Re-Emergence Of Cash-Credit Pricing

By William J. Taylor

With the run-up of retail gasoline prices, cash-credit pricing has resurfaced as a competitive marketing tool. Those of us in the business during the 1970s and 1980s remember cash-credit pricing from the advent of self-serve. Most retailers did away with it 20 years ago because it was confusing and a turn-off to customers. Those who worked in the service end were glad to see it go, mainly because the equipment (push buttons and whatnot) included high-maintenance items.

Lately, there has been a very high demand for cash-credit retrofits be-cause of one compelling reason: Credit card fees have eroded and, in some areas, eliminated retail profit margins. It doesnít take a genius to understand that some kind of profit on retail motor fuel, other profit centers notwithstanding, is necessary to remain in business.

As fuel prices have escalated, credit card fees have also risen in lock step. Even though there are moves afoot in the card processing industry to reduce fees, they are still causing considerable pain. There is a widespread sentiment among retailers that the card processors have reaped a windfall without any justification or effort. In addition, the card limits set by the processors to limit their risk have not kept up with pricing. In most cases, a large vehicle cannot fill up with pay-at- the-pump.

Enter Cash-Credit Pricing
To the service contractor, cash-credit pricing presents both challenges and opportunities. Scrounging for parts to retrofit obsolete equipment is particularly vexing. Sometimes the contractor can pull this off, but often the only way to the goal is an equipment upgrade or changeout. In a sagging economy, this is a godsend. The contractor obviously loves this. Fortunately, the retailer is usual-ly able to accept the expense due to the pervasive economic advantage of recovering some or all of the card processing fees. In most cases, the payback is less than two years. Sometimes the cash-credit pricing advantage is enough to push a long delayed upgrade. This is especially true with pay-at-the-pump, which can easily incorporate cash-credit. The challenge, beyond the technical, is often the learning curve for smaller dealers who have become set in their ways and are reluctant to learn new POS systems.

Another challenge is the fact that contractors often get embroiled in customer or Weights & Measures disputes. Not all states have identical regulations for signing, posting, etc. One of the dark sides of the cash-credit scenario is that the customer, who has to pay more, has a card declined and will take out his frustrations on the equipment or on retail-er personnel.

The major oil companies have very cleverly used the cash-credit scenario to promote their proprietary cards, using same-as-cash pricing for their card. The retailer usually will get a break on the proprietary processing fees. In a very few cases, the retailer uses pricing to promote “house accounts” but this is often very risky credit-wise.

The way to handle a typical request is first with a little education, especially regarding signage and customer reaction. By now, most states have made their regulations clear, so there is usually some fixed expense involved. The next step is a site visit to evaluate equipment and upgrade path. After some discussion, a written quote follows. If the customer agrees and signs off, request a deposit to help finance special order items. Parts are ordered and a tentative date is set. In many cases, there is the additional step of setting up a card processing network and network connectivity. Assume nothing, as a smaller dealer may be completely lacking in the sophistication necessary to even ask the right questions. Unfortunately, we have been involved in a few cases where the network was set up improperly with consequent financial catastrophe.

Right now, the cash-credit upgrades are keeping contractors very busy. Hopefully, customers will be profitable enough to return to you for service and upgrades when the economy improves and the credit markets become a little freer.

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The PEI Journal • Third Quarter 2008 • Volume 2, No. 3 • Contents are Copyright © Data Key Communications, Inc.
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