Costco Fuels Customer Loyalty with Cheap Gas
For Costco, success or failure comes down to driving membership sales. Since the chain makes about 75% of its profit from membership fees, it can afford to price its merchandise and services below those of rival retailers. That is a huge advantage that drives traffic to its stores while reinforcing the value of being a member.
If a customer regularly buys an item from the retailer, whether it is breakfast cereal, aspirin, single-serve coffee pods, or even something needed less often like a hearing aid, car tires, or eyeglasses, they become more likely to renew their membership.
The biggest driver of that loyalty may be Costco’s gas stations, where the chain prices its gasoline dramatically cheaper than its direct competition. In fact, according to new research from CSP Daily News, which partnered with Oil Price Information Service (OPIS), Costco not only has cheaper gas than stations it directly competes with, but it is also less expensive than other warehouse club chains. Low gas prices are a major part of the fuel that powers Costco’s engine and likely a key factor in both attracting members and keeping people renewing their memberships.
OPIS uses the term “price differential” to show how gas at a brand’s typical store is priced relative to its direct competition, according to CSP. That differential is then measured in cents per gallon (CPG) and the three major warehouse clubs— Costco, Wal-Mart’s Sam’s Club, and BJ’s—ranked number 1, 3, and 4, respectively, in terms of having the biggest price differential.
BJ’s came in fourth place on CSP’s “Fuels 50: 10 Low-Price Leaders” list, scoring a 10.91 CPG price differential while Sam’s Club took second place at 11.47 CPG. Costco blew its two rivals out of the water, delivering a 20.88 CPG differential, a large enough difference that consumers likely notice and it may be the deciding factor to go with one chain over the other. OPIS Global Head of Energy Analysis Tom Kloza explained that Costco has “the greatest ability to buy cheap and smart.” He added that the company’s 500 gas stations made over $9 billion in 2016 fuel sales in 2016.
“We all know if there was a market-efficiency rating for Costco, it would be off the charts,” Kloza was quoted as saying. “Fuel serves as a lure to sell memberships, where the real money is made. Gas is the magic elixir for that company. It really props up the frequency—and for Costco, it is all about the frequency.” Why is frequency important? The more a shopper visits Costco (or any other warehouse club), the more likely he or she is to see value in being a member. Gas is a recurring purchase that brings people to Costco and once they are there, in at least some cases, a member will park, enter the store, and make other purchases.
Costco has made a strategic decision to use gasoline as a lure, a perk designed to attract and retain members. It is doing so more aggressively than even BJ’s or Sam’s Club—a smart decision since consumers cannot gas up their cars on the internet. Cheap gas on its own likely keeps some people renewing their membership year after year while it is an important piece of the puzzle for others.
Citations
- http://bit.ly/2p0NqCH The Motley Fool
- http://bit.ly/2oymgS2 – BrianWoolf.com
Delphi Wants to Reboot the Way You Upgrade Your Car
Consumers are already driving cars that could soon get over-the-air software updates, like those pioneered by Tesla Inc., which fix flaws or add features without a visit to the dealership. Delphi Automotive Plc is building a suite of software designed to help automakers catch up to Tesla, the electric-car maker, which designs its vehicles with the ability to be updated remotely much like smartphones. The auto-parts supplier is shopping an aftermarket product that will let vehicles from as far back as 2010 update their engine control, braking systems and infotainment over the airwaves. Delphi’s over-the-air software capabilities could be built into new car models by 2020 if negotiations with carmakers go as planned.
Delphi bought Plymouth, Michigan-based startup Movimento in January for an undisclosed amount and has been snapping up others to transform itself into a software integrator that can help automakers collect and analyze car data to pinpoint flaws, extend the reach of recalls, patch cybersecurity vulnerabilities and speed the development of autonomous driving. Innovations, including over-the-air updates, have helped propel Tesla’s market value past legacy carmakers including Ford Motor Co. “Traditional OEMs don’t have that luxury—they don’t start from a blank sheet of paper,” Mary Gustanski, Vice President of Engineering at Delphi, said in a meeting with reporters in Allen Park, Michigan, on Thursday. “This is a way to bridge that gap.”
Tesla is a pioneer because it’s been updating powertrains and battery-management systems via over-the-air software updates since 2012, according to Colin Bird, an analyst with IHS Markit in Chicago. Other automakers do similar updates now, but not with the frequency or to the extent that Tesla does, Bird said. Daimler AG, BMW AG, and General Motors Co. all plan to introduce such updates in the “not too distant future,” he said.
Over-the-air software updates could save automakers as much as $35 billion by 2022 by reducing warranty costs, making software-related recalls more efficient and reducing service trips to dealerships, according to a 2015 report from IHS Markit. While that may not go over well with car dealerships that depend on their service businesses to make money, Delphi argues carmakers could engineer a trade off with dealers by using data-driven coupons to push consumers to their dealers when they need an oil change or a tune up.
Even with Tesla, not all upgrades are available over the airwaves. The carmaker said recently it is recalling nearly two-thirds of the vehicles it made last year to replace faulty electronic parking brakes that may not release properly. The repair will take 45 minutes and requires the help of a human technician, who will do the replacement at drivers’ homes or workplaces, according to the company.
Delphi is leveraging the expertise of several upstart companies it has bought in recent years to boost carmakers’ technological capabilities. It is combining the over-the-air software of Movimento with technology from Control-Tec, a telematics and analytics company it acquired in 2015 that can mine data from a car to zero-in on flaws.
