Full Circle or: "A priori" and "a posteriori"

"What came before...what comes after"


Good Morning: Okay, here's my "Full Circle Inference" I mentioned I'd blog about last Friday:

Does anybody find the connection between "GreenPoints" and the Pay By Touch Logo a little bit interesting? They're both green points. I find that to be quite the coincidence. But as with all coincidences, I always question, "Why"? What is the meaning behind the coincidences? At the end of the day, when the smoke clears, the answer seemingly always "points" to what I refer to as the "Full Circle" inference. Another name for it is "a priori" "a posteriori" if you want me to go latin on you.

The terms "a priori" and "a posteriori" are used in philosophy to distinguish between deductive and inductive reasoning, respectively. As coincidence would have it, loyalty marketing appeals to both the deductive and inductive reasoning powers of consumers. That fact is the driving force behind the popularity of loyalty programs and why 45% of Visa's Interchange Rate is comprised of covering the cost of rewards programs.

As I mentioned, the phrases "a priori" and "a posteriori" are Latin in origin, and literally mean "from what comes before" and "from what comes later", respectively.

It has been also called "logical positism." which grew from the discussions of Moritz Schlick's Vienna Circle and Hans Reichenbach's Berlin Circle in the 1920s and 1930s. Which is why I call it the Full Circle inference.

S&H GreenStamps started the loyalty industry 110 years ago, and today, using software programming, which coincidentally (not) is made up of 1's and 0's, they have created potentially the best loyalty program in the industry.

After acquiring S&H for 100 million, Pay By Touch can create the 1-to-1 marketing "end all" 111 years later. Now I'm no numerologist (don't even really know what one does) but my instincts tell me that this is going to be big.

Let's look at the generics of what "loyalty marketing" is:

Loyalty marketing: From Wikipedia, the free encyclopedia

Branding, Product Marketing and Loyalty marketing all form part of the customer proposition – the subjective assessment by the customer of whether to purchase a brand or not based on the integrated combination of the value they receive from each of these marketing disciplines.

Loyalty marketing is an approach to marketing, based on strategic management, in which a company focuses on growing and retaining existing customers through incentives. The discipline of customer loyalty marketing has been around for many years, but expansions from it merely being a model for conducting business to becoming a vehicle for marketing and advertising have made it omnipresent in consumer marketing organizations since the mid- to late-1990s.

Some of the newer loyalty marketing industry insiders, such as Chris X. Moloney and Fred Reichheld, have claimed a strong link between customer loyalty marketing and customer referral. In recent years, a new marketing discipline called "customer advocacy marketing" has been combined with or replaced "customer loyalty marketing." To the general public, many airline miles programs, hotel frequent guest programs and credit card incentive programs are the most visible customer loyalty marketing programs.

History of loyalty marketing

On May 1, 1981 American Airlines launched the first full-scale loyalty marketing program of the modern era with the AAdvantage miles program. This revolutionary program was the first to reward "frequent fliers" with reward miles that could be accumulated and later redeemed for free travel. Many airlines and travel providers saw the incredible value in providing customers with an incentive to use a company exclusively and be rewarded for their loyalty. Within a few years, dozens of travel industry companies launched similar programs. The AAdvantage program now boasts over 50 million active members.

American Airlines' AAdvantage program can trace its roots to S&H Greenstamps which were a popular retail reward coupon issued very commonly from the 1930s through the 1980s. Typically, as a consumer shopped at various grocery and dry good stores, they would receive a set number of Green Stamps that could be pasted into booklets and redeemed for prizes.

"A Priori"

What came before was, "GreenStamps," the world's first rewards program, operated by the Sperry and Hutchinson company (S&H), founded in 1896 by Thomas Sperry and Shelly Hutchinson. Here's an interesting backgrounder I was unaware of:

During the 1960s, the rewards catalog printed by the company was the largest publication (I thought it was Sears) in the United States and the company issued three times as many stamps as the U.S. Postal Service.

Once again, coincidentally, customers would receive stamps at the checkout counter of Pay By Touch's biggest niche markets, namely: supermarkets and gas stations.

