Consumer Loyalty & Petrol Retail in India
For the petroleum retail sector in India, recent years have seen
fundamental changes in the way business is being done. The sector
has moved away from being government-controlled, a move that has
brought new levels of competitive threat and customer focus. With
the going having gotten tough, the smarter players have caught on
early that the best way to do business is to lock customers into
a habit they can’t break. Loyalty programs are ‘in’ with each of
the big players wooing wallet shares with loyalty card programs.
This paper outlines the growth of loyalty programs in the
petroleum retail sector in India, focusing on the evolution of
the pioneering ‘PetroBonus’ program, the first and largest in
India, which virtually created the market for loyalty programs in
the sector.
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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 of
about 40 million vehicles (approx. 77% two wheelers, 13% cars in
2002) on Indian roads with a retail network of over 15,000
outlets across the country.
With the deregulation of the
sector in 1999, and the ongoing
process of divestment of the
government stake in the
business, the sector has seen
itself exposed to new market
forces. The competitive threat
is bigger. With private players
entering the fray, the pricing
is increasingly market driven
and consumers are demanding
more.
Significantly, the existing
players have recognized the need
for them to quickly evolve to be marketing driven, service driven
and, ultimately, relationship driven and have condensed decades
of evolution into a three- to four-year time frame. It has been a
leap from the Neolithic to Neo and many of the intervening stages
have been neatly bypassed.
Until 1999, the Indian oil and
gas sector was state controlled
under an Administered Pricing
Mechanism (APM) that controlled
the production pattern, capital
expenditure, and pricing of
petroleum products. All the
companies were state owned and
private investment in the
sector was not allowed.
Reacting to the growing need
for boosting domestic
production levels, the Indian
government has been steadily
deregulating the sector, as
ll di ti it t k i
The Changing Retail Experience- Prelude to Loyalty
The changing retail experience and
the rise of loyalty programs have
seen parallel development in the
Indian context.
The retail experience, until
recently, was bare bones, with the
gas station being nothing more than
a place to tank up, and cash the
preferred payment mode. In recent
times, however, the outlets have
seen a complete facelift, with new
multi-fuel dispensers, better
trained attendants, and service
elements. The product offering has
widened to include blended fuels, branded fuels, high-octane
fuels, lubes, groceries and more. The outlet itself is expanding
to include grocery stores, cafes, bank ATMs, internet kiosks,
etc., giving the customer more reasons to spend time and money at
a location that offers more than just fuel. Credit cards, debit
cards and loyalty cards are also widely accepted.
The outcome of these changes is that the urban consumer is
getting used to a radically different experience at the petrol
pump that is translating into higher service expectation.
Consumers are being given reasons to build preference among the
three companies (IOCL, BPCL and HPCL) and their brands. As
consumers have begun to express their preferences, the companies
have entered an inevitable battle for business through
relationship-building initiatives,
including loyalty programs.
A Good Start
The pioneer was BPCL with its
‘smartcard’-based PetroBonus program,
launched in September 1999. When
developing the program, BPCL had no
significant local examples to go by,
except the frequent flyer programs
being run by the airlines. Given the
high investments to be made in program
design, systems, branding, marketing,
POS upgrades, etc., the risks were
considerable, but BPCL did not
introduce the loyalty program uni-
dimensionally.
BPCL partnered with DIREM, a loyalty
marketing consultant, to focus on
loyalty program development and
management, and simultaneously upgraded retail forecourts,
introduced grocery stores (In&Out stores) and other outlet
facilities in a phased manner, together with a fuel purity
guarantee (Pure For Sure) and investments in technology.
Walk into a petrol pump today
and one could, in addition to
buying fuel, buy groceries,
coffee and snacks, ice cream,
medicines, send a courier,
access the Internet, draw
cash at an ATM, make a bill
payment, buy a cell phone SIM
card and more.
On the highways, the pumps
are the ‘home-away-from-home’
with a Dhaba (a restaurant),
lodging arrangements for
truckers, a saloon, and even
The PetroBonus program
required members to
preload cash onto
their smartcard, thus
allowing cashless
transactions.
Transactions also
earned points that
could be redeemed for
rewards from a
catalogue. The program
had no tiers.
PetroBonus was launched in September 1999 in Chennai and quickly
grew to become the largest card-based consumer loyalty program in
the country (outside the credit card industry), with a member
base of about 1.2 million card-holders across 43 cities in August
2003.
A Blueprint For Success: The PetroBonus Story
The very fact that the fundamental proposition and working of
PetroBonus has required so little change is a testament to the
meticulous planning that went into it in the initial stages of
program development. BPCL didn’t just get a head start in
launching the program early, but also built up every aspect of
loyalty program management that continues to give it immense
returns.
Capture and use of data is the fundamental driver of loyalty
success, a principle that BPCL caught on to early. Data capture
of the profile and transactions of each member converted an
anonymous customer base to an increasingly ‘known’ member base, a
shift that opened up many doors over time.
A year into the program, BPCL initiated a monthly analytics
publication for monitoring program health and identifying
specific campaign opportunities that could be mined from the
member database. This publication prepared by the analytics
division of DIREM (the PetroBonus program manager) led to
numerous data driven campaigns. For instance, BPCL started
segmenting members by activity level and created targeted
communication and offers to activate members, driving up revenues
within the existing member base. Data analytics also identified
opportunities to change fueling patterns, leading to campaigns
that increased fueling on Sundays and during non-peak hours of
the day. A profiling exercise and a customer satisfaction survey
led to invaluable insights on the members and the wrinkles in the
service that could be ironed out.
