Building a fuel loyalty system is something that almost every gas station network has in mind. Drivers are often creatures of habit and are generally loyal to one chain. However, they are also price-conscious in a volatile world with fluctuating oil prices. Fuel rewards programs may be a strong defense against losing customers to aggressive competitors.
In this interview, Paweł Dziadkowiec shares his expertise on this very timely topic. Paweł is a marketing and loyalty expert with 20+ years of experience who was formerly Loyalty Manager at BP and is now Head Of Loyalty Strategy at Open Loyalty.
Here’s the list of questions we dive deeper together with Paweł:
- Why is a fuel loyalty program the key for gas stations?
- How is the fuel retail market changing?
- What are the main characteristics of customers at gas stations?
- How do petrol loyalty programs segment customers?
- How to design and perform effective CRM campaigns and loyalty promotions?
Why is a fuel loyalty program the key for gas stations?
Paweł Dziadkowiec: The competitive nature of the market has seen a radical shift in the way gas stations look over the last decade or so. What was once a simple transaction in a spartan station selling a few candy bars and cigarettes at the counter, has now become something close to a ‘retail experience’ as gas station chains fight for customer attention and loyalty.
Fuel retail chains are outdoing one another in trying to create a good atmosphere in their stations, mostly with the tempting smell of coffee, tasty food, comfortable seating in cafe areas, safe and free-to-use parking lots, and forecourt stores with a full range of products. Chains are also trying to win customer loyalty by offering better fuel products, such as premium fuels with special additives that can make engines work more efficiently while emitting less pollution.
However, as each station employs the same tactics, it remains difficult to stand out from the crowd—which is why fuel retail chains are turning to other value-added services, such as loyalty programs, to make the measurable difference.
A well-designed loyalty program may be a powerful tool that aids customer retention but also, and crucially, can increase sales.
In my previous position as Loyalty Manager at a major fuel retail chain, we often saw loyalty program transactions accounting for 50% of total fuel sales (and sometimes as much as 70%). This is especially true in developing markets, as the loyalty program participation rate in mature markets is, more realistically, from 25% to 40%. Participation rates are influenced by the attractiveness of the loyalty program, competitive fuel prices, in-store product range, promotional offers, the location of gas stations, marketing activities, brand awareness, and competing offers from other fuel retailers.
More and more gas stations are pivoting into convenience and alternative retail offerings. Petrol brands need tools that will help move customers from petrol to retail and create new, strong shopping patterns among customers. Customers have come to expect services above the core offering of food, small car accessories, magazines and a car wash. As they start to see gas stations as comlex retail outlets, they look for services like electric car charging points, car and trailer rentals or pick up areas for parcels etc.
From my perspective, the biggest value of the fuel reward program sits in the data that is collected. By gathering the right data, companies can profile customers and analyze their behaviors. The main goal of data analysis is to determine everything that can affect sales, margin, profit, and customer loyalty in the future. In the next step, we can send the right offer by the right comms channel and in the right time that will shape customer’s shopping habits.
How is the fuel retail market changing?
PD: Fuel retail is very demanding and competitive, especially in mature markets where fuel margins are low. There are hundreds of well known fuel chain brands all over the world. However, total fuel consumption is still growing in less developed markets, which creates a space also for new players.
Oil consumption in 2018 grew by an above-average 1.4 million barrels per day (or 1.5%). China (680,000 b/d) and the US (500,000 b/d) were the largest contributors to growth. Global oil production rose by 2.2 million b/d. Almost all of the net increase was accounted for by the US, with their growth in production (2.2 million b/d) a record for any country in any year. Elsewhere, production growth in Canada (410,000 b/d) and Saudi Arabia (390,000 b/d) was outweighed by declines in Venezuela (-580,000 b/d) and Iran (-310,000 b/d).
While fuel remains the main profit generator, fuel companies aim to sell a greater volume of other products and services, using the higher margins on these to significantly drive up profits. In some countries, the growing numbers of electric and hydrogen-powered cars are also set to decrease retail fuel consumption, making a profit from other products even more important.
