print out coupons based on your card activity I think and I never really thought of it that way. I mostly shop at Wal-Mart though and they have no such card. Overall it stinks but companies are doing what they can to increase profits. Just shop smart to save the most you can.

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avatar 9 Anonymous

I use coupons and a grocery price book – and do not deviate from my list of products to purchase. I use cash or debt and live on a budget. There is more information available to companies now than ever before – but there’s also more information available to consumers. Be smart, be aware, be in control.

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avatar 10 Anonymous

I used to be like your friend on Facebook, but I got tired of buying stuff I wasn’t going to use so I could get what I was going to use for nearly free. Now, I hardly ever enter a regular grocery store; instead I do most of my shopping at Costco or Trader Joe’s. Our produce comes from a CSA. After this article, I want to stay away from regular grocery stores.

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avatar 11 Anonymous

I observed that stores give more discounts to their own brands to encourage customers in patronizing their own brand, resulting to a higher profit for them. I tried using coupons a few months ago but I realized that it did not work for me because they are not the brands that I use. Furthermore, it is not practical for us to buy items in bulk or boxes.

I do agree with personalized coupons. I believe they are better and more advantageous to the customers. At the same time, they will still give more profit to store owners.

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avatar 12 Anonymous

I guess I’m a little confused. I’ve never seen a store in my area giving different prices to different people with the same loyalty card. Is this a new thing on the East coast? I know that Albertsons has higher prices, but if you have their rewards card you get their sale prices. I don’t shop at Safeway very often. WinCo doesn’t have a loyalty card; nor does Walmart.

I guess I could be considered an “extreme” couponer. It is fun to find the best deals and I do my best to only buy things we will use or need. Getting free air freshener is a thrill…it’s expensive and we use it at work. I got 8 or 9 free Glade air fresheners over the last week just from printing coupons online.

Your friend who got $100 worth of product for under $20 is stocking up so that she won’t have to buy product in the future, when prices are even higher. I haven’t purchased Shampoo in over three years and it amazes me how much the cost has gone up since that time. We still have enough shampoo for a year or two and I’ll start looking for deals and frees soon.

If I can stock up on things like Shampoo and detergent using coupons why wouldn’t I? It’s just a matter of paying attention to sales and matching them up with coupons.

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avatar 13 Anonymous

The only grocery stores in my area that don’t have a loyalty card are Walmart, which many people avoid, and Trader Joes, which many people love but which is small and has a limited selection. We aren’t left with many alternatives to avoid being tracked.

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avatar 14 qixx

I find that deal blogs help add some trans-parity to this price discrimination. Deal blogs will often post the deals they get through these individual shopping programs. Those that post to the blogs often buy more (for less) than many others. This higher amount of shopping can lead to the better deals you talked about. They then post the deals they receive letting anyone who reads the blog know. Seeing price disparity on these types of sites could lead to them posting deals that direct people to other stores (the blog followers are usually price sensitive and brand adverse). I see this practice leading to some bad press and lost sales.

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