The New Rocket Fuel?

At first glance, fuels retailing does not look a likely candidate for digital transformation.  Fuel retailers are selling a very physical product requiring a physical distribution structure.  Consumer choice is often driven by convenience (location) and price so it is hard to naturally dovetail in additional digitally oriented service features that are sufficiently attractive to change consumer behaviour.

However, at the same time, fuel retailing needs to change due to two key market pressures.   First, there is an increase in the purchase of alternatively fuelled vehicles which will inevitably lead to downward pressures on demand for fuel.  Second, the trading conditions for fuel retailing is increasingly difficult due to a combination of fluctuating oil prices and regulatory demands.  In these circumstances, any company would be foolish not to consider ways to mitigate the risk and diversify their portfolio in some way.

And fuel retailers are perhaps in a good position to diversify given the nature of the infrastructure that they occupy.  For example, Shell has 43,000 service stations, with half a million staff members serving 25m customers across 70 countries every day.  As Istvan Kapitany, executive vice-president of retail at Royal Dutch Shell recently pointed out “This is one of the biggest retail networks in the world, with more stores than Starbucks or McDonald’s.”

So just how can fuel retailers monetise this enviable asset?  Perhaps surprisingly, the answer is likely to be through the combination of behavioural science and digital, the building blocks of the emerging ‘mind economy’.  The smart use of these approaches has potential to fundamentally change the way we think about fuel retailing and the way we engage with fuel brands.  Here are the key ways it can work:

Dynamic pricing:  Fuel prices do of course fluctuate (largely due to the price of crude oil), we see variation in pricing between retailers and as a function of location.  But there is an opportunity for fuel retailers to think about ways in which pricing could be applied in a way to facilitate greater customer loyalty.  If we think that fuel retailers are in the business of ‘journeys’ then they could offer the equivalent of rail travel-cards where consumers get access to ‘journeys’ (or an amount of petrol) in advance for a reduced fee (over the standard pay-as-you-go) ticketing.  This is similar to energy companies that offer a wide variety of often innovative tariffs which include fixed prices for a period of time.  The extent to which fuel retailers could offer this may be limited given pricing fluctuations but there could, at least, be a percentage discount on the price at the pump for those signing up.  And this is where behavioural science comes in – to help design optimal tariffs that are sufficiently attractive at a price level that still makes sense for the retailer.

Implications for research:  It is surely worth exploring consumer attitudes towards pricing not only in fuel but also in other journeys related categories such as airlines and trains.  To what extent do consumers keep these categories separate in their minds?  Is fuel pricing seen as increasingly anachronistic in an era where many categories offer much innovative pricing structures?

Digital payments:  Of course, the only way that dynamic pricing can work is if customers have the digital means of recording their fuel purchase and payments.  This is already possible with, for example, Shell’s ‘Fill up and go’ service.  With these sorts of platforms in place, retailers can use behavioural science to design ways to use this to attract customers.  Starbucks is a good case study here – their app constantly tempts customers with special offers (e.g. free drinks, discounts on ‘favourite items’).  As fuel retailers have an increasingly sophisticated range of goods for sale – including of course many of the same that Starbucks offer, then surely there is great potential here.  Again, this is about encouraging customers to visit more frequently, tempting them to try a wider range of services available at the site.

Implications for tracking studies:  It would be useful for a fuel retailer to be able to track awareness, propensity and use of digital payment methods for fuel.  It would also be useful to track usage of digital payment methods in other categories (e.g. Starbucks) as these are likely to be lead indicators of willingness to take-up.

Personalisation:  This is where digital transformation can make a significant step change for fuel retailers.  As customers use increasingly engage with them via digital then fuel retailers can generate individual customer profiles to deliver personalisation at scale.  At one level this offers some fairly basic advantages such as being able to give personalised greeting in-store or delivering offers that are actually attractive and relevant because they are tailored to individual preferences.  And different ‘packages’ can be designed for customers which blend fuel with other products and services on-site such as refreshments, attendant service, and wi-fi access.  Look no further than airlines such as Ryan Air where the flight itself is only one part of a ‘journey’ package that is put together by the customer according to their preferences.  In this way, the core product is simply one part of the package.  The amount you pay the retailer is then less about the price at the pump and more about the tariff you choose along with the various ‘bolt-ons’ that reflect your personal preferences for the way you want to design your journeys.  All engineered, of course, by the clever use of behavioural science to design the choices and pricing strategies to optimise the relationship between customer and retailer alike.

Implications for tracking studies:  Fuel retailers would find it useful to examine different elements of the customer service/proposition to identify what consumers value most.  By exploring this it is then possible to identify potential opportunities for brands to experiment with personalisation across their footprints.

Nudging: At the further end of the spectrum we are entering an age where savvy retailers can also use psychological profiles so they know when and how to ‘nudge’ consumers.  There is an increasing amount of information available about our inner lives from simple transactional data which reveals much about our personality, attitudes and cognitive styles.  Understanding how these can be used in a way to optimise the relationship between retailers and customers will become a key focus for brands over the next couple of years.  Executing this at scale with the use of AI such as chatbots is likely to offer bold brands real competitive advantage.

Implications for tracking studies:  Fuel retailers can start using tracking data to go beyond mainstream segmentation studies to start developing psychological profiles of customers.  This could be hugely valuable for fuel retailer as they move to getting closer to the customer.  These can be integrated into the tracking study itself to start developing/refining propositions.

Most retailers are starting to understand the opportunity offered by integrating digital platforms and physical locations – there is huge innovation in the digital space which means that physical retailers need to find a reason to continue to hold bricks and mortar and not they should exit quickly.  A cautionary tale for fuel retailing is the rise of petrol delivery services such as Fild.  Here customers log their details via an app and a tank is sent to refuel their vehicle.  So unless fuel retailers understand what is compelling for consumers and execute intelligently, then these sorts of ‘uber’ style digital-only competitors will make life very difficult for retailers with expensive bricks and mortar investments.

By Colin Strong