Does Two-Tier Pricing Have One Tier Too Many?

Discussion
Oct 23, 2013

The other night, I stopped by my neighborhood multi-billion dollar retail store. (Name omitted to protect the maybe not so innocent — after all, their program is about the same as many others.) I needed to pick up a health care item for my wife who was a little under the weather and, along with that, her favorite specialty chocolate bar.

I wandered around the aisles and found the health item she needed. I had a choice of a national brand and the store brand, offered at a buy-one, get-a-second-for-half-price deal. Now if I had bothered to read the shelf talker fine print (maybe it wasn’t so fine, just not as big as the BUY ONE GET ONE AT 50% OFF message), I might have realized the deal was only for the store’s reward customers. Oblivious, I scooped up two house brands. Had it not been on sale, I wouldn’t have impulse bought the second one, but then that’s why I shouldn’t be out shopping by myself.

I wandered over to the chocolates, which I do buy fairly often. I know that the price of these bars varies by retailer — from $1.68 at the discount big box store, to $2.64 at our local grocery. But I was a little surprised to see a list price of $3.50. Not to worry — the shelf label noted that they were "On Special" at 2 for $4.00. Close enough. After all, nothing’s too good for an ailing wife. Again, had I read the shelf label more carefully I might have noticed the "2 for $4.00 for our reward members — everyone else gets ripped off" language. But then I just read the "sale" part. Probably missed the "caveat emptor" label as well.

When asked at checkout, I of course denied having a rewards card, and didn’t want to join at that very moment, so the cashier rang up the sale. The total seemed a bit high and, after leaving the store, I noticed that I ended up paying full price for everything — about a 30 percent premium on the entire basket. Not a lot of money really, but it did generate a lot of feeling … that I had just been the victim of false advertising and ripped off.

To make matters worse, since I was driving my wife’s car, I soon noticed, along with the other five bar code tag cards she carries on her key chain, the rewards tab for the store I had just left. I choose not to carry six tags on my key chain, and I also choose not to join every membership program in sight — but I never really meant to choose high prices.

Is two-tier pricing a friend or foe of loyalty building? Can retailers afford to ignore good customers who generally avoid the bother of loyalty programs, or are these people in the minority?

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33 Comments on "Does Two-Tier Pricing Have One Tier Too Many?"

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Paula Rosenblum
Guest
4 years 1 month ago

It’s utterly lame. My friend Scott Langdoc said long ago that most loyalty programs are nothing more than 2-tiered pricing systems.

Further, if I’d noticed it and been in the mood (it’s hard to get into a $5 overcharge), I would have forced them to scan the “house card.” I’ve done that with the Red one (one of the two major chain drug stores), and used to do it all the time at supermarkets.

If you want to reward my loyalty, give me an automatic discount after the fact. Don’t mess with me like that.

Bob Phibbs
Guest
4 years 1 month ago

The key to this is you chose not to join the loyalty program. This isn’t new that you have to have the rewards card to get the deals.

I think the target customer of drug stores and grocery stores know this and appreciate it; it’s not a big deal.

Dr. Stephen Needel
Guest
4 years 1 month ago

No offense, Peter, but I shop at Kroger a lot and see this all the time. Maybe it’s because I’m used to it, but I know I have to enter my card number to get the deal. Hasn’t kept me from being jointly loyal to Kroger and Publix. And I just keep my loyalty cards in my car and grab the one I need (if they don’t let me enter the alternative ID, our phone number). If someone is a good customer, they can join the program if they want the deals.

Joan Treistman
Guest
4 years 1 month ago

I trust there are others in this blog trail who have the statistics on two-tier pricing. My guess is that most of us shoppers have been well trained by retailers to search for the “ouch” caveat on the shelf talker. And we’ve settled in to the offers we’re offered…until a better offer comes along.

Once burned, twice learned. In the future Peter probably won’t leave home without his wife’s loyalty tags. And at the shelf he will probably read the entire text; in fact search for the loop hole.

I have found that many times the 50% discount comes at a higher price than two at some other retailer. But just as Peter said…”close enough” to make the purchase worthwhile.

So I think that retailers can afford to ignore the good customers who avoid the loyalty programs. Otherwise how would the loyals be distinguished?

Frank Riso
Guest
4 years 1 month ago

This is a debate topic that can result in hours of discussion. On the retailer side, the retailer is offering sale pricing to their loyal customers. They are the ones who have either a key fob, full size card, or lately a bar code on the screen of their phone. On the customer side, if you have a sale price it should be for everyone who makes the effort to shop in your store. The solution would be EDLP with unadvertised sale items for card holders only, so that the price you see is the one you get or lower, nothing higher. Not likely to happen, so let’s all carry a card or get our phones to produce the bar code for the cashier.

