How loyalty cards really pay for your discounts

The gap between the two prices on a supermarket shelf-edge label has become one of the widest in British retail: a jar of coffee at £8.50, or £6 with a Clubcard. Nothing about the coffee changes. What changes hands is information, because the discount is not a gift but the visible half of a transaction in which the shopper's basket history is the payment.

Tesco built the model. When Clubcard launched in 1995, the analytics firm dunnhumby showed the board that a plastic card could turn anonymous tills into a longitudinal record of what every household buys, how often, in what combinations and at what price sensitivity. Tesco later bought dunnhumby outright, and the subsidiary now sells that intelligence back to the consumer goods industry: manufacturers pay for access to purchase data, for analysis of how their promotions perform, and increasingly for advertising aimed at precisely segmented shoppers. Sainsbury's runs the same play through Nectar360, which manages the Nectar scheme and sells brands targeted media across its websites, apps and in-store screens. This is the retail media business, and it is the quiet engine of the whole arrangement — supermarkets earn a media owner's margin, far fatter than a grocer's, on audiences they assembled by handing out discounts.

The economics work because the data is unusually good. An advertising platform can guess what you might buy; a loyalty scheme knows what you did buy, week after week, at item level. A brand can pay to reach households that bought a rival's washing powder twice in the last quarter, then measure at the till whether the advert changed behaviour. Closing that loop between advert and purchase is something even the large online platforms struggle to do for groceries, which is why consumer goods firms shift marketing budgets into retailers' media arms year after year.

Member pricing sharpened the bargain. Clubcard Prices, launched across Tesco stores in 2021 and answered by Nectar Prices at Sainsbury's in 2023, put thousands of products on a two-tier tariff: one price for members, a higher one for everyone else. The Competition and Markets Authority reviewed the practice and reported in late 2024 that shoppers were not, on the whole, being misled — the overwhelming majority of loyalty discounts it examined were genuine savings against the product's usual price. The subtler point survived the review intact: the retailer sets the non-member price that the discount is measured against, and once most revenue flows through the member tier, the higher shelf price functions less as a real price than as the cost of refusing to be tracked.

What the data is worth, and where it goes

Under UK GDPR, joining a scheme constitutes agreement to profiling described in the privacy notice — segmentation by household composition inferred from purchases, price sensitivity, brand switching, store visit patterns. Those segments drive which coupons you receive and which adverts brands buy against you. The reach extends beyond marketing. Tesco Bank drew on Clubcard data when pricing motor insurance for cardholders, on the logic that basket contents correlate with risk, and the wider insurance industry has studied purchase histories as an underwriting signal. The Information Commissioner's Office has so far treated supermarket profiling as lawful where notices are clear, but pressed schemes to make the trade explicit rather than implied.

Whether the deal favours the shopper depends on arithmetic most people never do. A Nectar point is worth half a penny; Clubcard points return one percent, boosted when vouchers are exchanged with partners. Set against that, dunnhumby and Nectar360 each generate revenues in the hundreds of millions of pounds annually from data and media services. The per-household value of the data comfortably exceeds the points handed back, which is exactly why the schemes exist. None of this means the rational move is to refuse — the member price is usually the real market price, and paying the non-member tariff is paying a premium for privacy. It does mean the shelf-edge label should be read literally. Two prices are listed because two different products are for sale: the groceries, and you.