The ethics of loyalty cards: dodgy pricing and data collection

Supermarkets, coffee shops and other retailers offer points and discounts in return for shopping with their loyalty cards.

But there is a major catch. Critics say that with prices soaring, shoppers are essentially forced to sign up and give over their data, just to access normal rather than inflated costs.

Is protecting your information becoming a privilege many cannot afford?

How do loyalty cards work?

Each retailer will have a slightly different scheme, but most loyalty cards are free (or very low cost) to sign up for and give you access to in-store discounts or allow the retailer to send you specialised offers. With high street shops from Boots to Waterstones offering cards, you may also earn points that translate into money off once you have collected enough.

You can generally access these offers by scanning either a physical loyalty card or using an app on your phone. Personal finance website Money to the Masses has put together a useful guide to what you get in return for different supermarket loyalty cards.

Most supermarkets have now introduced a ‘dual-pricing system’, with one cost for normal shoppers and a second – often shockingly – cheaper price for those with a loyalty card. 

(Note we're not talking about local loyalty cards offered by the likes of independent coffee shops, where you don't provide any personal information at all.) 

Do you actually save money with loyalty cards? 

If you already shop regularly with a particular retailer, you will almost definitely save money by signing up for their loyalty card. 

Sainsbury’s for example currently has almost 5,500 items in its online store that are cheaper if you have its loyalty card. Tesco says that customers can save up to £351 per year.

When it comes to points, research by Which? suggests that using a loyalty card can earn between 50p and £10 for every £100 shop. 

Do supermarkets use misleading pricing for loyalty cards? 

However, multiple critics have also accused supermarkets of inflating prices to make loyalty card discounts look better than they actually are.

Which? tracked the price of various goods sold by Tesco and Sainsbury’s over a six month period in 2023, and found that just under a third of the items discounted with loyalty cards were at their ‘regular’ price less than half the time – making discounts potentially appear better than they really are.

An investigation in January by iNews, for example, found that Sainsbury’s was selling an Oral-B Pro toothbrush for a massive £160 without a loyalty card compared to £65 with – while elsewhere it was mainly listed at around £70.

The Which? research also found that the price of some items had been put up just days before a loyalty offer was introduced. For example, it accused Sainsbury’s of putting up the price of a jar of Nescafe instant coffee to £8.10 two days before introducing a loyalty card offer of £6 – the exact same cost of the product before its inflation.

Critics say that, rather than winning you savings, supermarkets have therefore used loyalty schemes to ensure there is essentially “a charge for not signing up”.

Both supermarkets rejected the allegations, with Sainsbury’s stating that Which?’s methodology was flawed.

Supermarkets may also apply loyalty card offers to the most expensive, branded goods rather than to their own-brand budget items. So you may well end up actually paying a higher price overall.  

Is it worth switching to a supermarket with a better loyalty card offer?

It is never worth spending more or switching supermarkets just to rack up loyalty card points.

If price is your main concern, your best bet is just to compare prices and switch to a cheaper option. Which? has looked at the cost of a standard basket of goods for different supermarkets in the UK. Its findings suggest that switching from Tesco to Lidl – the most ethical of the budget retailers, according to our supermarkets guide – could save you around £11 per £100 spent, even with Clubcard savings factored in.

By comparison, a Tesco Clubcard would earn you around £1 in points for every £100 you spend, according to the Which? research. You would have to spend £10,000 in store before you recouped the cost of a single £100 shop.

Unfortunately, the most ethical shops fare less well on price. Waitrose is recommended in our supermarkets guide, but is the most expensive of the bunch. Co-op, the top scorer when it comes to ethics, was not included in the Which? research. 

How do retailers use your loyalty card data?

Loyalty cards provide retailers with a huge amount of data on how you spend and what you buy. As of 2023, Tesco had over 20 million Clubcard users and Sainsbury’s more than 18 million for its Nectar Card – giving them a phenomenal overview of shopping habits in the UK, as well as your own personal preferences.

When supermarkets collect data through their loyalty cards, it is subject to a set of European rules known as General Data Protection Regulation (GDPR). Supermarkets must therefore be transparent with how they use your information, outlining their terms and conditions at the point at which you sign up, according to data protection experts. If they collect data about any special categories, such as ‘ethnicity’ or ‘health’, they need your specific consent to use it.

But many of us, of course, do not read the T&Cs in detail – or do not understand exactly what they mean and how they could impact us. So how is your data actually being used?

Privacy advocate Big Brother Watch has warned, “Supermarkets are using loyalty cards to amass vast amounts of detailed information on customers. Retailers can use this data to push special discounts or offers on customers. Privacy campaigners strongly believe loyalty cards could easily become the gateway for personal data exploitation under the guise of cost-saving offers.”

Firstly, retailers use your data to tailor offers. This has its perks: it may mean you get discounts on specific items you often buy. But critics warn that it could also be used to manipulate your buying habits.

One expert told the i newspaper in 2023 that retailers could unwittingly or knowingly use their information about you in ways that tempt you back into habits you are trying to break. For example, if you are trying to improve your health by cutting down on sugar, the algorithms may note that you have stopped buying chocolate bars and ply you with chocolate offers.

Perhaps more worryingly, most retailers will sell your data on to third parties, allowing them to also target you with “hyper-specific” marketing – as we explain below.

Retailers have even been approached by law-enforcement looking for information. Data experts say that they could provide some information without breaching GDPR. 

Are supermarkets ethical?

Ethical Consumer has rated and ranked the 12 leading UK supermarket brands on their ethical and environmental record. 

Most mainstream options performed poorly across the board, with the worst supermarket chain scoring only 8/100 overall and the highest 54/100.

What are the alternatives to using supermarkets?

Our guide to ethical food shops focuses on alternatives to the mainstream brands, which can help you avoid the major supermarkets altogether.