"A Posteriori"

What came after, or "a posteriori" was "GreenPoints" which is now Pay By Touch. When greenpoints are combined with Pay By Touch's proprietary SmartShop program, it is poised to become the most rewarding loyalty experience, available, period. After all, who cares if you get "rewarded" with $1.00 off Corn King Bacon if your an Oscar Meyer bacon kinda guy? Because SmartShop gives discounts on Oscar Meyer Bacon to the Oscar Meyer Bacon eating family, the numbers are amazing. Instead of a .0065 coupon redemption rate, the SmartShop redemption rate is above 40%! There's no denying the statistical significance of those numbers.

A lot of people questioned the acquisition of S&H, including, initially, myself. But after further thought, and absolutely no insights, as per usual, from Pay By Touch, I now firmly believe that the acquisition of S&H Solutions will empower Pay By Touch to create the best loyalty marketing program in the history of the industry.

That is the main impetus behind this post...to alter the perception of the S&H acquisition. I'll attempt to do that by providing some insights as to how it is destined to become a powerful play. By the way, It might not have been a bad idea for Pay By Touch themselves to have done that for, if not the analysts, at least the shareholders of the company. It's one thing to keep the competition guessing, but an entirely different thing to keep your shareholders guessing. But then again, that's something that is easily fixed, so I'll move forward...

According to Ron Pedersen, CEO for S&H Solutions, "Together we aim to transform the personalized marketing industry by offering unprecedented opportunities for relevance marketing and customization."

The acquisitions of 7th Street Software, Capture Resource and S&H combined create a whole new entity, one that has a future primed to be a star. They got it right. This, from their website:

Pay By Touch Personalized Marketing offers retailers and manufacturers proprietary, next generation services that work to maximize the shopper lifetime value, increasing customer satisfaction and providing a true competitive advantage. The future of individualized retail marketing, our cost-effective solutions increase shopper frequency, basket size and retention.

Once again, ironically, coincidentally, whateverdentally, S&H's two largest markets were supermarkets and gas stations. SmartShop has the grocery market figured out. Pay By Touch is beginning installs at Shell Gas Stations in Chicago. A cross promotion between Jewel/Osco, Cub Foods and Shell Gas Stations is blatantly recommended once the installs at Shell are complete. But what of other gas stations?

I believe they are an ideal target market for a new and improved Greenpoints Rewards program. But don't reward Visa purchases, as Visa is not only our competition in payments, but also in rewards. Obviously those are our two core businesses.

Make no mistake, Visa is the enemy. Once again, coincidentally, (and fortunately) Visa is also the enemy of Gas Station operators, since Visa sucks up 66% of their profits so they can "reward" the more affluent. The full circle is that Pay By Touch can come from help, and this new "Petrol Rewards" program will be one which can be tied to check and debit transactions. The timing is perfect. What came before: Visa (a priori) and what comes after: Pay By Touch (a posteriori)

The perception that Interchange is exorbitantly high, combined with the fact that 45% of interchange revenues go to rewards programs, is resulting in the desire of gas station owners to shift their payments to checks, debit or cash. This shift in perception, will provide momentum towards shifting the payments they accept. In essence, the new PBT program would also be "rewarding" to the Gas Station owners as well, as it will give them back their profits.

So it seems like a perfect time to create a synergistic platform customized towards that sector. I have a pretty good idea on how to go about that.

Coincidentally, I have an "employment clause" in my contract with Pay By Touch and I think it might be that time to exercise it.

Talk about full circles...

How Pay By Touch Can Put a Tiger in it's Tank

Awhile back, I posted about how Gas Stations were ripe for ID theft, and mentioned how Pay By Touch could not only solve that problem, but just as importantly, save them tons of money by offering to replace credit card transactions with checking or ACH debit reward transactions. But I never really did get into any detail. I will today.

I found an interesting article detailing how gas station owners /operators are becoming increasingly discouraged by accepting credit cards, and thought that now was as good a time as any, to take and explain my ideas as to why and how Pay By Touch could be a godsend to these owners/operators.

