why do shops like tesco promote memberships (like clubcard) that produce prices? wouldn’t they just lose money?
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They don’t lose money, they earn less money. However, memberships give customers the incentive to only shop there.
Now, if a customer already only shops there, then memberships only benefits that customer.
Volume.
The idea is that if you have a membership card, you are more likely to do your shopping at Tesco. Groceries are a commodity product – milk at Tesco is basically the same as any other store, so you have no reason to be loyal to any given store. If they can convince you, via the card, to do all of your shopping at Tesco they will make less profit per item, but more total profit because you spend more money with them in aggregate; I’d rather you spend $100 with me at a 10% profit margin ($10) than $50 with me at a 15% profit margin ($7.50).
They also get a data stream. Since you use your card with every purchase, they know what **you** are purchasing, which is valuable information to CPG companies when determining what products to produce and what prices make sense.
When you sign up for one of these loyalty cards, you have to give them certain personal details and permission to use your data for certain purposes. You get small discounts/bonuses for scanning the card when you buy something, which incentivizes you to do so. They use this to build up a detailed picture of your spending habits. They can then make targeted offers to entice you to shop there more frequently, can use the data they collect on everyone to inform their business decisions, and may also sell it on to other companies.
People are going to buy most of these items somewhere anyway.
Tesco would prefer that they bought them in Tesco at a reduced margin than in Sainsbury’s where Tesco wouldn’t get any money at all.
Your data is worth much more than the saving you get.
The Tesco’s card adds up to about a 1% discount, so not much from their PoV, but in return they know almost everything about you. Your age, address, mobile number, email, gender, household size, ice cream preference, etc. etc.
Two main reasons.
Incentive to shop exclusively at the one place. They lose fewer sales, more than making up for the tiny discounts they offer
Customer information. They are tracking and profiling their customers, that info on you, your shopping habits, when you shop, when you run out of things etc. is worth orders or magnitude more than the tiny discounts they offer.
They really want the data on what you’re buying and how they can encourage you to buy more. That’s the big thing, data is incredibly valuable to companies.
They give discounts while building loyalty, pushing shoppers to buy deals on things they otherwise wouldn’t buy, and collect consumer data they can sell to market research firms, as platforms, consumer brands.
the ‘clubcard’ price of an item is either the price that it used to be 6 months ago, or a normal price with the non-clubcard price listed as something ridiculous that no one would’ve bought it anyway
Because shoppers carrying and using the club card gives the store valuable information about that specific customer.
Club cards also increase loyalty to that store.
Basically, anytime a service is free, *you* are the product.
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