WASHINGTON -- A new app aims to help retailers figure out who is buying more gas and who goes into the store more often or has the potential to do both.
Upside offers specialized discounts on fuel and other gas-station purchases to the District of Columbia, Maryland and Virginia markets. According to Alex Kinnier, co-founder of Upside Services, Washington, D.C., the app was inspired by the ability of e-commerce technology to level the playing field between retailers—something he witnessed firsthand working for 12 years at Google, Mountain View, Calif., in product development.
“There was a whole new strategy for how to win,” Kinnier told CSP Fuels. “You saw retailers who literally were selling out of their garage, beating the pants off big, sophisticated retailers.”
They were doing it by using technology to treat customers like individuals and offer them targeted promotions, bundling and product mixes. It was a capability sorely lacking in the brick-and-mortar retail world.
“I was always blown away by this world in Google, where they had every piece of information that enabled a customer online to be treated like an individual,” said Kinnier. “And then I’d stand in line … at a store, and everyone’s being treated the same.”
Kinnier was further inspired by the research of Google Chief Economist Hal Varian, who studied how personalization on a mass scale drove more profitability for retailers and more satisfaction for consumers. Varian, who is an investor in Upside, also wrote about how this same theory could apply to the offline world.
“Upside is our best attempt at taking this level of mass personalization to offline businesses to help them be more profitable, successful and raise customer happiness,” said Kinnier.
Read on for details ...
Why gas stations?
While Upside Services sees potential for mass personalization in many offline retail channels, it decided to target gas stations first—for three main reasons.
- The in-laws of co-founder and fellow Google veteran Wayne Lin have several Sunoco-branded sites in the Philadelphia area. “These are great business people who are providing a really valuable service to their community, and it’s a hard business,” said Kinnier. The team had an opportunity to understand the ins and outs of fuel retail.
- Fuel retail is the exact opposite of Varian’s mass personalization concept. “They put one price up and everyone pays it,” said Kinnier. “If we could show benefit there, if we could change the way they do business, we could take it to other types of businesses.”
- In developing a consumer product, it helps to start with something that people buy often. Gasoline was a natural fit.
Fuel retailers currently have two main pricing strategies to increase business, Kinnier said. One is to lower price, which inevitably results in nearby competitors matching it, or “a race to the bottom.” “At the end of the day, you’re left selling the same amount for less profit,” said Kinnier.
Another approach is to use a loyalty program. One common model offers members cents off per gallon on fuel purchases. This is flawed, said Kinnier, because the retailer is discounting product by the same amount to everyone, regardless whether they are a new or existing customer. This one-size-fits-all approach has limited potential to motivate customers to buy more or buy new products or services.
“What it leads to inevitably is cannibalization,” he said. “Anyone who gets that card, you’re discounting the product for them they would have bought anyway.”
How it works: the customer
Upside attempts to tailor the discount to the customer and the retailer. Here’s how it works.
First, the customer downloads the Upside app and, based on location, sees participating gas stations that offer discounts below the street price, ranging from 5 to 50 cents per gallon. The customer then selects the preferred gas station, drives to the site and buys gas, paying the street price.
To receive the discount, the customer takes a picture of the receipt, being sure to include the gas station’s address, the date and time, the items purchased and the last four numbers of the payment card.
Upside then sends back the discount—either cash back through PayPal or via check. Some sites also offer customers a credit that can be applied to future, nonfuel purchases. According to Upside, the top 10% of users earn nearly $30 per month back in cash.
Most important, the discounts are personalized to each Upside user. An Upside retailer’s competition has no idea what price its customers are actually paying for fuel.
How it works: the retailer
The retailer partnering with Upside first shares its historical, anonymized credit- and debit-card receipt data, typically for the past 12 months. Upside crunches this data to determine purchasing behavior for individual cardholders, based solely on the last three to four digits of their payment cards.
“We determine 578 Discover has never been to your station,” said Kinnier. “We can see 5798 MasterCard, every other month, has been there for gas, but never in the c-store. We see 5999 Visa comes three times a month, but never bought a carwash or something from the c-store.”
Upside pairs up these card numbers to customers as they start using the app, and begins building a purchase history and personalizing discounts for them.
Pay for performance
The retailer does not pay any upfront costs. It only pays if it begins earning additional profit from individual customers.
Say a customer typically results in $10 per month in profit. Through targeted discounts in the Upside app—cents off per gallon of fuel, a percentage discount in the c-store, or a certain dollar amount off a car wash or maintenance service—the customer is encouraged to buy more.
“If you buy gas at a station once a month, we’ll try to get you to buy there twice a month using very targeted promotions,” Kinnier said. “If we see you visit a station but never go in the c-store, we’ll give you a very targeted c-store discount.” Each promotion is optimized to the retailer’s margin.
Thanks to these targeted promotions, say that hypothetical customer’s baseline profit grows to $20. Upside would get 30% of the incremental $10 in profit, with the remaining 70% going to the retailer.
“In the online advertising world, this is called pay for performance,” said Kinnier. “We have the flexibility to operate within the margins across all of those categories of items you sell.”
What retailers say
More than 270 fuel retailers are currently participating in the program. One of them is Randy Hemeon, principal of Dulles Shell Service Center in Sterling, Va. He signed on about three months ago, hoping to increase sales at his Shell-branded site, which is situated on a dead-end street near the airport.
Hemeon said the site has seen a 30% to 40% increase in fuel volume in the four months he has partnered with Upside. The pluses of the offer for him include no upfront costs, software or hardware. And, “My people don’t get involved—the customer doesn’t walk in and say give me 15 cents per gallon off,” he told CSP Fuels.
He has also created promotions to direct customers to his six-lift auto service station, such as discounts on oil changes, emissions inspections and brake work. More sophisticated in-store promotions are “still in the embryonic stage.” According to the most recent analysis from Upside, the app has brought in more than 400 new customers to Hemeon’s site.
For the more than 270 retailers currently partnering with Upside, the average return on investment is 37%--or, every owner gets $1.37 back in incremental profit for each $1 invested. The number of Upside transactions can range from two to 10 per day.
“We’re not selling more gas, but shifting demand from one station to another,” said Kinnier, adding that Upside Services did not want to create a price “race to the bottom” among competing retailers. A fuel retailer signing on with Upside gets exclusivity for the surrounding quarter mile, meaning other retailers within that radius cannot participate in the program.
The D.C. and Baltimore areas have about 26,000 active users, according to Kinnier. In 2017, Upside plans to expand into Philadelphia, Delaware, Connecticut and New Jersey.
“Retailers are sitting on a tremendous amount of data that processors make available to them,” said Kinnier. “Economic theory shows by harnessing that, there is a lot of potential that could be released.”