Given the choice between a rebate of $2 or $1.20, most Americans would pick $2, right?
Not at the gas pump. For some reason, 10 cents off 12 gallons of fuel is a better deal to consumers than a larger equivalent in cents off a fountain drink or deli sandwich—or even $2 cash.
California retailer M.J. Castelo has seen it happen. “We tested where you could buy a car wash with a fill-up for $2 off, but found a rollback of 10 cents with a car wash worked better,” he says. “People would rather save 10 cents on an average 12-gallon sale vs. saving $2. It’s an oddity.”
That’s one of the reasons consumer packaged goods companies gravitate to pump-related rollbacks, says Dan Little, North American fuels marketing manager for Houston-based Shell Oil Products U.S.
“Suppliers have existing marketing dollars for activities they would have promoted or discounted,” he says. “They’re taking those activities and converting them into a cents-per-gallon (CPG) [approach]. Manufacturers are telling us there’s greater behavior change for less investment … because it’s such an emotional [appeal].”
With rollbacks as a central hook, major-oil branded programs also appear to be evolving, incorporating retailers from other channels, as well as online shopping. Here’s a short list of the oil companies participating in pump-based loyalty programs:
- Shell: Evolving to include a coalition-based program, Shell ties its program back to the gas pump, allowing shoppers to redeem rollback CPG off by shopping at affiliated retailers.
- ExxonMobil: Testing with Shopkick, a Palo Alto, Calif.-based provider that uses smartphone technology to identify loyal customers as they physically walk into stores. Customers can redeem rewards in the store and with cross-channel partner retailers.
- BP: Launched earlier this year, the rollback program offers rewards for purchases at BP stations.
- CITGO: A rewards program tied to a Visa messaging platform, designed to increase store traffic, volume and sales.
For Castelo, a 32-store operator doing business under the Shell Food Mart banner who is several months into his brand’s program, success comes on two fronts: registration and uplift. Castelo, managing member of Peninsula/ Humboldt Petroleum, Eureka, Calif., says as a relatively new participant, he’s been pleased with the growth in loyalty program registrations, reward issuance and redemption.
He’s also seen a “meaningful” uplift in sales tied to the program. “In an industry where one percentage point is a lot, we’ve seen significant improvement within our network as a result of the program,” he says, elaborating on how location also plays a part. “We may have a site next to a [partner supermarket], so it’s hard to generalize.”
But despite any notion that rollbacks have blanket cachet with manufacturers, Castelo says, “We work this really hard.”
A New Paradigm
Castelo’s zeal started before Shell’s current offer. Going back to the late 1990s, there was an enthusiasm for rewarding customers using promotional strategies, some tied to vendors, some not.
In recent years, Shell has introduced CPG discount offers focused on promoting its V-Power fuel or Shell gift cards. Castelo embraced these programs, which evolved into Shell Rewards. Part of that credit-card-tied program was a 2009 move to partner with Cincinnati-based Kroger, linking fuel-rollback rewards to what customers spent at the grocery store.
Though not in a Kroger market, Castelo would take advantage of a similar relationship when Shell brought Modesto, Calif.-based Lucky’s/Save Mart Supermarkets into its program.
Shell made what Castelo calls a “quantum leap” last year by partnering with Irving, Texas-based loyalty service provider Excentus Corp., which launched a program called Fuel Rewards Network (FRN). That program expanded the base of non-competing retailers and added an online component.
Little of Shell says the company is Excentus’ exclusive national fuel partner for redeeming network points and rewards. The program is in the middle of a national rollout, with more than 100 markets on line so far and 200 markets planned by the end of the year.
After a pilot of 10 stores in Monterey and Santa Cruz counties, Castelo expanded the program north into Eureka, Calif.
“You never have to pay full price for gasoline again,” he says. “We’ve surpassed the idea of saving a penny. People are saving dimes, quarters, dollars.”
A customer may spend $100 to $150 at the grocery store and earn 15 CPG off his or her next trip to the gas station. The next day, that customer may buy something online from a retailer in the coalition. More CPG off. A $50 dinner from a coalition restaurant may add another nickel.
On average, Little says, customers are earning 33 CPG off their fueling purchases. Many of Castelo’s customers have saved 75 cents cumulating rewards, many of which come from buying energy drinks, car washes and propane at his stores. “The idea is create gravity to our stores and the Shell brand,” he says. “We save internally, while you save on the fuels you need by buying the products you want.”
Program Logistics
To participate in Shell’s program, cus– tomers pick up their free FRN card in store and register it online, or they can request and register a card fully online. Customers can go online to review the account and, through a portal, review the breadth of offerings. The coalition players vary by market and are in flux as new retailers see its value and join in.
In terms of physical infrastructure, Castelo says he had been working with Shell to upgrade his site for payment card industry (PCI) data-security standards. Those deadlines came to a head about two years ago, and with the equipment upgrades came the software and hardware necessary to participate in the current loyalty program.
He describes the upgrade as a “splitter box” that separates the loyalty interchange of data from other transaction information. A user interface on the store computer allows the retailer to populate the program with specific promotions.
Castelo does pay a fee associated with the program, but with his customers averaging 30 CPG in discounts, he says it’s a “minuscule portion” of that reward.
