Customer loyalty in retail: the impacts of members-only pricing

Amongst rising prices, consumers are looking for affordable pricing. UK Supermarkets have responded with a bold strategy: exclusive pricing for loyalty members only. 

Most stores now sport two price tags: one for loyalty card holders, and another for everyone else. But what effects does this strategy have on consumers? And does it actually create customer loyalty?

The Rise of Exclusive Discounts Across Retail

The trend of members-only pricing is nothing new. Costco introduced members-only pricing in the US when it first opened its doors in 1983. The concept of offering products at lower prices to members who pay an annual fee was a key part of Costco’s business strategy from the beginning. This approach allows Costco to offer bulk goods and other products at discounted prices while generating revenue through membership fees.

In the UK, Tesco pioneered members-only pricing with Clubcard. Sainsbury’s has followed suit with Nectar Prices, creating exclusive aisles of ‘Nectar-priced’ items in their stores. More recently, Morrisons announced their More Card holders discounts. And it’s a safe bet that other retailers will do the same - just like Boots and Superdrug. 
 

Unlike Costco, UK supermarket retailers don't charge membership fees. But you do have to offer something in return: your data.

The Power of Data in Retail Loyalty

Behind these discounts lies a retailer’s treasure: consumer data. 
 

Loyalty programs are being used more and more to turn customer data into an asset. The more data supermarkets hold, the better they can drive consumer behaviour. 
 

And loyalty programs are proving vital in the collection of this data. 

In fact, Tesco Clubcard members now account for a huge 80% of Tesco’s total sales. That’s because a lower price promise can attract even occasional shoppers, increasing retailers' databases even further.
 

Most shoppers understand the data exchange in these programs. They’re willing to give data in exchange for value, which can be lower prices or tailored offers. 
 

Armed with consumer data, retailers can go beyond generic promotions, crafting discounts that match individual preferences. This creates a more personalised and positive customer experience. 

Exploring the Impact on Consumer Loyalty

For shoppers, differentiating perceived value from actual savings is tricky. 

As costs rise, it becomes harder to tell if a loyalty price is truly a deal. This uncertainty could lead to skepticism about retailers, making customers wonder - “Am I really benefitting, or just trading data for access to affordable prices?”
 

Furthermore, some brands have reduced their loyalty rewards. Tesco has lowered the value of redeemable points for Clubcard Rewards. This means that customers get less in return for consistently choosing them and sharing their data. Boots, Starbucks, and Dunkin’ also devalued their loyalty programs recently, raising questions about the real value of loyalty programs.

The Double-Edged Sword of Exclusive Membership Pricing

Exclusive pricing has both positive and negative impacts on customer loyalty. On one hand, you cannot deny that instant discounts can help consumers navigate today’s rising costs. Plus, personalising discounts enriches the shopping experience and creates value and convenience for shoppers. 

However, this approach does have some pitfalls. Favouring members-only discounts could mean that non-members miss out on promotions. This might lead to frustration and negative perceptions of loyalty programs which can be seen to create exclusion at difficult times. 

Phone battery dead and don’t have a physical loyalty card? You’ll pay the price for that. 
 

On top of this, some consumers will have concerns about data privacy and security. Many are already skeptical about how companies use their data.

Key Factors for Retail Loyalty Success

Here’s the solution: Retailers need to eliminate customer frustrations by:
 

a) ensuring a streamlined and transparent sign-up process,
 

And
 

b) offering rewards that are actually rewarding. 

Infrequent shoppers should be able to sign up for a loyalty program on-the-spot so they can access affordable pricing. 
 

And retailers must ensure they offer enough value in exchange for consumer data and loyalty - with great discounts, personalised offers, and rewarding experiences. On top of this, retailers should be transparent about their data practices, since trust and transparency build true loyalty. 

When done right, membership pricing can forge stronger bonds with customers. But these strategies should unite, not divide. Striking the balance between incentivising loyalty and ensuring inclusivity is crucial. After all, no one should pay the price of not being a loyal member...