consumer_loyalty_&_petrol_retail_in_india.pdf

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2003 DIREM Marketing Services Pvt Ltd 1

Consumer Loyalty & Petrol Retail in India

For the petroleum retail sector in India, recent years have seenfundamental changes in the way business is being done. The sectorhas moved away from being government-controlled, a move that hasbrought new levels of competitive threat and customer focus. With

the going having gotten tough, the smarter players have caught onearly that the best way to do business is to lock customers intoa habit they cant break. Loyalty programs are in with each ofthe big players wooing wallet shares with loyalty card programs.

This paper outlines the growth of loyalty programs in thepetroleum retail sector in India, focusing on the evolution ofthe pioneering PetroBonus program, the first and largest inIndia, which virtually created the market for loyalty programs inthe sector.

The Indian Petroleum Sector

Three companies Indian Oil Corp. Ltd. (IOCL), Bharat Petroleum

Corp. Ltd. (BPCL), and Hindustan Petroleum Corp. Ltd. (HPCL)dominate the petroleum retail sector in India with about 93%market share between them. These players cater to a market ofabout 40 million vehicles (approx. 77% two wheelers, 13% cars in2002) on Indian roads with a retail network of over 15,000outlets across the country.

With the deregulation of thesector in 1999, and the ongoingprocess of divestment of thegovernment stake in thebusiness, the sector has seenitself exposed to new marketforces. The competitive threat

is bigger. With private playersentering the fray, the pricingis increasingly market drivenand consumers are demandingmore.

Significantly, the existingplayers have recognized the needfor them to quickly evolve to be marketing driven, service drivenand, ultimately, relationship driven and have condensed decadesof evolution into a three- to four-year time frame. It has been aleap from the Neolithic to Neo and many of the intervening stageshave been neatly bypassed.

Until 1999, the Indian oil andgas sector was state controlledunder an Administered PricingMechanism (APM) that controlledthe production pattern, capitalexpenditure, and pricing ofpetroleum products. All thecompanies were state owned andprivate investment in the

sector was not allowed.Reacting to the growing needfor boosting domesticproduction levels, the Indiangovernment has been steadilyderegulating the sector, as


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The Changing Retail Experience- Prelude to Loyalty

The changing retail experience andthe rise of loyalty programs haveseen parallel development in theIndian context.

The retail experience, untilrecently, was bare bones, with thegas station being nothing more thana place to tank up, and cash thepreferred payment mode. In recenttimes, however, the outlets haveseen a complete facelift, with newmulti-fuel dispensers, bettertrained attendants, and serviceelements. The product offering haswidened to include blended fuels, branded fuels, high-octanefuels, lubes, groceries and more. The outlet itself is expandingto include grocery stores, cafes, bank ATMs, internet kiosks,

etc., giving the customer more reasons to spend time and money ata location that offers more than just fuel. Credit cards, debitcards and loyalty cards are also widely accepted.

The outcome of these changes is that the urban consumer isgetting used to a radically different experience at the petrolpump that is translating into higher service expectation.Consumers are being given reasons to build preference among thethree companies (IOCL, BPCL and HPCL) and their brands. Asconsumers have begun to express their preferences, the companieshave entered an inevitable battle for business throughrelationship-building initiatives,including loyalty programs.

A Good StartThe pioneer was BPCL with itssmartcard-based PetroBonus program,launched in September 1999. Whendeveloping the program, BPCL had nosignificant local examples to go by,except the frequent flyer programsbeing run by the airlines. Given thehigh investments to be made in programdesign, systems, branding, marketing,POS upgrades, etc., the risks wereconsiderable, but BPCL did notintroduce the loyalty program uni-

dimensionally.BPCL partnered with DIREM, a loyaltymarketing consultant, to focus onloyalty program development andmanagement, and simultaneously upgraded retail forecourts,introduced grocery stores (In&Out stores) and other outletfacilities in a phased manner, together with a fuel purityguarantee (Pure For Sure) and investments in technology.

