Cashing Out:
Carwash Customers Spend 36% More Per Visit
When They Pay With Credit Cards Instead Of Cash.
So How Do You Promote Plastic?
McDonalds and other quick serve restaurants have been encouraging
customers to pay with credit and debit cards for three or four years now -- so too have coffee shops, video rental stores, and even parking lots. It's time that carwash operators followed suit, because when customers pay for basic purchases with cards at least two good things happen: dollars per sale go up, and transaction time goes down.
This is true if you're selling cheeseburgers, cappuccino or clean cars. Consider the following:
- McDonald's, which announced that it would accept credit/debit cards at all of its US locations in 2004, has found that its customers are spending almost 56% more when they pay with plastic according to a Wall Street Journal report.
- At Wendy's card users spend 35% more than cash customers.
- The Denver-based Bailey Company, which operates 67 Arby's sites, reports that credit card transactions are 15 seconds faster than cash at the drive-thru window and 10 seconds faster at the counter. On average credit card users spend $11 at Bailey's restaurants compared to $7.50 for cash customers.
Recognizing these advantages, other retailers that sell relatively inexpensive everyday goods and services have started to promote credit and debit card usage among customers. This has powered a surge in what the credit card industry calls microtransactions.
According to research conducted by CardData Diamond, the
total value of card transactions involving purchases of $10 or less increased
by more than 600% in the first four years of this decade to $35.5 billion.
Thanks in no small part to this trend credit and debit cards replaced cash
as the most popular form of retail payment in 2003, accounting for over half
(52%) of all in-store transactions.
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Percentage of Quick Serve Restaurants Accepting Credit Cards
| Year | % |
|---|
| 2000 | 8 |
| 2001 | 15 |
| 2002 | 20 |
| 2003 | 26 |
| 2004 | 42 |
|
The Benefits To Carwashes
In 2005, the number of Americans saying they pay for purchases
primarily with cash declined by 20%, while those saying they mainly use debit
cards nearly doubled. Customers accustomed to paying for everything from their
morning cup of coffee to fast food lunch with plastic are going to expect their
credit and debit cards to be welcomed at the carwash too. The carwash that
refuses to accept cards, or makes the card clearing process slow and inconvenient,
is not only running the risk of losing business, it's also missing out on one
of the most effective steps it can take to increase its dollars per vehicle.
A study conducted at Southland Auto Wash, a well-known full-service operation in Grand Rapids, Michigan, showed that credit card users spend 36.2% more per visit than customers who pay cash ($14.90 vs. $10.94).
Conducted over a 14-month period, the study looked at over 100,000 full-service and exterior only transactions at Southland, where roughly 26% of the customers paid with credit cards. These credit card users were not only 1.7 times more likely than cash customers to purchase a more expensive full service wash, they also tended to spend more on extra service upgrades.
Average transactions are higher when customers pay with credit cards, because they aren't bothered by the "money on hand" considerations that often limit the size of the cash customer's purchase. (For example, a customer on his way to the supermarket may decide to buy a $6 basic wash rather than a $15 deluxe option, because he has only $40 in his pocket and doesn't want to be short when buying groceries.) This is an increasing concern now that most consumers are reporting that they carry less cash on them than they did just a few years ago.
At Subway, the nation's second largest quick serve chain (in terms of number of locations), an internal survey found that credit card users spent 78% more per visit than cash customers. According to a company spokesperson much of this had to do with the fact that card users aren't worried about having enough cash on them. "They're not limited to what is in their pockets," said the spokesperson.
It appears that credit cards encourage higher ticket sales even when
the sales process is completely automated, a lesson that carwash operators with "unattended" self-pay terminals would do well to remember. According to an article in the Washington Post, 70 percent of drivers who pay with credit cards at parking meters buy the maximum amount of time, compared to only 5% of those who use cash.
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Sidebar Call Out Fact
A survey conducted by market research firm Ipsos-Insight found that more than 37 million Americans are willing to use their cards for $5 or less.
Encouraging Credit Card Usage At The Carwash
The carwash operator who really wants to maximize the benefits of
electronic payments should go beyond merely accepting cards, and actively encourage customers to pay with plastic. Consider the case of Southland Auto Wash, where 26,000 customers used credit cards and 74,000 paid with cash during the study period we described earlier. What if the carwash was able to convert just 10% of its cash group (7,400 customers) to credit cards? Since credit card customers spend an average of $3.96 more per visit that would translate into $29,304 of extra revenues, most of which flows to the bottom line!
Encouraging customers to pay with cards will also increase a carwash's
sale of high-ticket prepaid cards, ticket books, annual passes and detail shop services, driving its revenues up even further. The Southland study did not include these transactions. If it had, the difference between credit card and cash customers would have been even more dramatic.
The first and most basic step carwash operators can take to encourage
customers to pay with plastic is use signage to let them know that credit and debit cards are welcomed. According to research figures from Discover Card, more than 70% of retail customers look for signage rather than ask which card an establishment accepts.
