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Loyalty in European gasoline retailing

Out of gas, part of the paintwork or on a new roll?

Points based loyalty programmes are a regular part of the customer offer amongst European Gasoline retailers. They have been in regular use in many markets since the early 1990's but despite being originally faster to adopt this form of retention marketing than other retailers, a recent report by Datamonitor European Research organisation has raised the issue that many oil company programmes are now falling behind the best practise applications being used by other retailers. Is this a fair criticism of the oil sector loyalty plays and if so, what are the trends to suggest a revision of focus?

Some key metrics for oil company loyalty programmes are now showing signs of waning enthusiasm amongst their memberships and the oil company managers. Consumer awareness and member participation rates have declined and while some of this is no doubt due to the general saturation of loyalty offers in some markets a lurking suspicion is that other marketing plays have had the focus of senior oil company management. Are the oil companies running out of gas in terms of ideas on how to develop their original programmes or are they playing a longer term strategy? Some recent initiatives in Europe by the oil companies engaged in this form of marketing have given no clear direction to their thinking. Colloquy's European correspondent decided it was time to revisit the main schemes on offer and try to understand how high a priority this form of customer retention marketing really has within the gasoline marketers agenda.

Currently the usage of customer loyalty programmes amongst European Gasoline Retailers varies by market with some countries with no national programmes from the main gasoline networks. At the other end of the spectrum it is estimated that markets such as the Netherlands and Norway have over 50% of all fuel sales associated with loyalty point rewards. If the proportion of fuel sales that have loyalty points awarded on them can vary between nil% (Austria) to 66% (Netherlands) with an un-weighted average tracking around 30% we clearly have a patchwork quilt of application. It is difficult to spot any broad pattern, however a maturity schematic can be developed and this resembles a classic 'bell curve' of market immaturity trending through market maturity to market saturation and an eventual focus on cost savings with coalitions and CRM justification. Legislative differences explain some of this diversity, cultural differences may have some role, market dynamics explains a few anomalies but the basic 'template' of fuel loyalty can be tracked by national markets in Europe.

These schemes have generally become 'part of the paintwork' in oil company fuel retailing which has been characterised by intense price competition and gradual 'commoditisation of their core fuel offer. Forecourt shops, experiments with convenience stores, fast food outlets, auto washing facilities and banking services have all been introduced to replace declining car servicing facilities and low profits from reselling gasoline's.

Continual promotion activity has been a feature of European fuel retailing in many markets for the past 20 years with longer term loyalty programmes an evolutionary trend. The oil company schemes fall into three broad categories at a brand specific level:

• Voucher based
• Magnetic card
• Smart/Chip card

Another variant is the use of magnetic and chip card based programmes as part of a coalition that is not primarily fuel-retailer branded but part of a broader consumer offer by many partners.

A full breakdown of all the oil company programmes running in Europe would run to a full scale report but some typical examples are outlined below.

