In a retailer’s toolkit of ways to increase fuel sales, there are two common tactics.
One is to lower the street price. But this tends to snowball into the infamous “race to the bottom.” Gas Station A lowers its price, and Gas Stations B and C try to match it. The process continues for a few days until no one is making any money on fuel, and no one has won any new customers.
A second tactic is to use a loyalty program to reward customers for buying fuel, often with a cents-per-gallon (CPG) discount on gasoline. But many of these customers may already be regulars and would have bought gasoline from your location anyway.
These tactics have a central flaw, says Alex Kinnier, co-founder of Upside Services Inc., Washington, D.C. They are one-size-fits-all approaches that treat all fuel customers the same, regardless of whether they are regulars or visiting the station for the first time. Each has a limited ability to motivate customers to buy more fuel, or consider new products or services within the store.
What fuel retail needs, Kinnier says, is mass personalization. Enter Upside, an app that offers specialized discounts on fuel and other purchases.
Kinnier was inspired to create the app after witnessing firsthand e-commerce technology’s ability to level the playing field between retailers. He worked 12 years in product development at Google, Mountain View, Calif., including on advertising projects.
When retailers used personalization technology to target and treat customers as individuals—instead of offering standard promotions, bundling or product mixes to everyone—their sales quickly grew.
“There was a whole new strategy for how to win,” Kinnier says. “You saw retailers who literally were selling out of their garage beating the pants off big, sophisticated retailers.”
This degree of personalization is a capability that most “offline” retailers lack.
“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,” says Kinnier. “And then I’d stand in line … at a store, and everyone’s being treated the same.”
He had a personalization yogi in the form of Google Chief Economist Hal Varian. His research focused on the ability of mass personalization to increase retailers’ profitability and consumers’ shopping satisfaction.
Varian discovered this same approach could work in the brick-and-mortar world (and he is also an investor in Upside Services).
“Upside is our best attempt at taking this level of mass personalization to offline businesses to help them be more profitable [and] successful and raise customer happiness,” says Kinnier.
Mass personalization has potential in many brick-and-mortar retail channels, but Upside Services chose gas stations for its first application for a few key reasons. For one, fuel retail is the antithesis of Varian’s mass-personalization concept. Gas stations sell gasoline for one price, and every customer pays it. “If we could show benefit there, if we could change the way they do business, we could take it to other types of businesses,” says Kinnier.
Gasoline is also a frequent purchase, and therefore ideal for product development. And finally, Upside Services co-founder Wayne Lin—another veteran of Google—has in-laws who operate several Sunoco-branded sites in the Philadelphia area, giving the team close access to the business.
The Upside app launched in 2016 and services the Maryland, Virginia and D.C. markets. Here’s how it works:
> The customer downloads the Upside app (for iOS or Android) and, based on location, sees participating gas stations that offer discounts below the street price, ranging from 5 to 50 cents per gallon. Each grade of gas and diesel has its own discount. The user then selects the preferred gas station, drives to the station and buys fuel, paying the street price.
> To receive the discount, the customer claims that site’s offer and takes a picture of the fuel receipt, being sure to include the gas station’s address, the date and time, items purchased and the last four numbers of the payment card (more on this key element later). To add urgency, the user must claim it within four hours of the purchase.
> Upside sends back the discount—either cash back through PayPal or via check—within a couple of days. Some gas stations also offer customers a credit to apply to future nonfuel purchases such as a car wash or in-store item (excluding tobacco, alcohol or lottery). These credits expire each January and July.
According to Upside, the average user gets $65 each year in cash-back earnings. The highest earning for a single user so far was a whopping $430, which is typical for taxi and ride-sharing service drivers.
Retailers who partner with Upside first provide the past 12 months of historical, anonymized credit and debit-card receipt data. Upside analyzes it to determine purchasing behavior for individual cardholders, identified by the last three to four digits of their payment cards.
So, for example, Upside might find that one customer, “578 Discover,” is new to the gas station. Another customer, “5798 MasterCard,” visits every other month to buy gas but has never made a store purchase. Upside builds personalized discounts based on this purchase history. New customers are incentivized to buy gas, gas customers to buy more gas as well as c-store items, and gas and c-store customers to make more purchases and try a car wash or maintenance service.
The retailer does not pay any upfront costs, Kinnier says. It pays only 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 off in the c-store, or a dollar discount on a car wash or maintenance service—the customer buys more, and the retailer’s baseline profit grows to $20.
Upside would get 30% of the incremental $10 in profit, with the remaining 70% going to the retailer.
Each personalized promotion, meanwhile, is optimized to the retailer’s margin.
“In the online advertising world, this is called ‘pay for performance,’ ” says Kinnier. “We have the flexibility to operate within the margins across all of those categories of items you sell.”
More than 270 fuel retailers with more than 650 sites are participating in the program; most are major-oil-branded gas stations, according to the Upside website. To prevent price wars, each site has exclusivity with Upside for the surrounding quarter-mile, meaning other stores within that radius cannot participate in the program. Because each user gets personalized discounts, these competitors cannot see the Upside retailer’s “real” gasoline price.
One of those retailers is Randy Hemeon, principal of Dulles Shell Service Center in Sterling, Va. He signed on with Upside about six months ago after hearing about the app from a fellow dealer. His goal: to increase sales at his Shell-branded site, which sits at the end of a dead-end street near the airport.
So far, the results have been positive. Hemeon says incremental profits grew 63% from October 2016 to March 2017. He cites the program’s relatively easy setup, which includes no upfront fees, software, hardware or labor requirements.
This last feature is especially helpful, he says. “My people don’t get involved—the customer doesn’t walk in and say, ‘Give me 15 cents per gallon off.’ ”
As part of Upside, Hemeon has offered promotions for his six-lift auto service station, such as discounts on oil changes, brake repairs and emissions inspections. In-store promotions are in the works.
Retailers also receive regular reports from Upside that list the number of new and returning customers for fuel and in-store purchases. (See “Calculating the Upside.")
According to a recent report, Hemeon’s site Saw 400 new customers thanks to the app. “I like the competitive edge,” Hemeon says. “I’m close to Dulles (International Airport), and taxi drivers, even John Q. Public, will open the app on their cell and see where the cheapest gas is around.”
According to Kinnier, the average return on investment is 37%, or, for each $1 invested, the owner gets 37 cents back in incremental profit. The number of Upside transactions per day range from two to 10.
As of press time, the Upside app had more than 60 reviews, most rating it five stars.
One reviewer praised the speed with which she received cash back on her gasoline purchase and the app’s location functionality. “As a Realtor, I’m constantly driving,” she wrote. “Being able to pinpoint an exact gas station throughout my day has been fantastic.”
Upside is promoting the app heavily through social media, including Twitter and Facebook. Recently it has been awarding an additional 20-CPG savings to new users referred by friends.
The most common user complaint could be summed up by one reviewer who also rated Upside highly, but commented, “Needs more gas stations!”
There were about registered users as of press time, according to Kinnier. The company plans to expand into Philadelphia, Delaware, Connecticut and New Jersey by the end of 2017.
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