Customers, insights and loyalty

Oil and gas companies will need to come up with some new models – and quickly. Just ten years ago, forecourts and gas stations were all about fuel. By 2030, we expect traditional carbon-based fuel will make up just 20 percent of a gas station’s revenues.^[2]

One avenue focuses on convenience. The idea here is to use the forecourt to offer customers the experiences, goods and services they need (whether or not they are fueling up). It’s a massive expansion of the convenience store approach already being used in the UK, Canada, the US and other markets, to include things like luxury cafés, high-end restaurants, pharmacies and groceries. And more than just goods, adjacent services can be added, which open up new dimensions for attracting customers with everything from car maintenance, insurance/financial services and lockers to home delivery services, child play areas and even co-working space. Mobility options, charging stations and hubs would be available while you shop.

Our view suggests the forecourts of 2030 may see approximately 40 percent of their revenues flow from retail, food and beverage. We expect around 30 percent of from adjacent services and about 10 percent from mobility services. Fuel will likely make up just 20 percent – and that proportion will likely decline.^[3] 

Consider what that means in terms of your competition. When the forecourt was all about fuel, oil and gas companies had just a handful of real competitors in each market. For fuel, prices were adjusted in near real-time, but only quarterly or monthly on non-fuel items. Proximity and need were the main drivers of footfall. ‘Distress’ fuel purchases usually drove consumer visits.

Forecourts of the future will likely face very different competition. They may fight against retail businesses with deep customer insights, relationships and experience. These competitors know what their customers want and can adjust prices and inventory rapidly to respond. They compete based on convenience, purpose and experiences. Some may be physical competitors. More often, they will likely be digital and platform players.

Now consider what that will mean in terms of capabilities and strategic focus. The ability to extract and refine the molecule will continue to be necessary. But as that part of the business declines, what will become more important is the ability to understand, interact and serve customers. Simply put, the engineers should make room at the strategy table for the retail merchants. They will also need to transform their own thinking to put the customer first.

Oil and gas leaders already know that customer loyalty programs are a great way to capture customer data, build relationships, drive cross-selling and encourage loyalty. Most have been offering rewards or recognition programs for years.

The problem is that customer expectations of loyalty programs have changed dramatically. Loyalty programs have made generational leaps in just a matter of years. The older types of programs are now failing to interest customers. The value they deliver to oil and gas companies is diminishing. And players like Starbucks and WeChat have changed the rules and dynamics of what loyalty programs can provide.

Most oil and gas loyalty programs are 1st Gen or perhaps 2nd Gen. They are generally point-based rewards cards where customers accumulate points through fuel purchases. They aren’t usually redeemable for reduced fuel prices, but they tend to offer vouchers for discounted services like car washes. These plans can often enable some limited cross-selling and product bundling. But today’s consumers want more than just reward points or vouchers.

The more sophisticated 3rd Gen program is more of an ecosystem play. Multi-brand and tier-based, these programs let members use one card across a group of retailers. That allows for better customer engagement. But these plans tend to be more expensive for retailers and often fail to deliver meaningful customer insights about each brand.

The likes of Barnes & Noble or some luxury retail brands epitomize the 4^th Gen. Customers receive privileges based on their purchases and volumes – perhaps an invitation to an exclusive fashion showing or free shipping on all packages. These loyalty programs, Amazon Prime is an example that many would be familiar with, require that customers pay to join, providing the company with an upfront revenue stream. These schemes allow retailers to drive increased engagement through value, service and content ecosystems.

The most sophisticated loyalty systems today are best epitomized by WeChat and TenCent in China. These umbrella loyalty programs put everything a consumer needs under one roof, providing enhanced convenience alongside rewards. These platforms can offer integrated experiences between the online and offline channels, allowing retailers to track behavior across the ecosystem. 

Customer loyalty isn’t just about getting closer to the customer and increasing stickiness through repeat visits and friend-and-family recommendations. But increasingly, it is about customizing for the customer and creating value by building trust, enabling personalized experiences and – perhaps most importantly – developing customer insights to engage customers profoundly. It’s these insights that are driving solid margins for retailers and helping them grow their share of the customer wallet. And it’s these insights that oil and gas companies will need to compete with new downstream business models.

Consider this: Retail giants are believed to change their prices millions of times a day. The average oil major does about 650 price changes per year. This allows retailers to maximize margins in near real time. But they can only do this because they have profound insight into what their customers want, what they are willing to spend and what value they are looking for. They know when a customer makes a distressed purchase and can play with price elasticity. And they know when a customer is just looking for the lowest price.

Loyalty programs create the data. The data holds insights. The insights deliver value – for the customer and the shareholders. Yet the route from loyalty program to value is not straight. Oil and gas companies will need to overcome significant barriers and create new capabilities to navigate that journey.

Let’s start with the data. Today, most customer data that oil and gas companies hold is stuck in siloes. Those with a mix of corporate and franchisee-owned locations face particular challenges integrating and correlating their data. To unlock the loyalty program’s value, oil and gas companies should significantly mature their data collection and integration capabilities.

Technology is also a challenge. Older POS systems at forecourts limit the amount of information that can be captured. Outdated analytics capabilities mean that the most valuable insights remain locked away in the data. Customer voice technologies are rarely used. You need the right tech stack to run a slick 3^rd or 4^th Gen loyalty program.

Undoubtedly, the cost of undertaking this type of data and technology transformation is high. We know of oil majors who plan to invest tens of billions of dollars into upgrading their technology stack over the next decade. Others are looking at how they might partner with existing leaders to help accelerate their progress at a more reasonable cost. 

You are committed to growing your downstream business. And you have a good idea of what you want to be in the future. But getting from ambition to activation can be challenging.

It will take careful thinking to navigate the options and possibilities. Instead of building your own retail capabilities, you could partner with an existing retail leader (or buy one). Your retail partner may already have a robust loyalty program and customer-centric capabilities. They may also have a world-class technology stack.

Similar decisions should be made around what processes should be automated, what can be outsourced and what should be kept in-house. However, these decisions should be made within the context of each business. Those with sizeable franchise networks may need help to build a new system that works for multiple stakeholders; partnering to secure a more agile technology platform may be the key. Those with customer loyalty programs or c-stores may want to consider the value of their existing sunk costs and capabilities. Understanding what to build yourself, what you can gain from partnering and what you purchase may be vital to building your roadmap.

Ultimately, this is about securing the right capabilities to envision and execute against your ambition. And our view suggests that moving from ambition to activation will require maturity in eight connected capabilities. These are cross-functional and apply across the operating model. Our data suggests companies investing in these are twice as likely to see an overall impact from their investments.

Each of the eight enabling capabilities is underpinned by a set of five sub-capabilities. The first step in defining a winning model is understanding your relative maturity in each sub-capability against the required maturity to deliver your winning business model. In other words, start with a sober self-assessment of the strength of your capabilities across these eight areas. Then begin to think about how you bridge the gap between where you are and where you want to be.

The bottom line is that the world has changed. Oil and gas companies have no choice but to transform and diversify. But to achieve that, they will need to gain a much better understanding of their customers.

Digital disruption and rising customer expectations create unforgiving markets where loyalty is hard-won and easily lost. If you can’t deliver what your customers want, when and where they want it, they will go to someone who can. But there is no point in creating a breakthrough customer experience if the new business model runs at a loss. KPMG teams offer services that can help you achieve profitable, sustainable growth through customer-centric thinking. This is all about getting close to your customers and staying there. KPMG firms are committed to helping drive the Oil & Gas industry forward — no matter how complex the challenge — to create enormous value for shareholders and society.