Ian Percy
Guest
4 years 1 month ago

I hinted at this in an item yesterday. Maybe we need a discussion on the Ethics of Pricing. That is assuming there are any.

I too refuse to carry several pounds of tags on a key chain. But I can usually get around it by entering a phone number if I’m buying anything with “member” discount. (Like your wife, Peter, mine belongs to everything!) Cashiers also have a generic thing they can swipe to get the discount if they choose to help out. How much better it would have been for him/her to have said to Peter: “Let me show you one of the advantages of our member program. I hope you’ll join up when you have time.” and then given him the discount.

Zel Bianco
Guest
4 years 1 month ago

It seems reasonable when stores offer preferential pricing to their loyal shoppers, especially when the price of entry is something as simple as filling out a form. The retailers get to collect info on your shopping patterns, you get discounted pricing on select items. Carrying around multiple loyalty cards is a nuisance, however, there is an app for that.

Robert DiPietro
Guest
4 years 1 month ago

Two-tier pricing is a foe of loyalty. I’m sure I, like other retail folks on this site, know enough to have them scan the ‘store card’ to ensure I get the discounted price, but many customers do not. Those customers make a buying decision based on the signage then don’t get the discount because A) can’t be bothered to carry loyalty card, or B) don’t want to join program for fear of 3 junk emails a week from the retailer.

A better solution may be to link your credit card to the loyalty program, or if the retailer really wants you to join the program, change the signage to “BOGO for loyalty members only.”

Cathy Hotka
Guest
4 years 1 month ago

My friend the CIO at Pier 1 once referred to keys with loads of plastic hanging off of them “girl keys.”

Yes, the concept is stupid, but it’s what a lot of retailers currently use. When a better idea comes along everyone will jump at it!

Gene Hoffman
Guest
Gene Hoffman
4 years 1 month ago

Two tier pricing illustrates how a retailer plays price games with its customers. False prices are used in an attempt to show how much the customer allegedly saved with the store’s loyalty program. That’s not necessarily ethical but it helps to save retail margins.

When you shop in your favorite store and it has 2-tier pricing the customer usually follows the bromide, “When in Rome do what the Romans do” and go along with the game. When this scheme expands and gets to cumbersome for customers then another new scheme will be created.

The first priority in such programs goes to the retailer’s interests, not the customer’s.

Max Goldberg
Guest
4 years 1 month ago

Two-tier pricing forces consumers into retail loyalty programs. It’s a tactic many, if not most, retailers with loyalty programs use. The programs are easy to join and you don’t need to carry a bunch of key fobs, since most of the programs are tied to a phone number. My family joins these programs if they present regular discounts for items we purchase. If there are no immediate benefits, we pass.

Consumers have come to accept these programs, often wishing that retailers would just offer the lowest price to begin with.

Roger Saunders
Guest
4 years 1 month ago

Retailers can never afford to ignore good customers. However, it does not sound as if Peter Charness is one of those “good” customers.

Now, I’m not be critical of Peter. His household, obviously is perhaps a great customer of this chain. It would be interesting to understand if Peter, who now understands that he has an opportunity to enjoy greater savings in the future, crosses the bridge to become a great customer along with his wife.

Two-tier systems can and do work. Retailers have to explain that fact. The same applies to other services providers. Who among us hasn’t flown on an airplane where you’re paying 20% plus or minus what the patron next to you is paying? Have you ever played a golf course where one patron is paying $175 for a round, and you’re waltzing around the green happy with the fact you’ve laid out 80 bucks?

The consumer is the center of the equation. They are in charge. But, the consumer has to be willing to engage. Two-tier pricing brings greater loyalty.

Guy Powell
Guest
Guy Powell
4 years 1 month ago

It’s the price of information. What are we willing to trade for the retailer tracking our shopping habits? It’s similar to what Google does by tracking our clicks to offer up (what they believe) are more targeted ads.

Tom Redd
Guest
4 years 1 month ago
Knowing Peter and living a mile away from him – I go to the same store. In fact, I was there last night trying to buy some real food and not all the healthy stuff that my wife buys. My family loves the loyalty program there. Some of them that are still local SWITCHED from other retailers to this retailer because of the loyalty program. The program is great and does save us money. We also shop Walmart – their assortments in our area are even broader then the Walmart I shop in MI during the summers. These 2 specific retailers – Walmart and one of their #1 competitors in AZ – are targeting their shoppers and aligning their assortments to satisfy them. The grocer just opened a Starbucks within the store. Tuning up the store for the changing shopper. There is a small number of people that do not leverage the loyalty battle. Not smart. Most retailers will use your phone number vs a swipe card. Loyalty is the core for good retailing. Peter,… Read more »
Kate Blake
Guest
Kate Blake
4 years 1 month ago

It’s a foe. One store that manages to price the same in whatever neighborhood it’s in is Big Lots. You might get fancier brands at the better stores, but the prices are the same as anything found elsewhere.