Walk into a petrol pump todayand one could, in addition tobuying fuel, buy groceries,coffee and snacks, ice cream,

medicines, send a courier,access the Internet, drawcash at an ATM, make a billpayment, buy a cell phone SIMcard and more.

On the highways, the pumpsare the home-away-from-homewith a Dhaba (a restaurant),lodging arrangements fortruckers, a saloon, and even

The PetroBonus programrequired members topreload cash ontotheir smartcard, thusallowing cashlesstransactions.Transactions alsoearned points thatcould be redeemed for

rewards from acatalogue. The programhad no tiers.


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PetroBonus was launched in September 1999 in Chennai and quicklygrew to become the largest card-based consumer loyalty program inthe country (outside the credit card industry), with a memberbase of about 1.2 million card-holders across 43 cities in August2003.

A Blueprint For Success: The PetroBonus StoryThe very fact that the fundamental proposition and working ofPetroBonus has required so little change is a testament to themeticulous planning that went into it in the initial stages ofprogram development. BPCL didnt just get a head start inlaunching the program early, but also built up every aspect ofloyalty program management that continues to give it immensereturns.

Capture and use of data is the fundamental driver of loyaltysuccess, a principle that BPCL caught on to early. Data captureof the profile and transactions of each member converted ananonymous customer base to an increasingly known member base, ashift that opened up many doors over time.

A year into the program, BPCL initiated a monthly analyticspublication for monitoring program health and identifyingspecific campaign opportunities that could be mined from themember database. This publication prepared by the analyticsdivision of DIREM (the PetroBonus program manager) led tonumerous data driven campaigns. For instance, BPCL startedsegmenting members by activity level and created targetedcommunication and offers to activate members, driving up revenueswithin the existing member base. Data analytics also identifiedopportunities to change fueling patterns, leading to campaignsthat increased fueling on Sundays and during non-peak hours ofthe day. A profiling exercise and a customer satisfaction surveyled to invaluable insights on the members and the wrinkles in theservice that could be ironed out.

In addition to the analytics drivencampaigns was the luxury of the volume ofmember database. BPCL could launch a newproduct, a new fuel blend, a new facility atits outlets, a new partnership, and reachout to its best customers in a targeted,intelligent fashion. This was relationshipmarketing paying off in the best waypossible, as the economics of going directstarted to become attractive in addition tothe immense marketing benefits. Forinstance, when BPCL launched its high-performance fuel Speed in mid 2002, it

could immediately make an offer to specificsegments of PetroBonus members who fit theSpeed target audience profile, offering thembonus PetroMiles for fueling up with Speed.The luxury of having a database of members,an open channel to communicate with them and

an accepted and widely used program currency mechanism to rewardthem proved an enormous advantage to BPCL in marketing manyproducts and services.


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On the branding front, the strength was in three well-definedbrands that were built: the program brand PetroBonus, thecard brand PetroCard and the program currency PetroMiles.This gave BPCL the flexibility to extend the program, the cardand the currency to strategic and tactical partnerships orpromotional activities as required. For instance, the PetroMilescurrency also extends to BPCLs fleet card program, SmartFleet.

PetroBonus also offered a co-branded card for Amway members.

BPCL also focused on using new interactive media to improve thePetroBonus experience while improving efficiencies. BPCL createda dedicated website for PetroBonus and used the web and e-mailfor surveys, online campaigns, points statements, rewardscatalogues, etc., in a two-pronged strategy of e-mail databasebuilding and widening of the online and e-mail offering. With themobile boom, SMS-based services are on the rise.

