By John Lofstock, Editor
The convenience store and petroleum industry has transformed dramatically over the past decade, but no change has been as profound as the role of Big Oil.
For some five decades, Big Oil dominated retail with an empire built on the strength of their fuel brands and great locations. That all began to change a few years ago as companies, such as Exxon, Shell and BP, decided to jettison their retail businesses to local jobbers and instead focus on upstream and production.
But there are exceptions to the rule as savvy oil marketers have come to realize the immense power of their brands. Phillips 66 is leading that charge with the introduction of an impressive list of retail programs aimed at helping their branded marketers improve operations and profitability.
“We are a downstream company now so marketing matters. You have to be focused on your marketers and branded retailers and giving them the tools they need to succeed,” said Mike Krampf, manager of brand value for Houston-based Phillips 66. “When you are a Big Oil company, Wall St. is looking at reserve replacement and production growth. So if you are the CEO of a major oil company, where is your money going to go? It’s going to be reinvested upstream. As a downstream business we have a much higher appreciation for retail and we are getting a lot more executive-level support for programs that benefit our branded retailers.”
But developing and maintaining a brand requires a lot more than a great logo. For a brand to truly connect with consumers, it needs to be clear what the brand represents.
“We realize that for us to succeed, we need our branded retailers to be successful, so as a company our goal is to develop and implement programs that will make them more competitive and profitable,” Krampf said.
A New Beginning
Phillips 66 has a long, venerable history in the fuel retail business, and perhaps the most recognized iconic gasoline brand. Phillips 66, as it exists today, was created when ConocoPhillips spun off its downstream assets in May, 2012.
Phillips 66, however, can trace its roots in the gasoline business back to 1917. The company opened its first Phillips 66 service station in Wichita, Kan., in 1927.
Phillips 66 in the U.S. markets gasoline, diesel and aviation fuels. Most marketing outlets are owned and operated by independent dealers and wholesale marketers. These 7,100 outlets are branded Phillips 66, Conoco or 76. Plus, it maintains a strong unbranded business, mostly in East Coast markets. These operations are strategically served by the company’s 11 U.S. refineries and transportation systems.
The company’s core branded markets are concentrated in the Midwest and spread west. The brand is strong in west Texas, New Mexico, Oklahoma, Kansas, Missouri, Colorado, Montana, Washington, Oregon and California, all large markets supported by company-owned refineries.
Programmed to Succeed
The spinoff of Phillips 66 was driven by shareholder value and by all accounts it has been a rousing success that allows the company to place a greater emphasis on its wholesale marketing business.
This shift in the company’s approach to marketing began a few years back. “About three years ago, we realized that in order to sell more fuel, we needed to help make our retailers more competitive, and the output of doing that well is that we will sell more fuel,” Krampf said. “So we went to work laying a foundation that would help our marketers and branded retailers be more successful.”
To accomplish its goal, Phillips 66 launched a series of programs aimed at achieving three core objectives:
• To focus on retailer profitability;
• Taking cost out of the business; and
• Making the business more operationally efficient.
The new marketing programs include:
• Loyalty marketing with the KickBack Points Program
• Brand Image Central (BIC)
• Convenience Store Alliance (CSA)
• Phillips 66 Proprietary Card Program
• Merchant Customer Exchange (MCX)
• BizLink Mobile Apps
Among the biggest commitments Phillips 66 has made is its investment in a growing loyalty program by launching the KickBack Points Program at its branded sites in 2011.
As retailers look to drive traffic to the convenience store, a loyalty program can help tilt the playing field in their favor. Loyalty programs are increasingly influencing where consumers purchase fuel, how much they spend and which brands they purchase. To assist Phillips 66, 76 and Conoco-branded retailers in their efforts to drive sales and grow customer visits, Phillips 66 selected the KickBack Points Program to strengthen brand loyalty across its network.
KickBack’s innovative solutions are currently deployed in more than 900 Phillips 66, 76 and Conoco-branded sites with another 600 sites scheduled to come on line in the first half of 2014. KickBack’s approach to loyalty marketing quickly provided results for these stores which included increased customer visits, higher ticket averages and incremental sales growth.
Furthermore, when this loyalty sales data is collected and analyzed, it can yield analytics and metrics to provide a better understanding of customer shopping habits, which Krampf described as the future of retailing.