I'll just touch on some of the points, as I tie in the less expensive ACH Debit, with a loyalty program administered by Pay By Touch which refocuses on the niche that S&H GreenStamps carved out with Gas Stations years ago. It would be a good blend, and would result in a win-win situation for everyone involved. There's a tremendous opportunity for Pay By Touch in this arena.

The article is below...I interrupt it several times (always in green) in an attempt to either educate, make a statement or have fun with a sarcastic comment in an attempt to prevent myself from becoming bored doing this blog...

Gas stations discounting cash sales

ELIZABETH DOUGLASS, Los Angeles Times

Americans love their credit cards. But at more and more gas stations, it pays to use cash. In Costa Mesa, Calif., Craig Hummel pocketed a 12-cent-a-gallon discount recently for using cash at a Valero station instead of his Visa or MasterCard. He bought 9 1/2 gallons of premium for his Mercedes sport utility vehicle and saved $1.14.

"I know a lot of people just go wherever they want for gas ... but I only come here," Hummel said. "Over a year's time, you save quite a bit. I think more stations should offer it." (Ed. Note: Proof that loyalty exists in regards to consumers for gas stations)

They are. To dodge the rising fees that credit card companies tack onto transactions, both no-name and big-brand stations are charging drivers less when they buy with cash.

The Valero station favored by Hummel was offering self-serve regular for $2.97 a gallon for cash and $3.07 on a credit card a few weeks ago. Not far away, a busy Shell offered a 6-cent cash discount for regular.

Francisco Galicia, the manager of that Shell, said he had been offering cash discounts of 4 cents to 6 cents a gallon for six months. At first, customers had questions, Galicia said, but now "they understand why I'm doing it ... and they're responding." Fees vary, but on a typical credit card sale,

Galicia's station pays 10 cents plus 2 percent of the purchase price to the credit card company.

Editors Note: Here's as good a time as any to discuss how this 10 cents plus 2 percent creates an opportunity. First of all, the 2% is mentioned after the 10 cents, in order to create the illusion that the 2% is inconsequential. In reality, the 2%, at $3.00 per gallon is closer to 65%. I'll "touch" on that in a bit. Let's start here...

Gas station owner/operators have the same per gallon profit, whether gas costs consumers $2.00 or $3.00 or even $4.00. With that said:

When gas was $2.00 per gallon, 20 gallons cost $40.00.

2% was .80 cents + .10 cents. or .90 cents.

That's 4.5 cents per gallon to Visa/MasterCard.

Assuming a gas station operator makes 10 cents a gallon, (that's high, but it's easier for me to do the math in my head...) after paying the credit card fees, the profit is split 55/45.

The owner/operator gets only 5.5 (.055) cents per gallon at $2.00 because, Visa and MasterCard is earning 4.5 cents. (.045) of .10 cents.

That's a staggering 45% of the .10 cent per gallon margin.

Gas is no longer $2.00 per gallon so let's do the math at $3.00 per gallon.

When gas is $3.00 per gallon, the same 20 gallons cost $60.00 instead of $40.00.
2% of $ 60.00 is $1.20 + .10 cents. or $1.30)

Instead of .90 cents, it costs $1.30

That's .065 cents per gallon to Visa/MasterCard out of .10 or 65% of the profits.

As I mentioned, the gas station operator's profit, remains the same per gallon from their supplier, regardless of whether it's $2.00 or $3.00, but now, because of credit card fees, it has been reduced from 5.5 cents to 3.5 cents per gallon. The owner operator is being punished and the credit card companies are being rewarded, and nothing has changed except the price per gallon of gas!

Thus, instead of a 55/45 split in favor of the owner/operator at $2.00 per gallon, it now becomes a 35/65 split in favor of Visa/MasterCard at $3.00 per gallon.

The result is a 37% reduction in profit from the $2.00 per gallon price point to the $3.00 per gallon price point for the owner/operator. Of course, Visa will spin this into "It's only 2%!"