Tom Redd
Guest
4 years 1 month ago

Oh, by the way – 2-tier pricing is here to stay. Langdoc may have have figured out the 2-tier system. It is simple, but what some of you anti-loyalty people do not get is how the loyalty systems at great retailers is spreading out to their other services – from fuel to retailing partners.

The trick to saving your cash is leverage the best discounters and know how to use a loyalty-based retailer.

Learn the game…even as you age (10% discount for seniors on first Wednesday of the month…).

Ben Ball
Guest
4 years 1 month ago

I’m with Peter in his pique. I refuse to shop at chains that employ two-tier pricing unless there is absolutely no other alternative. And then I make them look up my rewards number with the “I never turn it on” phone number I give on applications. I hate it and think it is the most “customer UNfriendly” marketing practice ever invented by retailers.

Other than that I have no strong opinion either way.

Bill Davis
Guest
4 years 1 month ago

As a consumer, you made a decision not to join so are you really surprised when you don’t receive the benefits? Loyalty/rewards programs have been around for awhile so are here to stay and when membership has no cost except to carry a loyalty card, or even easier use a phone number at checkout, the cost to a consumer is pretty much non existent.

Add in that smartphones have apps where you can store your loyalty/rewards card member numbers so having to carry around the tags really isn’t necessary anymore. That being said, maybe there’s an entrepreneur somewhere working on a solution to this very issue knowing that it’s causing pain for some segment of customers.

John Boccuzzi, Jr.
Guest
John Boccuzzi, Jr.
4 years 1 month ago
What is loyalty and do retailers/consumers really benefit? Merriam-Webster defines Loyalty as a feeling of strong support for someone or something. This definition applies to both retailers towards customers, and the reverse. The challenge is that retailers often struggle to truly reward the most loyal customers and in turn customers tend to shop where and when they want. Dave’s Soda and Pet City with locations in Massachusetts (I know a strange combination, but it works) just announced it will be moving from an exclusive Loyalty card to a Universal Loyalty card platform. Why would they do this and why will it help retailers and customers?1) Customer information needs to be updated and customers are not good at updating multiple cards. A universal card fixes that.2) Provides Dave’s Soda and Pet City a platform to share rewards and promotions with his best customers in a single location.3) Customers would have one central place to view loyalty promotions from the stores they care about most.4) One key fob for all stores!!!5) Registration of new members is one… Read more »
Chris Petersen, PhD.
Guest
4 years 1 month ago

There’s retailer “gold” in those loyalty fobs.

A major function of the two-tiered price discount is to get us as consumers to increasingly use the loyalty mechanism to create big data for tracking. The more best consumers use loyalty scans, the more accurate retailers can be applying predictive analytics to harvest our lifestyle data and purchase patterns.

Guy Powell has nailed the essence of this issue for consumers … what are we willing to give up in terms of our privacy for a better price?

Lee Kent
Guest
4 years 1 month ago

I understand that most loyalty programs are just paying me in discounts in order to get more data and be able to reach out to me. Small price to pay. Am I more loyal? Nope. I have a loyalty card with their competitor also.

The only thing that irks me is having to carry the stupid card. I don’t! If they can’t find me by my phone number, I will likely not frequent that establishment.

I have loaded up my loyalty cards to a phone app and I’m just waiting for the retailers to figure out how I can use it.

Peter Charness
Guest
4 years 1 month ago
Okay, keep it rolling here, good discussion. I guess one of the questions inherent in this thread is brand expectation created by a retailer who either plays the high-low pricing game, or in this case plays a variant of it through “members pricing.” Does the “suggested retail” when it’s sky high (competitively speaking) give a bad impression of that retailer and give the sense that it’s an “expensive” place to shop. Or does everyone just ignore retail anyway, and enter a loyalty number, or buy only on sale? In this case the store in the story was one of the two national drug store chains, who is now trying to get into a range of grocery/convenience items and position themselves beyond “health and beauty” into convenience assortments and food. And the problem as a consumer of course is if you need an OTC item, and it’s not on sale/member special (and it’s late at night) you have no choice but to pay the price and feel like you’ve been taken. If their “regular prices” are… Read more »
Ed Rosenbaum
Guest
4 years 1 month ago

My wife shudders when she sends me to the store. There is no telling what I will return with. Worse than that is I take my car keys that have no tags attached. And yes, I return having shopped at those stores leaving the “discounts” in their pocketbooks.

Bernice Hurst
Guest
4 years 1 month ago

Leaving aside the various sexist remarks about wives who join everything just so they can get discounts (and all that implies), and as an admittedly loyalty-card-averse shopper, I really wonder whether the so-called discount prices are actually the real prices that retailers expect to get. Might it all be just a ploy to penalise those who don’t want to have their purchases tracked?