“When you look at how other companies are partnering with grocery chains, it became obvious that we needed a world-class loyalty solution that could drive new and repeat business, but also capture the customer analytics our marketers need to grow sales,” Krampf said. “And when your core belief is to focus on making your retailers more profitable, then your loyalty program has to work for them.”
The Phillips team began to examine its options recognizing that an investment in a loyalty program is a long-term strategic decision.
“We liked the fact that the KickBack Points Program was developed by a petroleum retailer so it is a loyalty program that was really designed with the retailer in mind. We also like the fact that the program was designed as a coalition program, which has proven to be the most successful model in other countries around the world,” Krampf said. “And finally, we liked the fact the program captures consumer information, which allows our retailers and Phillips 66 to have targeted offers and promotions, which will allow the right offer to be delivered to the right person at the right time. That is the power of data and that is why companies like Netflix and Amazon are winning today—they have figured out how to turn consumer data into increased sales.
Phillips is working together with KickBack to achieve a common goal, which is to have powerful tools that improve its marketing to consumers.
Using KickBack’s analytics, Phillips 66, 76 and Conoco-branded retailers are gaining operational advantages, such as learning when their customers shop and what they are most likely to buy. Just as important, retailers are learning about price elasticity, where they can identify what prices customers are willing to pay for specific items, so it’s a margin management tool in addition to a loyalty program, said Mike O’Connor, manager of programs and brand image for Phillips 66.
More than 80% of the KickBack Points earned by customers are redeemed inside the store, so the program has been effective at driving customers from the pumps into the store.
After completing a successful test run in 2012, Phillips 66 unveiled a new buying program for its branded marketers as part of a partnership with Convenience Store Alliance (CSA). The goal is to help sites lower operating costs, improve margins and better compete in today’s challenging marketplace.
Phillips 66, 76 and Conoco-branded retailers that sign up with CSA immediately get to experience the buying power of national chains, therefore allowing them to better compete.
“CSA recognized that convenience store chains were having trouble competing against big chains,” O’Connor said. “Last year, they came to us with a program just for Phillips 66 that had a demonstrated savings of about $12,000 per location per year. Whether it’s from grocery items, the soda fountain or even insurance, there is an opportunity for all chains to realize a significant savings.”
To date, O’Connor said, every retailer that has signed up has found some savings. “It’s a low-risk, low-investment program that requires the initiative to do it and learning how to take advantage of the savings,” he said.
For example, if a small chain is partnered with McLane, they may not be getting all of the wholesaler’s deals. By going through CSA, McLane will now treat them as a national chain, and the benefits start adding up quickly.
“Consider national account pricing just at the soda fountain with Coke, Pepsi and Dr Pepper. Participants in the CSA program get the national price and national price rebates on all bag-in-a-box programs,” O’Connor said. “The other thing it does on the fountain is enhance the offering. Many small companies have let the soft drink suppliers manage their fountain equipment, which forces them to be stuck with just one family of products. With CSA, the retailers control the equipment so they can offer Coke, Pepsi and Dr Pepper products. Now you have a cost savings and you have expanded your beverage offering.”
As the program has become more popular with retailers, more vendors are being added to the program. Over the past few months, CSA has added services like ATM management, CO2, fountain equipment maintenance and access to capital funding programs.
“CSA is all about providing services and lowering costs, but the key is you have to be in the program,” Krampf said. “What is equally important for us is that as our retailers start to realize these savings, they will identify Phillips 66 as a resource to help them reach that next level of profitability and that is an extremely powerful message.
Thanks to a new strategic partnership with GE Capital, Phillips 66 in August was able to launch a new proprietary card program that provides cardholders with a five cents-per-gallon discount on all fuel purchases. The program, which includes the Phillips 66 Personal Card, Conoco Personal Card and 76 Personal Card, is free to all branded retailers and is free of transaction and processing fees.
GE Capital made a firm commitment to the oil company, which includes six dedicated GE Capital employees handling the Phillips 66 account—two of whom are stationed in Phillips 66’s Houston headquarters—and four account managers in the field working directly with retailers.
“The overall level of marketing support is much higher then what we had in the past,” Krampf said. “We have received glowing reviews from marketers and branded retailers.”
One of the tipping points for GE Capital to earn the Phillips 66 business was a commitment to the consumer value proposition for existing cardholders, not just new cardholders.