• In Italy, ExxonMobil ran the 'Famosi & Preziosi' voucher collection offer in 2001. Customer received one voucher for every $9 spent on fuel other offers related to lubes purchases. Redemption rewards are based on a limited range of Benetton items and some are offered at a discounted price in exchange for a set number of vouchers. Italian law requires that customers have the option of claiming a discount on a company's goods or services rather than claiming a gift. The limited range of reward offers and the limited timeframe of the programme reduces the average customer choices and feels like a rather old fashioned 'one size fits all' solution.
• In Germany the Aral network (soon to be acquired by BP) have also run a 'Danknote' voucher programme following the relaxation of German law controlling incentive offers in 2001. The customer is given a 'Danknote' worth $0.44 for every $22 spent on fuel. These can then be redeemed for face value at the Aral sites (they operate very successful forecourt shops), for offers at the Aral online shop and with selected redemption partners. Variety and innovation in the redemption offers is a feature of the programme e.g. exchanged for novelty mobile phone ring tones or screensavers. They also introduced some tactical elements into the programme with the Danknote being usable as a form of entry to a daily prize draw. Whilst the use of a voucher is hardly 'hot' marketing, Aral have been innovative in the overall application of the programme showing that even old favourites can introduce new tricks to keep the customer interested.
• The magnetic card platform is the most frequent customer identification amongst all oil company programmes across Europe. They cost effectively open the door to more flexible reward structures and data capture for CRM. An early adopter of this type of programme was Statoil with their Premium Club which has been running in Sweden since 1986. The scheme has evolved into a tiered programme with 'Gold' level membership triggered by a customer purchasing over 300 gallons per annum. The customer incentive covers all products offered under the Statoil brand or with participating retailer partners with clever 'bundling' of products and service offers. Redemption is automatically driven by cardholders being sent a voucher worth $9 for every 10,000 points milestone they achieve. The membership are also offered 'soft' benefits along with the hard cash rewards.
• In the UK, Shell have re-launched their loyalty programme 'Pluspoints' in a magnetic card format having abandoned the previous SMART chip card platform. Points are earned on fuel purchased with a bonus element paid quarterly dependent upon total Shell volume brand loyalty. They also offer a Shell Visa card which can be used for additional bonus points earning opportunities.
• Smart/ chip card based loyalty programmes have often looked like a solution in search of a problem. The cost versus benefit argument is very front of mind to any oil marketer and chip card platforms have generally struggled in Europe to find a good business rationale for deployment. The ExxonMobil 'Golden Tiger' is used in Belgium, Ireland and the Netherlands. Redemption within the Exxonmobil programmes is against a broad catalogue of gifts but it is the bonus points on issuance that is linked to frequency of site visit ( double points for a return within 4 days) that is facilitated by the chip card platform that sets it apart.
• In Portugal Shell have added further functionality to their chip card based loyalty programme by also incorporating an electronic purse option. Launched in 1997, customers receive one point of loyalty currency for fuel purchases and two points for every euro spent on shop products. The electronic purse element is an alliance with PMB and is accepted at over 50,000 locations and vending machines throughout Portugal. Redemption is typically for oil company programmes against gifts and discounts with partner companies listed in the ClubSmart catalogue.

The final variant of loyalty programme activity utilised by the oil companies has been via coalition partnerships to take advantage of the greater depth and width of consumer spending leading to increased velocity of reward collection. Other benefits of coalitions are the generally greater number of member 'touch points', a larger database, shared administration and marketing costs. The trade off has been a has of control and brand exclusivity.

• The BP Premier Points programme was originally developed in 1990 under the Mobil brand in partnership with Argos who are a leading UK catalogue and high street store retailer. In 1996 the programme was moved under the BP brand as a result of Mobil creating a European joint venture and eventual acquisition by Exxon. It is the UK's longest running magnetic card loyalty programme operated by a fuel retailer. The programme initially conceived as a very simple 'points means prizes' long term sales promotion based on a magnetic card platform. For every 500 points collected the members can redeem $1.4 discount when shopping at the Argos stores or on-line catalogue. The scheme is classified as a coalition due to its partner issuers including a utility company, a Hotel group, a Coach service operator and a premium food/ drink hamper retailer. With a membership now in excess of 3 million active cardholders the latest initiative has been to create a new card platform to begin to collate and track purchase behaviour in high value customer segments. A very interesting initiative in 2001 was the addition of a 'Charity and Community Groups' option that has allowed members to 'pool' their rewards for collective benefits.
• The German 'Payback' coalition loyalty programme was developed and is operated by Loyalty Partner, (refer 2001 issue of colloquy on-line article on coalitions for an interview that was given to our European correspondent by the Loyalty Partner Managing Director, Alexander Rittweger ). It is only recently in 2001 that German regulations governing loyalty marketing have been revised and the original 'Payback' scheme was cleverly devised to operate within the old rules by pooling the discounts from retailers and delivering them back to card members in the form of cash. With 20 partners in the coalition all of high quality, a membership of 15 million and still building, a 'state of the art' system infrastructure to support the basic magnetic card platform, a highly functional web site, excellent reward and branding options the 'Payback' programme is the most successful coalition loyalty programme within Europe and 'world-class' in execution. DEA (a large German network of service stations) have been partners in the programme since launch in April 2000. Payback members receive one point for every $1.8 spent on fuel at DEA and can redeem them for a cash discount when they have collected 1500 points.

