Kevin Drum doesn’t like rewards cards that supermarkets offer. He makes the argument that the only party benefitting from them is marketers:

In the past, supermarkets charged everyone the same price and made a small profit margin doing it. Then came loyalty cards…

Today, overall supermarket prices are still the same as they’ve always been, they’re just tiered differently: those with cards pay less and those without cards pay more. So on average, consumers haven’t benefited. What’s more, competition is generally fierce in the supermarket biz, which means that overall profit margins are also the same as they’ve always been. So supermarkets haven’t benefited.

So who has benefited? Well, as near as I can tell, the answer is: marketing firms. Loyalty cards generate mountains of purchasing data that allow third parties to target advertising more effectively. This is great news for marketing companies and their clients. Whether it’s great news for the rest of us is a little harder to determine.

I tried to dream up how it could be possible that neither supermarkets or their customers are benefitting from this arrangement but marketing parties are, and I don’t think it’s possible.

To start with, I’m sure supermarkets aren’t giving this valuable data away, which means they’re selling it to the marketers. Whether they get paid lump sum or paid by the byte of data, this decreases the cost of being a supermarket. I agree with Kevin that competition in the supermarket industry is “generally fierce”, and I’ll assume he’s correct that profit haven’t changed, which means that the new revenue to the industry has to have translated into overall lower prices for consumers. This can either be through stores directly and unilaterally lowering prices in response to new revenue, or by competition and market entry driving down prices until economic profits are zero. So consumers are overall better off.

H/T Julian Sanchez

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