Another startup Delphi invested in earlier this month, Otonomo, will help automakers anonymize and sell driver data to third parties, a fresh, high-margin revenue source Delphi hopes to split with its customers. Otonomo is already working with nine car manufacturers, including Daimler, and has lined up 70 different buyers who want to acquire car data, Ben Volkow, Otonomo’s chief executive officer, told reporters recently. Possible data buyers could be insurance companies that want to be more efficient about dispatching tow trucks, or retailers looking to plan store locations around heavy vehicle traffic. Hedge funds looking for economic data could also have an interest. Drivers can choose via Otonomo’s software whom they want to share their data with. “This isn’t Delphi or the automakers hoarding the data to monetize it without customers’ knowledge,” said Dave Ploucha, the President of Control-Tec. “It’s about allowing the customer to get access to the data that the machine generates, and figure out how to engage with the marketplace in the way that they like.”
Citations
- https://bloom.bg/2od9P2E – Bloomberg
- http://detne.ws/2oyatTO – The Detroit News
The Good News Is . . .
- • U.S. manufacturing output rose for a second straight month in March in a sign of recovery from a long winter that had put a damper on activity. Factory production increased 0.5% in March, according to data from the Federal Reserve. Overall industrial production was up 0.7%. February industrial production was revised up to a gain of 1.2% from a previously reported 0.6% rise, due to stronger gains for durable goods manufacturing and for mining.
Capacity utilization, a measure of how intensively firms use their resources, was up to 79.2% from a revised 78.8% in February. The March capacity utilization rate was the highest since June 2008. - Netflix Inc., a leader in Internet streaming video services, reported earnings of $0.40 per share, an increase of 566.7% over year-earlier earnings of $0.06 per share. The firm’s earnings topped the consensus estimate of analysts by $0.03. The company reported revenues of $2.8 billion, an increase of 40.7%. Management attributed the results to strong growth in its streaming business segments in Europe and Latin America.
- PetSmart announced its acquisition of e-commerce pet food and product site Chewy.com for $3.35 billion. Chewy.com has been one of the world’s fastest-growing e-commerce sites, registering nearly $900 million in revenue last year in what was only its fifth year in operation. The company had been a potential IPO candidate for this year or next, and had raised $236 million in venture capital from investors including Volition Capital, T. Rowe Price, and BlackRock. Chewy was founded in 2011 by Ryan Cohen and Michael Day and built a cult following for its excellent customer service, large selection, and fast shipping. Its chairman, Mark Vadon, co-founded Blue Nile and Zulily.
Citations
- http://reut.rs/2q0fcie – Reuters
- http://cnb.cx/2lwnm3s – CNBC
- http://nflx.it/2bD9Th8 – Netflix Inc.
- http://cnb.cx/2onGBdx – CNBC
Planning Tips
Surprising Things that Can Negatively Affect Your Credit Score
Attempting to understand all the factors that influence your credit score can be a tough task. There are plenty of different things that can drop or boost your score. Some of them might be small and others can have a noticeable effect. Below are five surprising things that you might do that could hurt your credit score. Be sure to consult with your financial advisor to determine the best strategy for maintaining a high credit score.
Applying for a New Credit Card – The next time you receive a credit card application in the mail that has an enticing offer you might want to weigh the pros and cons. Each time you apply for a new credit card the issuer will perform a hard inquiry on your credit report. They need to make sure that you are responsible enough to pay back the money you charge. Each time a hard inquiry is performed you will see a two to five point hit on your credit score. While this might not be a lot for someone with a score of 700 or more it can really mean something to someone with a score of 600. If you do make the decision to apply for the card, make sure you are qualified. If your application gets rejected you are still going to have the hard inquiry on your account. No one wants to have his or her credit score take a hit and not get anything in return.
Closing a Credit Card – The more credit cards that you have, the more credit is available to you. Each time you decide to close a credit card account there will be an increase in your credit utilization ratio, which makes up 30% of your FICO score. To better explain this let us assume that you have two credit cards. One of them has a credit limit of $5,000 and has a balance of $2,000. The second card also has a credit limit of $5,000, but has a zero balance. That means you would have a credit utilization ratio of 20% ($2,000/$10,000). Now let’s assume you want to close the second credit card with no balance. If you do that your credit utilization would increase to 40% ($2,000/$5,000). Because it is important to keep your ratio below 30% you should hold off on closing the credit card until you have paid down more of your balance.
Failure to Pay Your Library Fine – If you forgot to return a library book on time you might have thought it was no big deal. The very opposite might be true. The collection agency, Unique Management Services, now specializes in collecting late fees from library users. With over 900 library systems in the United States, Canada and England on board, these small fines should not be ignored.
Ignore Your Traffic Tickets – Have you ever received a traffic ticket in the mail because you were caught by a red light camera or mobile speed trap? Just because you think it might be wrong for them to send you a traffic ticket in the mail, does not mean you do not have to pay it. Both city and state governments have the option to report you to a credit agency and even send any outstanding debts to a collection agency. It is also important to remember that just because you might have been issued a ticket when you were out-of-state, you still need to pay it.
Renting a Car with a Debit Card – Most rental car companies require everyone to use a credit card when renting a car. If you get into an accident they want to make sure they are going to be reimbursed for any damages. If a company does allow you to use a debit card there is a good chance that they will pull your credit report, which would cause a hard credit inquiry.
Citations
- http://bit.ly/2q0w5ck – Credit.com
- http://bit.ly/2p0AKf4 – MoneyCrashers.com
- http://bit.ly/1OvEj2q – Investopedia
- http://bit.ly/2oys1Py – TheBalance.com
- http://bit.ly/2oStTWK – Forbes