“When you look at actual customer value, it’s far, far in excess from our fees,” he says. “And it’s what’s driving the program.”
Loyalty Insight
Through its work with grocery partnerships, Shell discovered that the program attracts a new customer base, including female shoppers, customers who hadn’t considered the Shell brand before and those who now come in more often so they can redeem their rewards.
The Kroger relationship initially garnered a 35% to 40% penetration into Shell markets, Little says. Now with ties to more regional grocers, the program is hitting 65% to 75% of its markets. So far, he says, customers have saved more than $200 million in reward discounts.
The beauty behind this type of marketing alliance, Little says, is that rewards are largely paid by third parties and other retailers issuing the rewards redeemed at gasoline stations—be it a grocer, online retailer or restaurant.
The value, again, is a better use of marketing dollars, he says.
“We keep using two terms: relevancy and frequency,” Little says. “We know in this business that gas prices are relevant to everybody and it does change behavior. There are loyalty programs across the retail industry, and what makes this program [unique] is the currency—that CPG discount.”
To stay relevant, the program acts in both a passive and an active way, Little says. Passively, it allows customers to go to the website to learn about the program and ways to earn, but actively, it also reaches back to customers.
E-mails and texts address members by name and introduce them to new promotions, restaurants and other discounting opportunities relative to the area. In the near future, the program will allow customers to tailor the site to what’s relevant to them, he says.
Another Approach
Major-oil loyalty programs typically have ties to CPG discounts, with many focusing on increasing sales at the c-store or site-related business such as car washes. ExxonMobil announced in March that it is testing a relationship with Shopkick, a coalition-based provider that uses proximity-based technology. The loyalty provider ties to people’s smartphones and gives them points for merely walking into a store.
Live in three markets—Washington, D.C., Miami and New York—the program uses a sound frequency heard by cellphones to check in customers. Customers collect “kicks” and turn them in for electronic gift cards to be used instantly, according to Jim Kurp, global brand adviser for Irving, Texas-based ExxonMobil’s global cards and loyalty programs.
“By leveraging cutting-edge technology that appeals to today’s tech-savvy consumers, Shopkick increases foot traffic into the store and potentially increases the total amount a consumer spends per visit,” Kurp says. The tests are “operating as we expected.”
ExxonMobil, according to Kurp, is the first oil company to roll out this type of program, “and we’re learning significantly from the process.”
Shopkick augments ExxonMobil’s “return and earn” rollback program, which began in January 2011 with its branded wholesalers. “What’s unique about the program is that we offer them the ability to individualize the customer offer,” Kurp says. “It is not one size fits all.”
For example, retailers have flexibility when selecting types of promotions and can leverage their own alternate profit centers. “For the consumer, they save money on fuel,” Kurp says. “It’s simple and easy and enhances the loyalty between the fuel business and the c-store.”
Jury Still Out?
While other oil companies such as Shell, ExxonMobil, BP and CITGO continue to push loyalty programs, some believe the power of rollback programs may be cyclical. An industry resource who requested anonymity says success hinges on the enthusiasm of the one holding the biggest bill. If a grocer or a manufacturer sees numbers falling or failing to meet expectations, it may not return next year, leaving retailers to face customer wrath.
Coalition-based programs can help, the source believes, with more parties “throwing money into the pot” to pay for the discounts.
“But when you talk about manufacturers, they’re typically willing to invest in a new promotional activity for a time period,” he says. “If it’s successful, they will reup or increase spend if they think it’s more efficient.”
Inevitably, at some point consultants will tell the company it doesn’t need to give that much away, the source says.
For manufacturers of consumer packaged goods, the incentive may be far less than those pushing bigger-ticket items such as $100 grocery spends or trips to restaurants. The incremental sale on a candy bar may ultimately not be enough to offset supporting a fuel rollback. In addition, companies often find demand exceeding supply.
“They have to look at the capacity of the plants they have and ask: What is their optimum capacity?” he says. “Are they near that? And if so, they can’t deliver.”
Other factors include product recalls and the volatility of raw materials, any of which could go up in price during the year. “I can see partnering with [computer maker] Dell and advancing people money on a rollback of gasoline,” he says. “But if you’re talking [energy drinks or candy bars], I don’t know whether that model is sustainable.”
A year or so down the road, kinks in the program will begin to show, he says. For instance, loyalty programs in general have redemption stipulations ranging from lenient to harsh. Fuel rewards may expire after a certain time period. While on one hand it may stimulate frequency with shoppers trying to redeem rewards before they expire, on the other hand it may stifle customer enthusiasm.
In this vein, some fuel retailers may opt to increase street prices on days when rewards are set to expire, in essence manipulating the value of the reward.
“When you start looking at the long-term big picture, it may or may not influence consumer buying and whether they will accept it,” the source says. “They may feel like they’re being controlled by ‘the man.’ ”
Tech Twist
Still, whether or not rollback programs continue to help retailers, current technologies appear to be pushing the boundaries of the traditional store. “You’re expanding the box virtually, through cross-promotion,” Little says. “So instead of building a hyperbox, you’re linking with multiple partners and expanding your reach, making [your store] relevant.”
Castelo agrees, saying, “Like any other business, the c-store industry has been getting more competitive. We’re always looking for tools to create value for customers and give opportunities to enhance customer satisfaction and loyalty.”
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