The Economics of Loyalty Programmes
Price Discrimination Through Loyalty
Programmes let firms charge different prices to different customers, giving discounts to price-sensitive members while others pay more.
Different customers, different prices.
Segmentation
Frequent, price-sensitive customers get discounts.
Members-only prices
Membership can unlock lower prices.
Effect
Firms increase sales without cutting prices for everyone.
Fairness
Customers may not realise they pay different prices.
A member price
A supermarket lists a lower price for members and a higher one for others.
Assuming the displayed price is the same for all
Loyalty status can change it.
Key takeaways
- Firms segment customers.
- Members get lower prices.
- Total sales rise.
- Fairness concerns arise.
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