We can also observe the ongoing digitalization of the fuel retailing industry. The most prominent changes in the buying process are connected with implementing eCommerce, mobile loyalty apps & cards, and pay-at-pump capabilities, meaning transactions can be performed even faster.
There is a digital transformation process taking place and the loyalty program is often the first digital system implemented. Seeing it work successfully can convince brands of the value of further technological investment and set the path for future innovation. It really is a gateway to even bigger change.
How is the fuel retail market changing?
PD: Fuel retailers usually generate more profit from B2C customers (private car owners) than from B2B (fleet vehicles). B2C clients purchase less fuel per visit but use gas stations in significantly greater numbers and make more non-fuel purchases than B2B drivers, often even visiting the fule station for the hot dogs and coffee rather than the fuel.
These are significant numbers, with shop turnover increasing by at least 4% each year. I believe that even more B2C customers will visit fuel stations for non-fuel purchases in the coming years. It is a significant change in customer behavior and creates a clear distinction between the B2B and B2C clientele.
Moreover, some B2C customers are also quality-conscious and are willing to pay more for better fuel. Both groups are clear targets for a fuel loyalty program but for slightly different reasons.
B2B customers are usually more price-sensitive than B2C ones and have different expectations for the loyalty program benefits, such as special fuel discounts. Fuel retailers offer other B2B services, especially for fuel card users, which include: fuel consumption statistics, odometer reading, on-line (real-time) refueling information of all vehicles in the fleet, and full control over drivers’ purchases by placing limits on the amount and type of products that drivers can purchase using the company card (fuel card).
In most cases, B2B clients use fuel cards, which are similar to payment cards with some specific functions but can be used at dedicated petrol station networks only. These allow fleet managers to optimize fleet fuel costs by controlling where drivers buy fuel, how often, and whether they fill the tank.
Professional drivers will often want to buy fuel at a place and time that is most convenient to them. Fuel cards allow the fleet manager to dictate the process rather than the driver. Drivers have to visit chains that accept their specific fuel card—often sites with extensive and accessible forecourts and high-speed fuel pumps. When using fuel cards, drivers can also gain loyalty points on their individual loyalty programs cards, so it is a dual benefit for the driver and fleet manager if both are satisfied.
How do petrol loyalty programs segment customers?
PD: Based on the data gathered, the loyalty team can build predictive client behavior tools for segments or micro-segments of both B2B and B2C customers. There should not be more than 12 basic segments during the first years of work with segmentation. It is crucial to find out the best ways of utilizing data, knowledge, and new approaches for each segment. This can be an overwhelming task or can be ineffectively executed if you don’t have enough data or experience with handling data. It’s also important to take into account the workload placed on the loyalty team, as each segmentation requires analysis, action, and effort.
Some companies prefer to conduct a simple RFM segmentation that reflects the basic condition of the audience. The drawback of that methodology is that it doesn’t contain the context, thus making it hard to use that knowledge while working on marketing communication.
I used to start the segmentation by investigating existing shopping patterns. You can do that by interviewing customers and studying transactional history. Every segment then needs to have some defined qualities like age, gender, occupation, income, purchase frequency, purchase value, purchase basket, promotion effectiveness, the best way to communicate promotions, ways of payment, ways of redeeming points, and so on. With all, or most, of this information at hand, we can start to build different profiles.
Here are just a few examples of segments:
- Loyalty lovers - going more deeply into this segment, as an example, we can find out that it makes up less than 10% of total loyal clients. The regular shopping frequency is, on average, once a week. Most transactions are fuel only but this group of customers is easy to convince for non-fuel products when a purchase is rewarded with loyalty points. When you ask representatives of this segment about loyalty, they usually answer that they love loyalty, especially when collecting and redeeming points, and that they are very loyal to their favorite brand. When they buy fuel, they try to find other products that allow them to collect more points.
