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home : login : blog : about us : search : contact us : newsletter : magazine : my jungle NOV2002 / CONTENTS October 31, 2002 | INSIGHTS | Dan McGinn | Mobil Case Study: Fueling Growth How Mobil used 60-year-old technology to rev up its future. Vodka with Punch: Grey Goose Case Study In the world of commodity products, there's nothing less distinguishable than gasoline. For years, petroleum companies have churned out ads extolling the superior chemistry of their gas. It will "drive your engine clean," they say. When it comes time to fill the tank, though, brand loyalty usually has more to do with which station happens to be on the right side of the street or who's charging a penny less. But in the 1990s, Mobil (now the merged ExxonMobil) was able to turn that equation on its head. It found a way to use a nearly 60-year-old technology to differentiate its product by focusing not on the gasoline but on the process customers had to endure to acquire it. And Mobil did it by overcoming a hurdle few managers are willing to jump: the risk of cannibalizing a profitable business. The trick to this feat: Speedpass, a tiny piece of plastic that allows customers to fill their tanks without the hassle of credit cards or cash. The device, which fits nicely on a key chain, uses radio frequencies to identify customers' accounts via satellite and readers on ExxonMobil fuel pumps. It's the latest step in a slow evolution of the process by which drivers refuel their cars. For the first five decades after automobiles hit American roads, gassing up was considered a specialized procedure. Fire marshals wanted only trained professionals handling the pump. Even as fears of exploding cars waned, having a pro fill your gas and wipe your windshield was considered convenient. "This industry for years never believed women or a guy in a suit would get out of their car to pump gas," says Roger Dreyer, president of the Ohio Petroleum Marketers & Convenience Store Association. One California service station owner reportedly tested that logic by starting a self-service station in the late '40s. Some customers apparently liked it; self-service gas gave them control and felt quicker. But it wasn't until the '60s and '70s that the industry, driven by cost-consciousness, made pump-it-yourself the norm. Even as customers began filling their own tanks, the transaction still included one big hassle: After finishing at the pump, they had to go inside the station to pay. Over the years, service stations had found a way to profit from that trip by turning their businesses into convenience stores, offering everything from snacks and sodas to maps and pharmacy goods. Margins on these goods far exceeded those in the cutthroat gasoline business, and station owners thrived. Even by the '80s, when credit card usage became more prevalent and companies could have easily configured ways to allow self-service customers to pay for gas at the pump, companies were leery. Their fear: If they gave customers a way to avoid entering the gas station, their convenience store business—a key profit center—might plummet. Still, customers hated waiting in line to pay for gas. So by the late '80s, most major chains were experimenting with pay-at-the-pump credit card systems. Companies are often wary of taking risks that might imperil their comfortable, high-margin businesses. In The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail, Harvard Business School professor Clayton Christensen describes how established companies are great at introducing "sustaining technology"—essentially incremental improvements to existing products—but often suffer when a less sophisticated competitor launches a "disruptive technology." For instance, American automakers were reluctant to roll out smaller, more fuel-efficient cars because it's hard to make them profitably. When the Japanese pioneered the niche, the Big Three suffered. Kodak, which prospered for decades selling high-margin film, struggled to accommodate the growth of digital cameras, which would cannibalize its film business. For service stations, pay-at-the-pump seemed like it could wreak similar havoc. But when gas stations began offering the service in the late '80s, a funny thing happened: Sales inside the stores actually increased. "There's a good lesson there," says Mike Goldberg, president of Speedpass Network. "Why do people buy as much or more in the store when we weren't pushing people in there? It's about the lines in the store. When we put in pay-at-the-pump, we de-bottlenecked the store, and it drove more business. Who knew?" That unexpected success spurred Mobil executives to consider new ways to make customers choose their brand. In 1994, the company did a massive market-research study. The result, recalls Joe Giordano, then Mobil Corp.'s retail automation director: "Customers told us their lives were complicated. They were always in a rush, and anything we can do to make getting in and out of a gas station as quick as possible for them would turn them on to Mobil instead of another brand." Giordano's team brainstormed. One colleague recalled an innovation in the rental car industry that allowed customers to bypass the counter and go directly to their cars; rental car companies used bar-code scanners to figure out who was driving which car as the vehicles left the lot. Maybe there was a way to use technology to find a way to pay for gas without even taking out a credit card. To accomplish that goal, Mobil seized on a technology called radio frequency identification (RFID), in which devices emit a signal that allows users to be identified. There's nothing new about RFID: Early experiments date to the '40s. Giordano's team tried attaching small RFID wands to key chains, linking the identifying characteristics in the key fob to customers' Mobil accounts. Instead of requiring customers to pull out their wallets and swipe credit cards before pumping gas, the RFID—dubbed the Mobil Speedpass—would allow them to pay for gas by just waving their keys in front of the pump. It sounds like a marginal improvement, but customers loved it. The system enhanced security by allowing customers to keep their wallets out of sight. Research showed Speedpass users cut about 30 seconds off the typical three-and-a-half minute fill-'er-up exercise. "In the end, the pure speed isn't the thing the customer wanted," says Giordano, who's credited as the Speedpass system's inventor. "They mainly want to just feel the process was easy and simple. It makes your day just a little less complex." It turned out to be a high-octane marketing innovation. Within months of the 1997 launch, more than a million customers were carrying Speedpass fobs; today, that total is over 5.5 million. Soon after the program launched, research showed a 20 percent revenue increase per gas transaction at the pump from the average Speedpass customer. Today, more than 18 percent of pump transactions at participating stations are paid via Speedpass, and executives estimate the device bumped gas revenue up by 3 to 4 percent. Despite that success, competitors have been slow to imitate the system. Rival Shell has a system called easyPay that's caught on in Canada but was only tested in two U.S. cities. Phillips Petroleum only tested its Philpass at 20 Phillips 66 gas stations in the Kansas City area. But ExxonMobil has gotten such a boost from Speedpass that it's embarked on a second round of innovation: moving the system beyond gas stations. The company recently tried out the device for drugstore goods at select Walgreens and has worked out deals to allow customers to use Speedpass at more than 440 Chicago-area McDonald's and at Stop & Shop supermarkets in Boston. "What we're trying to do is form a network of great retailers," says Goldberg. The new system lets customers make payments through a check card or credit card; Speedpass profits by taking a small cut from the retailer. Not surprisingly, competitors are trying to beat Speedpass to become the leader in the wireless-payments race. Most competing systems involve beaming payment info via cell phone or PDA. But in a recent research report, 'RFID Payment Fobs at Point of Sale: The Early Face of M-Payments in North America," TowerGroup senior analyst Edward Kountz lists the advantages of the Speedpass technology: low cost, ease of use, and convenience. He sees payment systems like Speedpass moving beyond gasoline to become prevalent in drugstores, supermarkets and big-box retailers, fast food, video rentals, and vending machines. And he sees Speedpass at the front of the pack. "The goals they have are no doubt lofty," Kountz says. "The idea that a company that didn't even exist a few years ago can all of a sudden become an alternative payment system similar to Visa or MasterCard, that's a pretty big leap of faith. What I would say is they won't replace Visa or MasterCard per se, but there's a huge opportunity for them to create an alternative." So what can marketers learn from ExxonMobil's success with Speedpass? "Some of the biggest innovations aren't massive steps forward—they're incremental steps with the right idea," says Kountz. "It's the idea rather than the technical innovation that makes the difference." what do you think of this article? print this article e-mail this article Find articles on Jungle... 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