Loyalty Penalty Definition Research Note

Loyalty Penalty Definition Research Note

Established use

The Competition and Markets Authority uses loyalty penalty for a pattern in which longstanding customers pay more than new customers for the same service because suppliers expect those customers to be less likely to switch. Its 2018 response examined mobile, broadband, cash savings, home insurance, and mortgages.

The CMA separates the pattern into several mechanisms. A customer can face an introductory-price jump, repeated renewal increases known as price walking, or legacy pricing on an older tariff. The agency also says introductory deals are not automatically harmful. Concern increases when suppliers obstruct switching, price gaps are large or widespread, vulnerable consumers are affected, or the market provides an essential service.

The Financial Conduct Authority used the term in its home and motor insurance reforms. It described price walking as repeated increases for existing customers and required renewal prices not to exceed the equivalent new-customer offer.

Evidence test

A loyalty penalty needs more than a high price. The comparison should hold the product or service, risk, geography, timing, channel, quantity, eligibility, and material terms constant. The remaining difference must be associated with customer tenure, renewal state, expected switching behavior, or another demonstrated loyalty-related factor.

A disclosed acquisition promotion can result in a lower first-year price without proving that the existing customer was secretly profiled. A loyalty reward can make the existing customer better off. A changed market price, expired coupon, different store, or different product is not a loyalty penalty.

Relationship to E095

The Consumer Reports Instacart test established simultaneous variation under coordinated conditions. It did not establish that repeat purchase history or customer tenure caused the assignment. E095 uses "loyalty penalty" as Dalton's framing and as a question about what would happen if loyalty influenced price.

The public explainer should not redefine the established term around the Instacart dispute. It should use the CMA definition, then explain why grocery price variation would need a demonstrated loyalty input before the label could be applied confidently.