- Shop lovers - customers from this segment buy more shop products than others and sometimes even only buy non-fuel products. In some cases, they may not be drivers and may just live near a petrol station or be a regular passenger.
- Heavy users - clients from this group are very often at fuel stations and buy a high volume of fuel per each stay.
I suggest building separate B2B segmentation, for those B2B drivers who are loyalty members. Essentially, a petrol station is one destination but with two entirely different customer sets. They have different motivations, constraints, and even payment methods, and so it is not feasible to try and categorize them together. The segmentation should help us design the marketing campaigns and understand the market headroom (to find out how many more customers are there available on the market and how to win them). Remember that, once created, segmentation needs to be actively monitored and updated.
How to design and perform effective CRM campaigns and loyalty promotions?
PD: First, let me explain the basics. There are two main ways of running promotions in a fuel loyalty card program: a general campaign and one-to-one campaign.
In the general campaign, there is a promotion with the same rules for all of the customers. In this type of promotion, the previously created segmentation can be used to analyze the effect of the promo on each separate customer segment. This can provide proof of how the general sale performs with different segments—which types of customer found it attractive and which less so. For one-to-one campaigns, we prepare an offer for a specific segment, or even a micro-segment, that can be only a fraction of our CRM database. This approach requires more effort but the ROI can be astonishing.
Broader loyalty marketing campaigns
An excellent example of the general campaign is a loyalty points multiplier for promoted products, for dedicated customer segments or specific groups.
When a customer buys premium fuel during the promo period, he receives double or even triple the standard amount of loyalty points. The result of this type of promotion is predictable when prices are at the same level as before the promotion.
I’ve seen first hand how these kinds of campaigns increase sales by 4-6%. The higher results were a consequence of existing market circumstances (such as competitors having higher prices or not engaging in attractive marketing activities) and effective ATL/BTL (Above-the-Line Marketing/Below-the-Line Marketing) marketing communication.
General campaigns work with existing customers but are also a great way of acquiring new customers. It’s a common way to get a “quick win” and is used by brands like Shell or BP on many markets with simple, well-known mechanisms. On the other hand, general campaigns are easy for competitors to replicate and are rather expensive to maintain.
The one-to-one campaign loyalty campaigns
Highly targeted campaigns can be performed only after identifying customers. The main cost of one-to-one campaigns is related to the value of given points and/or amount of discount offered. One of the main advantages of this approach is that these offers are not visible to competitors.
A good example of an effective one-to-one campaign is a promotion where customers from a specific segment receive a personalized coupon, usually printed on the purchase receipt, enabling them to take advantage of some sort of discount. For example, they may be encouraged to use the car wash in the next 7 days at a 50% discount or add 600 extra loyalty points for the purchase of 3 car washes.
The time limit works extremely well for most one-to-one campaigns. The discount offers a benefit to the customer but the time limit sharpens the focus and makes it more likely that the customer will actually take advantage of the offer rather than setting it aside for later then forgetting all about iOne-to-one campaigns match perfectly with mobile loyalty applications. Push messages, triggered while traveling near the petrol station or while standing in the line to pay, can be a great way to direct shopping behaviour.
Mobile loyalty application supports one-to-one campaigns.
BP has implemented its own “BP me” mobile loyalty application in some markets. It offers payment at the pump, loyalty points collection, a points balance, easy access to the rewards account, receipt management, a BP station finder, and dedicated promotions.
Another example of one-to-one promotion is a contextual cross-promotion that offers a combo of a coffee and a sandwich at a better price. It’s particularly effective when the driver is tired, hungry, and needs a few minutes to rest. Knowing customers and the shopping context is the key for effective one-to-one promotions.
Based on my experience the tailored offer works much better than general suggestions and brings up to a 17% increase in basket value for some customer microsegments. However, keep in mind that, for more price-sensitive segments, the increase in basket value may be less spectacular.
What offers and rewards are valued the most in the fuel loyalty program?