That hardly seems fair does it. Almost criminal and worthy of being looked into by the FTC. Wait, until you read about the $5000 a day fine Visa threatens when an owner/operator tries to offer a discount for cash...

Getting back to the breakdown of 3.5 cents to the owner and 6.5 cents to Visa/MasterCard, one could certainly understand why gas station owner/operators are becoming increasingly irked at the credit card companies.

Do the math at $3.50 and $4.00 per gallon and it becomes even more disproportionately unfair to the owner/operators.

This is where Pay By Touch can be of great assistance and help these owner/operators"... Now this is not as complicated as a Shell game, but you will need to follow where I'm going with this compelling argument, so here we go...

Instead of charging 2% and .10 cents Pay By Touch could charge a flat fee of .50 cents per transaction, still make a respectable profit, and insulate the owners from rising gas prices, and themselves, from competitors.

Gas would literally have to drop to $1.00 per gallon (20 gallons x $1.00 = $20.00 X 2%= .40 cents, plus .10 cents = 50 cents) in order for the credit card companies to be competitive with Pay By Touch on a 20 gallon fill-up.

On the flip side, at $3.00 per gallon, the owner/operator still pays only 50 cents to Pay By Touch for 20 gallons, thus instead of "Shelling out" 6.5 cents per gallon with a credit card transaction, they would pay only 2.5 cents per gallon. Kind of a nice touch, wouldn't you say? Therefore under the same 10 cent per gallon scenario with a 20 gallon fill-up they would EARN 7.5 cents per gallon instead of 3.5 cents.

That's 66% more profit for the owner/operator!

Kinda gives a new meaning to the Phillips 66 logo on the left, doesn't it? Plus imagine the loyalty that Phillips 66 would create with their owner/operators for providing the Pay By Touch service as a form of payment, thus increasing their profits without increasing their workload. In addition, they could get into the "Mobil payments industry" right out of the tank. Pay By Touch would still earn 25% of the gasoline profits, albeit far less than the 65% that Visa is currently making. But is that a bad profit. I think not.

Back to the article... because they touch on several more interesting points.

Customers pay, too.

In 2006, motorists -- whether they used cash, credit or debit cards -- paid an average of 4.2 cents a gallon more because of credit card fees, said Jeff Lenard, spokesman for the National Association of Convenience Stores, which represents outlets that sell about 80 percent of U.S. fuel.

Profit drain

Complaints have grown because money collected through card fees has more than doubled since 2001, and rewards programs have led people to use credit for everyday purchases.

For gas stations, soaring prices have magnified the percentage-based card costs and caused more customers to pay with plastic. (Ed. note: Yeah, that's what I said)

"What's happened is a double whammy," said David Robertson, who publishes the Nilson Report, a credit industry newsletter.

Members of the convenience store group, which has sued credit card companies over the fees, paid $6.6 billion in credit card fees last year, but booked only $4.8 billion in profits, Lenard said.

(Ed. Note: I'm aware that I said 65/35 profit split, and the 6.6 to 4.8 numbers are off from my example, but it's because not all gas stations make .10 cents per gallon profit, and those numbers include profits from food/drinks/car washes etc. where the owner/operator has a higher profit margin than they do on gas.) Still...my point remains significant which is that...)

"The credit card companies made more at our stores than our store owners," said Lenard.

(Ed. Note: The Sales Proposition seems to be as simple as letting store owners know that are aware of the problem and we address it and allow store owners to make more money than they do using their existing payment platforms)

Dealers say the problem is at its worst in California, where gas prices have been higher for longer and lengthy commutes mean drivers fill up frequently. (Ed. Note: Filling up more frequently doesn't have anything to do with it, higher gas prices do.)

Wording dispute

Oil companies have played a role too. Chevron Corp., Exxon Mobil Corp., ConocoPhillips and others have offered rebates and promoted branded credit cards to lock in loyalty.

(Ed. Note: I have an suggestion/idea... How about Gas Stations utilizing a loyalty program offered by Pay By Touch, (as we seem to have some experience there) and now that we've purchased S&H, we could implement an updated plan using Greenpoints. (S&H was pretty big with gas stations at one time...)

