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Bill Hanifin
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BP Visa Rewards Card
Seeing the low-fuel light illuminate on the dashboard signals different reactions to the driver based on how well you know your vehicle. Having driven my previous one for over 8 years, I could shrug my shoulders knowing that at least 3 gallons remained. My new ride was a different story and, on a day when gasoline prices hit record highs in the US, I made the first right hand turn when I noticed the indicator doing its job.
The BP (Amoco) station I entered was known to carry the highest prices in the area but the pain of donating a few more bucks to Big Oil was moderated by my fear of having to push the car into the cheaper station down the road. You could fairly say that I entered this consumer transaction with a negative brand bias.
Passing time as the tank filled, I noticed the display on top of the pumps touting the “New BP Visa Rewards Card”. The message shouted that I could earn up to $80 in cash with rebates up to 10% on BP fuel purchases. I was interested until I spied the dreaded asterisk. The offer was introductory in nature and good for the first 60 days only. The ownership cycle of a credit card is long enough that, to me, introductory offers are like women’s perfume, tempting and engaging, but possibly leading to a poor decision.
Fortunately for BP, Visa, and JP Morgan Chase (the issuer), I noticed a second asterisk. The card had been selected by Kiplinger’s Personal Finance as the “best gasoline credit card” in both November 2006 and 2007. This card was apparently worth a second look.
My loyalty calculator in full gear, I realized that according to the spending examples in the promotional banner, the blended funding rate (percentage rebate on purchases made with the card) was 4% during the introductory period and 2% thereafter. I also calculated that, even if I pumped all of my gas at the cheaper station, saving $.05 per gallon, I would have to use over 500 gallons of gas during the introductory period to equal the 10% rebate offered through the card, way beyond my level of demand.
Several questions popped into my head:
- With Big Oil increasingly viewed as the Darth Vader of commerce, would consumers consciously affiliate themselves with a cobrand gasoline card?
- Could using this payment device and consolidating fuel purchases make the “expensive” gas effectively the better alternative?
- How did Kiplinger’s justify their rating of the card as best in class for two years running?
From the bottom up, the Kiplinger’s web site didn’t provide much detail, though more could possibly be found in their print edition. My own evaluation is that the 2% rebate level is above most cards in the market, there are no limitations on the amount of rebates that can be earned, and the interest rate on the card is reasonable with a range of 12.24 – 20.24% depending on creditworthiness. Rewards options include $25 BP gift cards, checks made payable to the cardholder, or a donation The Conservation Fund, an environmental charity.
In all, the card represents a strong offer. Kiplinger’s top rated cash rebate card was Amex Blue Cash, and it topped the BP offer for cardholders who spend more than $6,500 per year. At that level, the base rate of 1% cash back jumps to 5%. The rebate on fuel and other purchases does reduce the effective rate paid per gallon and with prices soaring near $4.00, the rebates are going to be $.18 – .20 per gallon even after the introductory period ends.The advantage is lost if fuel purchases are not consolidated to BP, and I question whether people have the discipline to capitalize on the opportunity.
Brand is another matter. This case reminded me that one person focus groups are deadly. Just because I am a frequent flyer and might not want to pay for a business dinner with a fuel cobrand card, does not mean that a huge market for the card doesn’t exist. Many people not only want rewards, but want them with more immediacy. Cash back, the preferred reward in most focus groups I have observed, is attractive to many consumers.
I was only at the fuel station for a few minutes, but I was reminded of these lessons:
- Card acquisition is a numbers game and rich introductory offers are a highly effective tool
- Lower cost of acquisition can justify stronger consumer value propositions and BP has adopted a model that is highly efficient
- Analytical segmentation of customer data will not go out of style anytime soon as there is a “card for everyone” and the challenge is linking the offer to the right audience
- Even when the economy is tough and an industry is out of favor, well planned Customer Strategy can shift the advantage between competitors
Bill Hanifin