When quick serve restaurant chains began accepting cards many put signs at their register counters stating that paying by credit or debit card was "faster than cash." This not only informed customers that cards were an option, it also gave them an added incentive to use cards by touting their time-saving benefits.
Speed Counts
This raises an important point about credit and debit cards: customers and retailers both value their speed and convenience. Recognizing the importance of speed, credit card companies stopped requiring signatures on small purchases in 2003. At the same time, they also relaxed their fees, making cards more attractive to quick serve restaurants, carwashes and similar businesses.
Another development that made cards a more attractive option to time-pressured consumers was the replacement of old dialup card clearing systems with newer and faster Internet-based alternatives. Unlike dialup systems, which often took 20-30 seconds to clear card transactions, the newer systems can approve a card in less than 2-3 seconds.
These changes transformed the quick serve restaurant industry, as McDonalds. Burger King and other chains implemented programs to accept credit cards at all locations. Burger King, for example, was dissatisfied with the 16 seconds it took to accept cash payments at its drive-thru windows. But under it old dial-up card clearing system, credit card transactions required 22-30 seconds, which made card payments less attractive as an alternative. The company then began testing a new clearing system, which brought the time need to complete transactions to 9-11 seconds. In early 2004, when Burger King rolled out the new system chain wide, credit cards accounted for 3% of drive-thru sales. This figure rose to 8% by the end of the year, and 11-13% by the summer of 2005.
Like a quick serve restaurant, a carwash must offer customers speed
and convenience when clearing credit cards. Aside from increasing productivity and throughput, it also makes customers feel more confident about paying with cards by eliminating their concerns about slowing down the line. "In the past we'd have customers apologize (for using cards), because they didn't want to hold up the line and make everybody wait," said Mark Ellis, the Southland Auto Wash owner.
Ellis removed this concern by replacing his dialup system with one
that clears cards in less than two seconds. "Now that we clear cards faster, we've removed this inhibition," he said, "So our percentage of card customers should increase."
Call Out Quote:
According to the widely respected Nilson Report newsletter, credit card users complete their transactions six times faster than cash customers.
Clearing cards faster also removes the resistance that carwash employees
have sometimes had toward credit sales. When cards took ten times longer to clear under the old dialup systems, the line outside the exterior carwash tunnel or at a full service cash register would slow down. This placed added pressure on the carwash employee to pick up the pace to make up for the delay. Not surprisingly this made some employees less than enthusiastic about credit card transactions. By subtly (or not so subtly) conveying this message to customers these employees may well have suppressed credit card usage at the carwash.
The new Internet-based clearing systems on the other hand, make it
easier and faster for employees to process card transactions than cash sales. Ambitious carwash greeters have taken advantage of the added "face time" with customers to talk about extra service options and increase dollars per vehicle even further.
At Drive 'N Shine, a flex-serve chain in Elkhart, Indiana, owner Haji Tehrani says that this extra selling time is even more important than the faster card clearing process. Tehrani cut the time needed to clear credit cards by over 80% after he replaced his old dialup system, but it was the expanded sales window that made a bigger difference in his bottom line. "The most significant benefit has been the impact on up sell opportunities," he said. "Our employees now use this extra time to advise our customers on additional services."
New technologies also provide an opportunity to increase face time with customers while their credit cards are being cleared. Hand-held terminals with card readers allow carwash employees to scan a card without leaving the customer's vehicle. This not only speeds up the transaction process by eliminating a trip to a fixed position terminal, it also keeps the card within the view of the customer at all times. By ensuring that the customer never loses sight of the card, this system eliminates a security concern that has made some people less likely to use their credit cards at a carwash.
In the future, it wouldn't be surprising if carwash operators encouraged credit card usage by offering customers a discount to pay with plastic. The concept is worth considering, since the higher average tickets, increased transaction speed and lower cash handling costs associated with credit cards more than make up for bank fees.
Mark Ellis sees some irony in this proposition when he recalls that in the 1980s carwash operators used to give retail fuel customers a discount if they paid with cash. "Knowing what we know now," he says, "maybe we should have been thinking in terms of giving the customer an incentive to pay with credit cards rather than cash at the carwash."
Regardless of how they do it, carwash operators will almost certainly
have to take steps to make credit and debit card users welcome in the future. According to the Nilson Report, the share of all retail transactions paid for with plastic will rise to 57% by 2013. "I think we'll see more and more people paying with one type of card or another every year," said Ellis. "As far as I'm concerned, this is one of the best things that could happen to a carwash." |
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| Year | Card Transactions
$10 Or Less |
|---|
| 2000 | $5.7 billion |
| 2001 | $9.7 billion |
| 2002 | $14.0 billion |
| 2003 | $23.7 billion |
| 2004 | $35.5 billion |
Source: CardData Diamond on CardWeb.com Feb.22, 2005
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