One angle...how about consumers being able to earn points to eat at restaurants, which complain about the business slacking off because of the high gas prices. There's something about nostalgia/loyalty and coming from help that always seems to have an attraction. And, it just so happens that S&H already offers the Dining Connection Rewards Platform. How "convenient"


Another angle, tie in Greenpoints with our grocery store clients. It would strengthen enrollments at both, and result in strengthening the Greenpoint program itself.

GreenStamps were huge not only at Gas Stations..but also Grocery Stores...(from Wikipedia)

Auburn, Calif.-based Nella Oil racked up $5 million in credit card fees last year at its 50 Northern California gas stations, said Thomas Dwelle, a partner in the family-owned business. This year, Dwelle launched a cash discount program at a few stations -- and landed in hot water with Visa.

The card company accused Nella Oil of violating its Visa contract by using the word "credit" on its price signs. Visa threatened to charge the company $5,000 a day (Ed. Note: Isn't the 65/35 split enough for them, resulting in $5 million) and cut off the stations' ability to take Visa credit cards. (Ed. Note: Sounds like that would create even more opportunity for Pay By Touch...)

It demanded that Dwelle use the words "regular" or "standard" rather than "credit" to differentiate the higher price from the cash cost. (Ed. Note: Does Visa have a clue?)

State regulators said Visa's recommended signage would confuse customers and violate California law. Visa backed off.

Visa USA declined to discuss the dispute. Visa Vice President Rosetta Jones said in a statement that a cash discount "is confusing and naturally implies a surcharge for payment card transactions.

(Ed. Note: Yes, but of course using the word "regular" at a gas station wouldn't be confusing at all, would it. I would suggest that, if stations offered a discount for using Pay By Touch, then it would "naturally imply that Visa's surcharge is overtly higher than it needs to be.)

She went on state: "People who use credit cards "should not have to pay what amounts to an unfair checkout fee."

(Ed. Note: Is she insane? Taking credit cards should not result in merchants, who last time I checked, were also "people" too, having to pay what amounts to 65% of the profit. Does Visa even realize how ridiculously hypocritical they sound? Luckily for them fewer people understand the credit card industry and basis points than understood how ARM's worked when they took out their subprime mortgage.

How hard could it possibly be to get these frustrated gas station owner/operators on Pay By Touch's side. en masse). The spillover of owner/operators to Pay By Touch would make the Exxon Valdez look like an oil drip from an ATV on a driveway...

The article continues...

Travis Plunkett, legal director at the Consumer Federation of America, likes the trend toward cash markdowns for fuel.

"It is something that dealers should be freely allowed to pursue, with no coercion on the part of the payment systems," Plunkett said.

Conclusion: If Pay By Touch can make store owner/operators understand that they can increase their profits by 66% on a 20 gallon purchase, using Pay By Touch, the pressure they would put on their supplier would be tantamount to having lobbyists working for us in D.C.

If we could make the oil companies understand how we could reinvent and reintroduce the S&H program and tie it in to a platform that would reward their customers, increase loyalty, increase profits for the owner/operators, and make the transaction significantly more secure (remember Ripe for ID theft) then what do you think would be the result?

In addition, Pay By Touch would accelerate the transaction times, and make them more convenient by having the stations installing Pay By Touch at the pumps. How many times have you waited at the pump while someone goes inside and waits in line to pay. And it sure takes them a long time to come out with their coffee and donuts while I wait at the pump.

Might even get a few enrollees out of it too. Could even strengthen the existing S&H platform. Oh, and they wouldn't have to be threatened with paying a $5000 a day fine or be bullied by Visa into having their livelihood taken away. Which is B. S. anyway, unless they would cut off a company that paid them $5 million last year in fees. Sounds like opportunity staring us in the face while Visa bites off their nose to spite theirs.

Add in a personalized marketing loyalty program using the power of S&H's nostalgic impact, include a Citibank debit card under our partner Discover, and Pay By Touch could have a gas with the possibilities...