PD: In order to make it worth people’s while collecting loyalty points, there needs to be a genuine value to the customer. Fuel retailers offer attractive points redemption offers, with lower-value rewards available on-site and online ordering and home delivery of more expensive gifts. Apart from physical rewards, there are codes for e-offers or "pay with points" options, as well as lottery tickets in exchange for points and other such deals.
Here’re a few examples of the most desired rewards in the fuel programs:
- Paying with points
- Thermal cup
- Cinema tickets
- Screwdriver with bits (set)
- Travel suitcase
- Loyalty points donations for charity
Multi-partner loyalty programs like PAYBACK or Nectar offer loyalty points payment or redemptions at the majority of their partner locations, which is even more attractive for the majority of customers as they can exercise more choice in where and how they redeem their loyalty points.
Charity activities are also very attractive to customers. Getting a dollar back for every 100 points earned doesn’t feel like much of a reward to some people. But knowing that the same dollar will be paid e.g. to a children’s hospital and that each small contribution can add up to a meaningful sum for the charity, is a powerful feeling. It lets people feel that they are part of something bigger and that they have contributed to charity just by going about their daily business.
What are the most important steps while implementing a petrol loyalty program?
PD: First of all, it’s important to engage the right people from the organization. My success with the BP was always connected with the great team that was behind every loyalty program. You will need to engage a number of teams from throughout the organization. Management has to sign off on the program, procurement negotiates the best deals and rewards, sales people calibrate the offers, the marketing team communicates the scheme to customers, the IT team builds and integrates the system and finally the operations team uses this loyalty program on a daily basis in the sales process. It’s always a good idea to have one project owner that glues everyone together. This is usually a loyalty manager. On the other hand, you will need reliable vendors who will work hand in hand with you to deliver suitable loyalty technology.
Here’s how I see the process in general:
- The market analysis which looks into competitors, existing loyalty programs, customer expectations, the potential of the loyalty program
- Confirmation of goals and expectations in the organization, including an internal confirmation of the commitment of all key stakeholders of the loyalty program in the company
- Creation of the strategy that will include the vision, concept, mechanics, and target the loyalty program, as well as a business case that covers a P&L calculation for the upcoming years
- Design of the detailed loyalty scheme and its validation with potential customers
- Selection of the vendors, including loyalty technology, system integrator, any other IT services, and the marketing or logistics vendor (rewards selection) needed to deliver and maintain the solution
- Verification of legal and tax assumptions for the loyalty program (this is vitally important)
- Development of the loyalty program, including UX design, programming, integrations, and the design of all marketing materials
- Operational implementation and staff training
- Test of the loyalty program in a closed environment and polishing the system before launch
- The official kick-off of the loyalty program, including the initial promotion of the program
The implementation may take from 2 to 5 months. It’s good to start with small steps by implementing a simpler loyalty scheme and basic integrations.
The key to the success is ongoing optimization based on the feedback collected from the customers. In my loyalty programs, we used to perform regular feedback research with customers, as the long-term value is always in delivering the most value to them.
We also engage in constant analysis of the competition and respond with reactive promotions because we need to at least match the value customers are getting elsewhere.
Could you give us a few examples of fuel loyalty programs that are doing it right?
PD: The loyalty programs in the fuel industry that are the most interesting, in my opinion, come from some of the biggest players on the market.
BP (BP premierplus, BPme Rewards, BP/ARAL Payback)
BP was one of the first European petrol chains that implemented a full-scale loyalty program. Over time, the original program moved in multiple directions and gave birth to a number of spinoffs. As the examples are BP Austria, BP Poland, and Aral Germany (BP group), they are the main partners of the multi-partner loyalty scheme "Payback" managed by Payback and on the other edge is BPme Rewards managed by BP UK, where the members can earn points every time they fill up.