“Many credit card programs have excluded loyal customers when launching promotions. When we decided to launch a new card program, it was important for us to find a partner that was willing to recognize the customers that have been with us for 10, 20 years or longer, Krampf said. “So when we were negotiating with GE Capital, we had them agree that when we went live on Aug. 1, that all of our cardholders would start getting five cents off each gallon that they purchased [up to a maximum of 110 gallons] with the proprietary card, not just new customers. That’s the first time this has been done in the fuel industry, but it demonstrates the serious commitment we have to our customers.”
To simplify and streamline site branding for customers, Phillips 66 is offering a new one-stop-shop process called Brand Image Central (BIC) with Chicago-based Big Red Rooster Flow.
BIC is a single point of contact for site imaging and also provides additional technical support. The idea for this program was almost entirely driven by retailer feedback.
“One of our customers, Ricker Oil, joined Phillips 66 and was very pleased with the change, but they expressed some concern about how difficult it was to contact and communicate with all the approved vendors needed to rebrand to the Phillips 66 image,” O’Connor said. “That was a major trigger for us to streamline the process so our marketers can spend more time taking care of their customers.”
The improved efficiencies from centralization allows Phillips 66 branded customers to benefit from these enhanced image services without adding costs. The program is complimented by investments in technologies targeted at reducing costs, improving efficiencies and meeting consumer expectations. BIC is composed of four components:
• Site Asset Manager. This is where all of the retailer data is stored. Following the spinoff from ConocoPhillips, Phillips 66 had to ensure that references to
ConocoPhillips were removed at all locations. That meant each location had to remove decals, update phone numbers, replace signage, etc.
“It was a huge project for us, but we figured that while we have these crews on site examining each store, we should start surveying everything that is available at each location, such as the number of fueling stations, size of the canopy, size of the store, ATM machines, car washes and much more. Everything was recorded and uploaded in the site asset manager,” O’Connor said. “Now, when we want to know what we have in Topeka, Kan., we can get it instantly.”
• Conversion Module. This is a tool for new-to-brand sites. When a Phillips sales representative signs up a new site, they can upload all of the site’s information to the system and can instantly set up a project workflow. The marketer can then get status reports in real time. If something falls behind, the project is flagged to alert project managers.
• An E-Catalogue. Marketers and retailers can browse the catalogue for approved image materials and pay for them in one easy location.
• Main ID Sign Builder. This tool allows Phillips 66 marketers to make sure they build the main ID sign right the first time. Phillips 66’s image standards are incorporated into the tool, so it’s impossible to build a sign that doesn’t meet the image requirements. This saves time and money for everyone.
Phillips 66 recognized that card processing is among the convenience store and petroleum industry’s largest expenses. To help retailers combat processing costs, Phillips 66 became a founding member of Merchant Customer Exchange (MCX), a retailer-owned network focused on developing a mobile commerce platform. MCX represents merchants with more than 100,000 stores who collectively process greater than $1 trillion in payments each year.
“What drove us to MCX, among the many potential solutions being developed, is that they are focused on both developing a consumer friendly mobile wallet that will be accepted by a wide variety of merchants and on improving the payment process,” Krampf said. “We know current credit card costs are most retailers second highest expense behind only labor and so we thought it was important to partner with someone that will provide a mobile solution that benefits not just consumers but our branded retailers too.”
Phillips 66 continued building momentum in December with the roll out of its BizLink pricing app for iPhones.
“We recognize that our marketers and retailers are very busy and need access to critical data at their fingertips, so we have undertaken an aggressive mobile app strategy. We’ll be launching an Android version of the pricing app early in 2014 and will be adding additional functionality regarding supply and other news alerts later in 2014,” Krampf said.
Following the spinoff, there were many questions about the new company and its commitment to retail. To spread its message to branded retailers, Phillips 66 staged a dynamic customer conference in Las Vegas in May, 2013 and chose the theme “New Energy, New Possibilities” to celebrate the establishment and spirit of the new corporation.
The company followed up the conference with a series of road shows, dubbed the New Energy Tour, to take the Phillips 66 vision directly to branded marketers and retailers in 25 cities across the country where they were joined by company executives and their strategic partners in key programs, such as loyalty, buying and card payment services.
“We believe that by focusing on helping our branded retailers be more competitive and therefore more profitable, we are building brand affinity,” Krampf said. “When our retailers are successful, they will open another site and they are going to brand it with us. And when that fuel supply contract comes up for renewal, they are going to renew it with us. Our belief is that our success selling fuel will be determined by how successful our retailers are, and that remains our top priority.”