Why Stop At Gas?

by Jonathan Salem Baskin on 8 July, 2009 - 12:07

Hyundai continues to innovate ways to differentiate and deliver its brand; its latest effort is an offer to guarantee a year's worth of gas locked-in at $1.49/gallon. 

The idea, while a copy of something similar Chrysler tried last year, comes on the heels of its promise to buy cards back from buyers if they lose their jobs. Oh, and it happens to be building high-quality, rather stylin' cars, too.

This is brilliant branding, because it addresses the real needs of potential buyers, and doesn't twiddle with their fantasies or presumed penchant for social media blather. It extends Hyundai's marketing beyond the narrow confines in which most automakers compete (because within which their agencies are most comfortable). Creating a fuel program (or any other operationally-originating effort) could be far more meaningful branding than any amount of UGC about the brand.

It's a communications challenge, too, in that we consumers are a suspicious lot, and there has to be a catch that'll allow Hyundai to make more money than it deserves, right? Sure enough, its guarantee to pay for gas costs above $1.49 includes a mouseprint revelation that it won't refund the difference if gas prices come in below that threshold.

That's the nature of a hedge: one party shifts risk to another, thereby limiting its downside exposure by letting another entity assume the potential for some upside gain. Farmers have been doing it for a long time, as a guarantee of a needed profit on a crop still months away from harvest can be well worth giving up the potential of an even better return. Many commodities, including oil and currencies, are similarly traded via the mechanism of futures contracts. 

Broadly speaking, "hedging" is what Hyundai has been doing for its customers since the economic meltdown began. Taking risk out of the car-buying equation. Brilliant stuff, in my book.

But why stop at gas?

Forget the car business and gas for a minute, and think about all of the other risks in our daily lives. Grocery bills. Docked pay for being late. Airline fares. Electric or heating charges. There are any number of expenditures that are held captive to the vicissitudes of market pricing. That variability represents some opportunity for benefit (playing the reservation game just right can yield better ticket prices), but are far more often the cause of unpleasant, costly surprises.

Imagine if you could hedge your weekly grocery bill? How about locking-in the cost of your most frequent air travel routes? 

Our new economy frowns on profligate spending, and uncertainty means this month's payment could become next month's burden. So why doesn't your local utility let you go beyond estimating your winter heating bill, and commit to an amount that worked for you...while letting a speculator who underwrote it buy the opportunity to profit if prices go down further that you'd thought?

Is this a growth opportunity for Pricelock, the company behind Hyundai's gas hedge? What about the insurance companies? Don't they assess risk for a living?

Original Post: http://dimbulb.typepad.com/my_weblog/2009/07/why-stop-at-gas.html