The situation today is that PetroBonus has reached a criticalmass that gives it immense power, with the road ahead seeingtechnology and analytics playing an ever-greater role inincreasing operational efficiencies and deepening therelationship with the customers through interactivity andflexibility. There are problems to be sorted out for sure and thecompetition nipping BPCLs feet could well have an advantage inbeing leaner. This competition, as it turns out, is not just fromsimilar loyalty programs by other petroleum companies, butequally from the emergence of co-branded programs with banks,which are shaping this quickly-maturing market.

The Second Wave

For the other two players, IOCL andHPCL, customer loyalty programs didnot happen until mid 2002. Both ofthese companies focused their

initial marketing efforts onbuilding their retail outlet brandand services before launching arange of card based programs. Also,both companies took the co-brandedroute, tying up with banks thatwere also looking to launch theirpetrol loyalty programs.

The entry of the banks into this space brought about the nextwave of loyalty programs, with afresh set of offers for thecustomers. The credit and debit cardbased programs offered the customersall the facilities of a regularcredit/ debit card in addition to ahost of specific services includingtransaction fee waivers, surchargewaivers, insurance coverage,discounts, increased point earningsopportunities, fuel for points, etc.These programs leveraged the wideacceptance of the credit/debit cardas a payment device and anestablished reader network. The

The Fleet Card phenomenon:

A classic case demonstratingthe power of data analyticsto drive strategic

initiatives is the launch ofIndias first fleet cardprogram, Smartfleet.

Analysis of PetroBonus datashowed a segment of memberswith abnormally high usage.It turned out that thissegment was that of fleetowners who were givingPetroBonus cards to theirtruck drivers for fuellingup.

After understanding theirdistinct needs of fleet

owners, BPCL designed andlaunched the SmartFleetro ram in earl 2001 a


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smartcard format found relatively few takers, with most newlaunches preferring to ride on the existing card reader networkof the magnetic strip-based credit/debit cards.

Two other developments in basic program formats were theintroduction of Fleet card and Network loyalty programs. On theFleet card front, BPCL was again the pioneer, launching

SmartFleet in February 2001, followed by IOCLs PowerPlus inJanuary 2002. These programs gave fleet owners the option ofgiving drivers pre-loaded cards which allowed better MIS,transaction tracking, and points earnings. Network loyalty alsocame into the picture when IOC launched a co-branded card withMyShoppe, a network loyalty program with a number of retail chainaffiliates.

The second wave gave the arena vitality as companies launchedprograms with fundamentally different formats, giving theconsumer an array of options to choose from. At a time whereevolutionary patterns seen in western markets are gettingreplicated in India but with a shortened timeframe, this is agood indicator that one will see companies quickly launchingevery possible structural variant and then heading towards aperiod of maturity that gives them a chance to improveefficiencies and then reinvent themselves.

Careful With That Axe

While all three major players in the petroleum retail sector haveat least three card-based loyalty programs up their sleeves, theindicators are that its a bit of a winding road to maturity.Were still in the launch every option phase, and one canexpect a variety of new offerings that will strive to widen thenet to capture new prospects and focus on becoming the secondcard in the pocket that slowly edges out the old card throughaggressive and innovative marketing.

The drivers that determine program success are also changing. Formost of the players today, coverage is the key driver. The morecities and outlets they launch their program in, the larger theirmember base naturally grows. After coverage begins to hit aplateau, data and analytics will take center stage as companiesplunge into the deep end of data mining for elusive insight todrive their campaigns. Technology upgrades will feed theefficiency and interactivity demand. New partnerships will movetowards more niche segments that target lifestyle or specialinterest groups. Finally, creativity and innovation will bringthe sizzle that gives the market vitality.

In the large and complex market that India is, direct and loyaltymarketing can thrive in the many opportunities present. The fast-

growing urban population is getting increasingly Westernized, butthe diversity within the people remains an opportunity for micro-segmentation and targeted campaigns to follow. Petrol retail hastasted blood with loyalty programs, and the many miles to go aresure to be marked by initiatives that make marketing history.

DIREM Marketing Services Pvt Ltd, IndiaSeptember 2003

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