It is the very high level of utilisation of this form of loyalty marketing in selected markets amongst the oil retailers that begs the question, is this a well developed strategic play to support their brands in what has become a commoditised market or are they merely reactive tactical promotions with no clear endgame? What seemed evident from an initial analysis was that the early promise of the programmes had not been realised and the vast majority of the programmes seemed to be going through the motions with no real enthusiasm for using loyalty as a 'lock in' to profitable customer segments. If returns on the original investment have not been fully exploited to segment customers, drive behaviour patterns amongst customer groups that are profitable to the fuel retailers and the programmes are not being used as a consistent channel of communication then why bother?.

Oil companies have historically in Europe been reluctant to develop a clear business case justification for building a database to gain insight into their customer attitudes and spending patterns. With a limited range of shop products and services to cover compared to say a grocery retailer, they have up to now not been able to build the cost/ benefit justification for an actively managed database to 'fine tune' their product and service offers. The oil sector is now going through a new round of network rationalisation and investment in a very much improved convenience product and service offer to their customers. The Retail Director for BP's Western European network, Graham Sims, has recently stated that the term 'service station' will be a thing of the past. With their Connect branded sites they are adding a groceries range, fresh food, fresh coffee via their 'Wild Bean Café' branding and internet kiosks for travel, weather and on-line shopping access. With this sort of convenience store focus the description of their network as a 'service station' does seem an historical legacy rather than a reflection of the current operations. A similar focus can be seen in the new sites being built by all the major oil companies in Europe. With the importance that non-fuel sales will have to overall site revenues and profitability we may see a revisiting of the established loyalty card schemes by oil companies as they seek to emulate some of the large grocery groups understanding of their customer base via large scale membership analysis of loyalty programmes.

One individual who has the advantage of understanding both the Oil sector perspective and the Grocery sector perspective is Ian Rose RetailMarketing Manager for Kuwait Petroleum (G.B.) Ltd operations based in the UK. Ian started his career with Mobil Oil and then moved across to work for Safeway (the 4th largest Grocery player in the UK market) to establish their service station business before moving back into the Oil sector with Kuwait Petroleum, which operates in the UK under the Q8 Brand.

I spoke to Ian about the trend to understanding customers and his response was an indicator of the change in thinking generally. "If you look at the way loyalty schemes work in the grocery world customers are much less promiscuous because they buy their groceries close to where they live and consequently they are more likely to stick with a certain store or brand so you inevitably see a much better take up of loyalty schemes. In the Oil Company world people are constantly moving about doing different journeys and are more inclined to brand promiscuity."

Ian then went on to describe that the Q8 network of sites is much less of a national network in the UK and their research has indicated a customer base who are very biased towards their local Q8 forecourt. They have recognised this tendency and capitalised upon it by the focus on a programme of convenience store formats which plays to this local customer relationship. They are harnessing this local flavour in the design of their loyalty programme which incorporates a visual, dynamically updatable promotional message panel on the face of the customer loyalty card so that the local offers can be built into the overall national programme. This is an interesting example of leveraging scale over a network but introduce a 'local store' type flexibility.

Ian further reinforced this view "the way we see our programme going is to put that at the centre of our focus and segment our customers in a way that harnesses the 'localness' of the way that the scheme is being operated and used by those customers. We have to work with them (the customers) to tailor the offers and benefits to the individual sites and customer needs." This is a rare comment of customer centricity from the oil sector and it is interesting that Ian has had Grocery sector exposure during his career.

Active support for the overall brand proposition, greater communication and inter-action with the membership of their loyalty programmes plus more encouragement to profitable patterns of behaviour by customers are all likely scenarios if oil companies want to utilise their currently low interaction loyalty marketing activities.

Consumers in all areas of retailing are now more in control of what they demand from suppliers and this is leading all retailers to engage in more active dialogue with their customers, the oil sector is not immune to this trend. Customers are becoming more demanding, more knowledgeable, more fickle, while the growth and awareness of e-commerce is driving up expectations for more competitive pricing and 24/7 service. It is a relentless battle for any supplier to stay ahead and they will increasingly need range and depth in customer management as a key marketing weapon.

To acquire and then keep customers in the 21st century is going to require some new thinking. The mindset that starts from a perspective of asking ' what will it take to keep me as a customer' is the only approach that seems likely to succeed in a market over supplied with everything except time. No excuses service levels and a rapid shift to adapt to fast changing trends will be market threshold requirements. Even 'Big Oil' needs to respond to this new order.