In addition to the analytics driven
campaigns was the luxury of the volume of
member database. BPCL could launch a new
product, a new fuel blend, a new facility at
its outlets, a new partnership, and reach
out to its best customers in a targeted,
intelligent fashion. This was relationship
marketing paying off in the best way
possible, as the economics of going direct
started to become attractive in addition to
the immense marketing benefits. For
instance, when BPCL launched its high-
performance fuel ‘Speed’ in mid 2002, it
could immediately make an offer to specific
segments of PetroBonus members who fit the
Speed target audience profile, offering them
bonus 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 reward
them proved an enormous advantage to BPCL in marketing many
products and services.
On the branding front, the strength was in three well-defined
brands that were built: the program brand “ PetroBonus,” the
card brand “ PetroCard” and the program currency “ PetroMiles.”
This gave BPCL the flexibility to extend the program, the card
and the currency to strategic and tactical partnerships or
promotional activities as required. For instance, the PetroMiles
currency 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 the
PetroBonus experience while improving efficiencies. BPCL created
a dedicated website for PetroBonus and used the web and e-mail
for surveys, online campaigns, points statements, rewards
catalogues, etc., in a two-pronged strategy of e-mail database
building and widening of the online and e-mail offering. With the
mobile boom, SMS-based services are on the rise.
The situation today is that PetroBonus has reached a critical
mass that gives it immense power, with the road ahead seeing
technology and analytics playing an ever-greater role in
increasing operational efficiencies and deepening the
relationship with the customers through interactivity and
flexibility. There are problems to be sorted out for sure and the
competition nipping BPCLs feet could well have an advantage in
being leaner. This competition, as it turns out, is not just from
similar loyalty programs by other petroleum companies, but
equally 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 and
HPCL, customer loyalty programs did
not happen until mid 2002. Both of
these companies focused their
initial marketing efforts on
building their retail outlet brand
and services before launching a
range of card based programs. Also,
both companies took the co-branded
route, tying up with banks that
were also looking to launch their
petrol loyalty programs.
The entry of the banks into this space brought about the next
wave of loyalty programs, with a
fresh set of offers for the
customers. The credit and debit card
based programs offered the customers
all the facilities of a regular
credit/ debit card in addition to a
host of specific services including
transaction fee waivers, surcharge
waivers, insurance coverage,
discounts, increased point earnings
opportunities, fuel for points, etc.
These programs leveraged the wide
acceptance of the credit/debit card
as a payment device and an
established reader network. The
The Fleet Card phenomenon:
A classic case demonstrating
the power of data analytics
to drive strategic
initiatives is the launch of
India’s first fleet card
program, Smartfleet.
Analysis of PetroBonus data
showed a segment of members
with abnormally high usage.
It turned out that this
segment was that of fleet
owners who were giving
PetroBonus cards to their
truck drivers for fuelling
up.
After understanding their
distinct needs of fleet
owners, BPCL designed and
launched the SmartFleet
program in early 2001, a
smartcard format found relatively few takers, with most new
launches preferring to ride on the existing card reader network
of the magnetic strip-based credit/debit cards.
Two other developments in basic program formats were the
introduction of Fleet card and Network loyalty programs. On the
Fleet card front, BPCL was again the pioneer, launching
SmartFleet in February 2001, followed by IOCLs PowerPlus in
January 2002. These programs gave fleet owners the option of
giving drivers pre-loaded cards which allowed better MIS,
transaction tracking, and points earnings. Network loyalty also
came into the picture when IOC launched a co-branded card with
MyShoppe, a network loyalty program with a number of retail chain
affiliates.
The second wave gave the arena vitality as companies launched
programs with fundamentally different formats, giving the
consumer an array of options to choose from. At a time where
evolutionary patterns seen in western markets are getting
replicated in India but with a shortened timeframe, this is a
good indicator that one will see companies quickly launching
every possible structural variant and then heading towards a
period of maturity that gives them a chance to improve
efficiencies and then reinvent themselves.
Careful With That Axe
While all three major players in the petroleum retail sector have
at least three card-based loyalty programs up their sleeves, the
indicators are that it’s a bit of a winding road to maturity.
We’re still in the “ launch every option” phase, and one can
expect a variety of new offerings that will strive to widen the
net to capture new prospects and focus on becoming the “ second
card” in the pocket that slowly edges out the old card through
aggressive and innovative marketing.
The drivers that determine program success are also changing. For
most of the players today, coverage is the key driver. The more
cities and outlets they launch their program in, the larger their
member base naturally grows. After coverage begins to hit a
plateau, data and analytics will take center stage as companies
plunge into the deep end of data mining for elusive insight to
drive their campaigns. Technology upgrades will feed the
efficiency and interactivity demand. New partnerships will move
towards more niche segments that target lifestyle or special
interest groups. Finally, creativity and innovation will bring
the sizzle that gives the market vitality.
In the large and complex market that India is, direct and loyalty
marketing can thrive in the many opportunities present. The fast-
growing urban population is getting increasingly Westernized, but
the diversity within the people remains an opportunity for micro-
segmentation and targeted campaigns to follow. Petrol retail has
tasted blood with loyalty programs, and the many miles to go are
sure to be marked by initiatives that make marketing history.