In the case of BPme Rewards, customers earn points on BP transactions both in-store and at the fuel pump. The loyalty scheme is simple; customers get 1 point for each £1 spent in-store, 1 point for every liter of regular fuel, and 2 points for every liter of Ultimate fuel. The points can be spent on fuel purchases or to redeem rewards from the BPme Rewards Catalogue. Loyalty points can also be exchanged for Amazon or Marks & Spencer vouchers. The BP offers members of a loyalty program numerous promotions and lotteries, such as daily prizes of up to 10,000 reward points.
PD: What I love about this program is the simplicity. Offering one point per pound spent lets customers know exactly what they are getting and track the value of being part of the program. It is a great example for Loyalty Program Managers to follow as a golden rule. Don’t over-complicate either side of the customer’s interaction with the Loyalty Program. Gaining and redeeming points should be single and shouldn’t involve any advanced mathematics.
ExxonMobil Corporation (Exxon Mobil Rewards and Esso Nectar)
ExxonMobil Corporation is an American multinational which includes the Mobil, Exxon, and Esso petrol station chains. Exxon Mobil Rewards+ is a loyalty program for earning points at Exxon and Mobil stations. The program allows members to earn points for purchasing fuel and in-store goods, and for using the car wash.
In the UK, the Esso Nectar program enables customers to collect Nectar points on fuel purchases at participating branded service stations and offers new ways to earn points and save money.
PD: Nectar points are an extremely powerful purchase motivator. Users gain points across huge chains like Esso and Sainsbury’s and can spend them in stores like eBay and Argos, on Vue cinema tickets, on subscriptions to Sky television, and even on local and international train fares. Coalition rewards points don’t lock customers into spending their rewards inside the brand. It works both ways; people are often more motivated to use Esso stations if they know their loyalty will be rewarded with a trip to see a movie. And customers remember the experience associated with the rewards scheme more than they would a discount on fuel or a free coffee. Nectar is a massive scheme involving huge companies. However, even you are a smaller business, you can create a coalition with partner companies of similar size and bring great value. User Nectar as a blueprint.
Shell (Shell Go+ and CLUBSMART)
Shell is an Anglo-Dutch multinational oil and gas company headquartered in the Netherlands. Today, Shell is one of the five oil and gas “supermajors” with a reach of more than 70 countries. The brand runs different loyalty programs in various countries.
Again in the UK, Shell Go+ is a very simple mechanism: a visit is counted each time a customer spends £10 or more on fuel or £2 or more in the shop. They then get 10% off all hot drinks and both the ‘deli2go’ and ‘Jamie Oliver Deli by Shell’ food ranges. Participants also get money off fuel every tenth visit and receive plenty of treats and surprises along the way. Additionally, there is 10% off Shell Helix Motor Oil and Shell Super Shine car wash or Quick wash. The mobile application, with pay-at-pump capability, plays a key role in the loyalty program.
PD: The last part of this is the key takeaway here. No matter what area of the world you look at, everything is being digitized and is going mobile. It’s just the same for Loyalty Programs. We’ll soon move away from plastic cards and all information will be through an app that is more interactive. The customer essentially manages their own loyalty experience and should be able to collect points, make payments, and redeem points straight through their mobile device at any time.
Repsol (Repsol Más Card and Repsol Más Visa Card)
Spanish fuel brand Repsol is a leading global energy conglomerate. Más (which means ‘more’) is a loyalty program that focuses on three areas of value – My Car, My Shopping and My Leisure. There’re 2 variants of the loyalty card.
Repsol Más Card is the basic loyalty card and it awards customers with Travel Club Points (in partnership with Air Miles Spain) and a catalog of promotions. On the other hand, customers can apply for the Repsol Más Visa Card. It’s a payment card (pre-paid or debit card) that offers a 5% discount on purchases in-store, with card fees waived for exceeding an annual purchase level. It has also been developed to track purchases on the loyalty program and customers avoid the need to scan or swipe a second card at the cash desk, saving time on each transaction.
