Wednesday, November 28, 2012

Do Loyalty Cards Save You Money?


Do loyalty cards save you money?


Many businesses from car companies to grocery stores offer their customers rewards for being "loyal" customers.  Some of them are quite specialized, only for Mercedes drivers for example.  Others, like the Dillions card, are open to pretty much everyone who wants one.  Generally, you are given a card that you can present at that or another businesses that will "reward" you for shopping with them by giving you discounts or free merchandise. 

Are loyalty cards a good idea?

While there are millions of cards out there offering millions of deals, the question remains, do you save money in the long run?

So What's the Answer?:

We here at the Not Entirely Useless Facts Blog (NEUFB) spent quite a while chewing on this question. 

Loyalty cards are primarly about securing profit for the company issuing them, saving you money is secondary.   For example.  A company that sells car parts, knows that you will come back to them more often if you have their card.  Knowing that they will have increased sales is valuable to them and so they do in fact save you 10% just to make sure your coming back.

Another thing the company gains is information about you.  Millions of people give businesses not just their home address when they sign up for the card, but also allow the business to keep exact track of their buying patterns.  This information is very valuable to companies.  Sometimes they even sell this information.  In this case you do save your 10% by  in effect by selling your personal information.

Many loyalty cards actually cost the user money.  This happens with cards where there are a large number of products available for purchase. 

To explain how this works, we'll imagine a grocery store with 100 items for sale.   In the first model of our store each item costs $1.00.  So, to go into the store and buy one of each item you will spend $100.00 dollars.


In the second model of the store, there is a loyalty card that allows you a deep discount on one item.  What has also happened is that each other item has gone up by one cent.  Human psychology says that you will notice the deep discount, but not the one cent.  Humans are natural bargin hunters and it creates a trap that we walk right into.  Let's look at what happens to the cost in this situation.  We've discounted one item to half off but added one cent to each other item.

99*$1.01+1*$0.50= 100.49

It actually cost you 49 more sense to get the sale item.  Damn the psychology of sales!  

The way this works in the real world is extremely complex and driven by powerful databases.  You'll get the Whole Smoked Salmon for only $3.00 but will pay 3 cents more a can for the refried beans, 8 cents more for a bag of rice etc.  At then end of your reciept you will have note telling you how much you saved with your card but it will not mention that your total price was higher because of the overall higher costs of products in the store. 

In short, if  you are only receiving a discount for loyalty or for the information you are giving them, yes, you can save money will a loyalty card.  If, on the other hand, you find  yourself in a shell game, more for this less for that, get out, you will lose money in the long run.

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