Loyalty Register glossary
Price discrimination
Charging different customers different prices for the same thing. Loyalty programs do it through member prices, tier earn rates and targeted offers.
Price discrimination is charging different customers different prices for the same product or service, for reasons other than a difference in cost. In everyday commerce it is common and mostly lawful: student discounts, volume pricing and early-bird rates are all forms of it. Loyalty programs practice it by design, because they give some customers a better deal than others.
Updated · By Loyalty Register Editorial TeamRelated terms
What are the three types of price discrimination?
Economists use three degrees:
- First degree (personalized). Each buyer pays close to the most they would pay. Individually targeted offers move in this direction.
- Second degree (by quantity or version). The price depends on what the buyer chooses, as with bulk discounts or spend-based tiers.
- Third degree (by group). Different groups pay different prices, as with student, senior or member rates.
It works only when a seller has some pricing power, can tell customer groups apart, and can stop low-price buyers from reselling to others.
How do loyalty programs use price discrimination?
In several ways, some visible and some not:
- Member prices. Members pay less than non-members for the same item.
- Tier earn rates. A top-tier member who earns 2 points per dollar gets twice the reward value of a base member who earns 1, which is a lower effective price.
- Targeted offers. Personalized coupons give different members different discounts.
- Trade programs. Dealer and distributor incentives give some business buyers better net prices than others.
Because the discount is often expressed in points, members rarely see it as a price difference. It still is one.
Is price discrimination illegal in the US?
Generally not. The FTC says price discrimination is generally lawful, particularly where it reflects different costs or meets a competitor’s offer. The Robinson-Patman Act, the main federal law, applies only to sales of commodities (not services) of like grade and quality, to at least two purchasers at about the same time, with a reasonable possibility of harm to competition and normally across state lines. That makes it relevant to B2B and channel programs, where a manufacturer rewards some distributors more than their competitors, rather than to consumer points.
Other limits come from elsewhere. Pricing that tracks a protected characteristic, directly or through a proxy such as a postal code, can raise discrimination concerns. Privacy law matters too: the California Consumer Privacy Act gives consumers the right to know, delete and opt out of the sale or sharing of their personal information. The FTC’s initial findings on surveillance pricing, published in January 2025, said details such as precise location or browser history can be used to target individuals with different prices, and described its study as ongoing.
How should a program document and explain its pricing?
Write down the reason for each difference: tier rates reward higher spend, member prices reward data sharing and repeat visits, trade incentives reflect volume. For B2B programs, apply the same rules to competing buyers and keep evidence of the cost basis. Check whether targeting models correlate with protected groups. Publish how tier rates and member prices work and say that offers vary by member, so people can understand why they got a price.