The Pitfalls of Customer Loyalty Programs
Posted on Tuesday, October 18th, 2011 at 8:12 am
Customer loyalty programs can be a great way to save money, but make sure to watch out for these pitfalls that might end up costing you more money!
Everyday Higher Prices
Studies have revealed that stores with customer loyalty cards often have higher everyday prices (by as much as 71%!) than stores without customer loyalty cards. One study in particular compared everyday prices on common grocery items at Target and Meijer (both non-card stores) with the same items at Marsh and Kroger (both card stores). The results were pretty shocking. The card stores’ everyday prices were higher on every single item, with the price markups ranging from 28-71%. For example, the average price of Chex cereal at the non-card stores was $2.89 and at the card stores it was $4.44 – a 54% increase!
In other cases, customer loyalty programs aim to coerce their customers into spending more than they would have spent without being a member of the program. Sometimes the cost is much, much more. For example, Amazon Prime customers spent 150% more on Amazon.com than they had before signing up for the extra membership program. What happens is that Amazon Prime customers pay an annual fee of $79 to enjoy two-day free shipping on every order. After paying the fee for this benefit, many Amazon Prime customers feel the need to shop and spend more than they would have before signing up for free shipping.
How to Avoid These Pitfalls
Avoiding the pitfalls of customer loyalty programs is easy. Before signing up for any program or special offer, evaluate the situation. Is signing up going to save money, or cost money? Will you feel the need to shop and spend more after signing up for a loyalty programs? Are the prices at the store higher than non-card stores? Almost everyone’s attention is easily caught by the promise of saving money, which is what customer loyalty programs count on. However, if you find they are inflating their prices or causing you to buy more than you normally would, then its time to opt out and shop elsewhere.