So then, how should it have worked?

I so have to finish this @$&$#@&#?$ PhD and get out of here, the university is about to go totally and utterly insane and this VSU debacle is making it painful to watch!
Last year, in response to the impending threat of VSU, they brought in the Access card - a card separate from the student card that declares membership to the student union and thus eligible for discounts e.g. a 300 mL thing of milk cost 70cents, as opposed to 90cents. The point was to illustrate to holders how much they actually did use the Union.

This year, it's gone mental. Photo cards with a barcode and a magnetic strip, mass advert campaigns for Union use. And it is all going to go so abysmally wrong, ideologically if not financially.

The Union and the University are both profiteering to an insane degree which means either the organisations are going to go under thanks to student rebellion, or the ideology of student life is going to end up totally dissipated, because it is now far cheaper to get all student-type stuff (food stationary alcohol milk pharmacy photos) at the normal shopping centre which is all of 3 min walk from campus.
The uni bar is now the most expensive place to buy beer unless it is happy hour, unless you have a Union member card in which case it is exactly the same price as every other pub in the area, but with no atmosphere and no service and massively overpriced gig tickets. Normal DnBBQ at the Abercrombie = $15 tix and $9.50 jugs of Saint Arnu. Once-off DnBBQ at Manning Bar = $22.50 and $11 jugs of Squires if you're a member, $27.50 and $13 jugs of squires if you're not. Argh!
A 300 mL thing of milk cost me a dollar this morning, with a card. $0.95 for 300 mL of normal fricken milk!

So tell me, should a policy of overcharge massively so that you can charge students normal prices and tell them they're getting a 15% discount work?
I am afraid it will, if only because the majority of the captive student body are too damn apathetic to walk off campus and find out for themselves how much they are being rorted, unless they were here the past two years. If you don't know any different, you're not going to complain. Much.