Refusing to carry a card but agreeing to give a telephone number achieves the same end for both retailer and customer, as pointed out repeatedly. Retailers get to know my shopping habits? No, thank you.

As a loyal customer of various retailers, albeit one who does not join the program, I agree that people like me are penalised unjustly. I refuse to submit to blackmail so simply choose not to buy the items advertised as lower priced for members only.

Carlos Arambula
Guest
4 years 1 month ago

Two tier pricing is a friend to loyalty building. Retailers are not ignoring “good” customers who avoid their loyalty program, rather some customers don’t want the discount – and yes they are in the minority.

It’s good customer service to offer the loyalty program discount, and I’ve repeatedly seen cashiers give the discount even to those not holding a loyalty card.

Good business sense says to cater to your loyal customers and try to gain new ones. It’s all fair.

Gene Detroyer
Guest
4 years 1 month ago

How ironic! I just finished teaching this morning and explained to my students the 80/20 rule.
Then I wrote on today’s Amazon discussion that Amazon understands the 80/20 rule.
Two-tier pricing is all about the 80/20 rule. It is called “good business.”

Jerome Schindler
Guest
4 years 1 month ago

The truth is that most savvy shoppers have every “loyalty” card available. So much for loyalty.
The two-tier pricing at Sam’s Club is worse, and has tripped me up a few times. You have to upgrade your $50 membership to a $100 membership to get those deals. Costco just opened across the street from Sam’s. I don’t think they treat basic members as 2nd class citizens. The buy-one-get-one free deals on items like baked goods bother me more – a single person or empty nester just can’t use two. Thanks Giant Eagle and Harris Teeter for pricing almost all BOGOs at half price for one. Kroger and Meijer – you need to mend your ways.

Craig Sundstrom
Guest
4 years 1 month ago

I think the (latter) question is answered by Peter’s anecdote: the frequent shopper – aka Mrs. Charness – bothers with the card, the infrequent one does not.

James Tenser
Guest
4 years 1 month ago

The “loyalty” card quid pro quo – data for discounts – is by now well recognized by both retailers and shoppers.

As Peter’s experience underscores, two-tier prices can undermine imputed price image. The practice sends mixed messages – “Great deals for willing card-holders” and “We’ll over-charge you at any opportunity.”

It would appear retailers believe discounts need to be fairly steep to attract and keep frequent shoppers. But this also underscores the punishment aspect for non-card-holders. Shoppers seem to be on to the game. Some like it fine, but others harbor resentment.

Behaviorally engineered re-patronage is not the same thing as affective loyalty. Reminds me of the old punch-line: “We’ve already established what you are. Now we are just arguing about the price.”

Ralph Jacobson
Guest
4 years 1 month ago

“Loyalty” cards (more precisely, “mass, untargeted discount cards”) have been around since the ’80s, so if you shop in a supermarket, drug or discount store, you might as well assume there is a discount program that you must join in order to receive the discounts. Although my wife also has all of the “loyalty” cards of the local stores (nice loyalty, BTW), all I do is give the cashier our phone number and I get the discounts, since I don’t carry any cards.

Does this drive loyalty? No. Does this give the merchants an opportunity to capture shopper insights? Yes. Now we know whom the cards benefit.

Are multi-tier pricing programs fair? Well, yes, because life isn’t fair.

Larry Negrich
Guest
4 years 1 month ago

Loyalty systems are great for gathering customer information, but not as good at creating loyalty. The two-tiered loyalty pricing systems institute as much of a “penalty” on their infrequent (disloyal?) customers as a reward to their loyal customers.
There are better ways to create loyalty and reward the frequent, larger ticket customer that don’t openly penalize the infrequent, forgetful shopper. The only lesson is the infrequent, penalized customer has learned from the experience of being charged a higher price than other loyal customers is to shop somewhere else.

Sid Raisch
Guest
Sid Raisch
4 years 1 month ago

Loyalty is a feeling, not a program. It is simply permission marketing. We give permission in order to pay the “real” price and not the gouge price.

The false sense of loyalty a retailer feels from their program members is the unfortunate reality. Most people belong to the programs of the competitor stores so there is no real net gain. Some retailers give up the premium they have for location, selection, atmosphere, etc. with the costs of managing a “loyalty” program.

The high-tier prices condition us to price increases.

Bryan Pearson
Guest
4 years 1 month ago

We’ve always felt that two tiered pricing as a loyalty initiative is really a means of coercing the customer to participate in a program to get lower prices when they could go to Walmart (or another competitive retailer) and get the same pricing without having to be part of a program.

Effective loyalty programs seek to create real value for the customer BEYOND PRICING. The data obtained from the program may well inform the retailers’ pricing strategy, and it may also inform customer-specific pricing. But the broader objective is about creating an enhanced customer experience based on the data and information that is gleaned from their transactions and their relationship with the merchant.

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