PD: There are two interesting things about the Repsol method. Firstly, having tiered rewards is an effective approach in any sector. Customers love the feeling, and the increased benefits, that come from being part of the higher tier group. Secondly, the credit card is a similarly powerful driver to a mobile app. In the past, the cashier asked “Do you have a loyalty card?” at the cash desk, meaning the loyalty program was only engaged if the customer had the card about their person. When using an app or credit card, every purchase is automatically a part of the loyalty program and the data collected is the key to further improving offers in the future.
Chevron has taken a different tack to other fuel retailers by offering a short-term loyalty scheme. The program began at midnight on 1 Sept 2018 and ended at midnight on New Year’s Eve. Members could then redeem points on a sports-themed rewards program including football game tickets, autographed memorabilia, officially licensed team gear, and unique once-in-a-lifetime experiences with their favorite teams.
PD: Chevron has since engaged in other loyalty program but this one is worthy of note. The short-term element means the marketing and execution of the program need to be flawless. However, the real takeaway here is that Chevron found a way to make an emotional connection with clients, which is the most essential element of a loyal relationship to a brand. Chevron understood that people are not emotionally attached to petrol or screenwash… but many people are incredibly emotional about sports. It used the loyalty program to tap into that and create a positive affinity with the brand.
Circle K (Circle K Play or Park)
Circle K runs the “Play or Park” Loyalty Game in Ireland. Program members collect points and exchange every 200 points for an entry into a monthly grand draw for an Experience of a Lifetime. Or they can save points for more entries at a later time. Every month that a customer enters the draw, they are guaranteed a consolation prize such as a coffee to a pastry. However, that pales in comparison to the grand prize which has previously included an all-expenses-paid trip to Barbados and New York worth over €10,000.
Customers receive 1 point for every liter of fuel purchased at participating outlets and 4 points for every euro spent in a Circle K Restore and Circle K Express.
PD: “Play or Park” is a great example of an engaging Loyalty Program. It includes elements of gamification and has a fantastic, tangible prize for winners. It’s an interesting example of how you understand your customers and what motivates the majority to join the program. Are your customers segments the kind of people who are motivated by small, reliable rewards? Or is a small chance at a huge prize more compelling? And if you have both types of customers, can you run simultaneous schemes to attract and engage both types?
Any words of summary?
PD: The market is crowded and fuel loyalty programs are a crucial differentiator. Considering that most fuel stations offer similar products and services, the loyalty program is also an important tool to battle competitors.
All significant players use a loyalty program to improve customer experience, increase purchase basket size and margins, sometimes also to acquire the new customers and of course gather data that can later be used to better understand customer needs and behaviors and adapt future offers accordingly.
Choosing the right loyalty scheme and aligning the organization to implement a consistent marketing strategy are the biggest challenges.
All the examples of rewards programs in this article are simply attractive ways of offering additional benefits for regular purchases in a given network of petrol stations. For those running the programs, they are great tools for motivating customers to make further and even bigger purchases, as well as to choose the same chain as often as possible. Programs may offer slightly different rewards and have different mechanisms, but the end goal is always the same: utilizing a familiar and effective marketing tool to deliver business targets.
Thanks to Paweł for sharing so much of his vast experience and wide-ranging knowledge. The article covers so much ground that it is worth distilling some of the key information for those of you who want to take it and utilize the key elements in your own Loyalty Programs.
- Customers now see gas stations as complex retail outlets.
- They are loyal to brands but awareness of fuel prices is much more acute than in most other sectors as fuel prices are a global indicator. Customers are therefore price-conscious and will change brands.
- Loyalty scheme transactions can be from 50% to 70% of all sales.
- Loyalty programs are most effective and most popular in emerging markets.
- Oil consumption and production are still rising significantly across the world.
- Customer data is the most powerful tool a company has for building a rewards system.
- B2B and B2C customers should be treated almost entirely separately.
- Further segmentation of customers is necessary, with up to a dozen personas
- Gadgets and charity donations can be even more attractive to customers than discounts Running a good loyalty program requires the engagement of several teams from around the organization
- A loyalty program is launched but then calibrated based on feedback and analysis
- You need to constantly watch competitors to match their schemes and have competing or better offers