A successful entrepreneur shares her thoughts on business success and failure.

How Loyalty Card Schemes Suck You In and Rip You Off

Loyalty card schemes
Loyalty card schemes may be costing you cash.
I am outraged, and I have no one but myself to blame.

There are two grocery stores I shop at regularly: Albertsons and Ralphs.

Albertsons is a SuperValu store, which those of you in other parts of the United States may know as a Lucky, Bigg’s, Cub Foods, or Jewel-Osco. Ralphs is a Kroger brand. (And both of them seem to have abandoned their apostrophes for branding purposes, but I digress.)

Ralphs is a 7.1-mile round trip from my house. Albertsons is 0.8mi and easily walkable. Yet I almost always go to Ralphs.

I finally figured out why the other day, and promptly became supremely irritated with myself. I was in Albertsons, about to buy $30 worth of groceries. Then my brain screamed, “You could be getting cash back for these if you had gone to Ralphs!”

You see, Ralphs has a loyalty card. (Those of you who shop at Kroger know it as the Kroger Plus Card.) Once you spend $500, they mail you a $5 gift certificate. Then, every time you spend another $100, they mail you another $1. They calculate these discounts four times a year. I have seen people in the store redeeming certificates worth as much as $16. That’s $1600 in groceries in 3 months! So, clearly, the card works.

Are Loyalty Cards Really a “Deal”?

Let’s do the math. Is Ralphs loyalty card actually a deal for me?

My car gets just under 30mpg — let’s say 28mpg for easy math. So I’m burning a quarter of a gallon of fuel every time I choose Ralphs. I burn only 7% of 1 gallon to drive to Albertsons.

Assuming a gallon costs $3, it costs me 21.4 cents to drive to Albertsons (and I could easily walk, saving even that.) It costs me 75 cents to drive to Ralphs. I’m saving 53.6 cents every time I go to Albertsons.

Assuming (for the sake of argument) that their prices are the same, I’d need to spend at least $50 every time I go to Ralph’s…just to break even on the gas money I spent to get there!

Does Ralphs have lower prices? I don’t think so. In my comparison, the prices between the two stores are nearly identical, and are only offset by specials. Ralphs loyalty card only makes it appear that Ralphs has lower prices.

It’s the mental mindf*** that makes me so upset; that irrational nag I get in my brain every time I shop at a store other than Ralphs. The one that says, “You could be saving money, and you’re not!” That same nag ignores hidden costs like gas money.

What Can We Learn From This?

The point of this post isn’t to show you how you, too, could save 53.6 cents. The point is to understand that we are often driven by emotional impulses that we truly believe are rational decisions.

“I save money by shopping at Ralphs” would be a statement that, on its surface, appears to be correct. Doing the math and unearthing the hidden costs proves it false. (I didn’t even calculate extra car wear and tear, and extra time on my part spent driving there and back!)

Loyalty card schemes are designed for people who want to feel good about saving money. In most cases, however, I doubt they actually save us much money.

Loyalty card schemes reward you for buying a full-price item at one store instead of finding the cheaper one somewhere else. They reward you for shopping at the same place every week instead of looking at the specials and deciding where is best to shop that particular week. And they do this by inserting an insidious nag into our heads; one that says, “If only I had shopped there instead…”

As Henry Hazlitt wrote in Economics in One Lesson, “The bad economist sees only what immediately strikes the eye; the good economist also looks beyond.” Looking beyond and calculating the real cost may show you that what you thought were some of your most rational decisions were really just rationalizations.

Next time you shop at a particular store or buy a particular item, think about why you are doing it. Are the prices really lower, or do you just think they are? Have you taken the time to seriously compare? Are you driving out of your way to save a few pennies when you could shop closer to home…or maybe even leave the car in the garage?

Are your choices rational, or rationalizations?

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Loyalty card schemes photo credit: joelogon

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