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    NONFOODS: Wake-up Call: Petroleum Ops: Getting pumped

    Retailers can harness rising fuel costs to drive loyalty. Here's how.

    By David Diamond

    The price of gasoline has supplanted the weather as the thing that everyone grumbles about, but can't do anything to fix. But in fact, smart food retailers with gas pumps at their stores can do plenty to "fix" the situation, if they're willing to commit to more sophisticated promotional strategies that turn the market's volatility into a merchandising opportunity.

    They can exploit the tremendous buzz around fuel costs to draw drivers to the pumps and into their stores, and then position themselves as the consumers' advocate in the struggle with high prices.

    The potential for impact is there, as more and more food retailers are installing gas pumps. In a recent Food Marketing Institute survey, one-third of the group's members reported having installed gas pumps at some of their stores, up from only 6 percent of members just five years ago.

    High demand

    While some of these installations were surely motivated by a shortsighted desire to boost same-store sales, other food retailers are pursuing the business because they see gas as an important product line to their customers, one that can help them meet one more of their shoppers' many daily needs.

    But at its core, a gasoline program at a grocery store offers significant merchandising opportunities -- now more than ever. At a very basic level, retailers can offer savings on gasoline to their best customers, or highest-potential customers, or those customers willing to make significant incremental purchases. Gasoline savings are, at this point, in such high demand that their value can surpass that of cash savings, and thus a program of gas savings can break through the discounting clutter.

    Especially enticing is a savings-per-gallon program. While the effect is purely psychological, it's real nonetheless. Consumers might view "$1.50 off a fill-up" as a good deal, but "Save 10 cents per gallon on a fill-up" looks even better.

    Stronger bonding

    Perhaps the best offer to make these days is to allow consumers to aggregate their savings. The chance for shoppers to collect multiple "10 cents offs" and combine them into 50 cents or even $1 off per gallon puts a huge dent in the total fuel transaction cost, and is pretty irresistible. As long as the aggregated discounts are earned independently -- for making qualifying purchases, or demonstrating some sort of desired behavior -- the programs can be affordable as well.

    This approach is just the first step. The current reality is that less than 30 percent of grocery shoppers stop for gas, and less than 10 percent of gas purchasers go into the store. Aside from the basic reinforcement of store brand equity that a fuel program can afford, for most retailers the connection between the fuel island and the store is tenuous at best. The time is right to create a stronger bond between the supermarket and the pumps, thanks to heightened awareness of the gas price situation.

    Here are a few examples of smart programs that more substantively connect the pumps to the store and vice versa:

    --Develop a threshold-based gas savings plan based on historical spending levels. Those who spend $25 to $50 per week save extra on gas when they spend $75. Those who spend $50 to $75 per week earn more savings when they spend $100.

    --In a related strategy, allow consumers to build savings by increasing their spending each week. Those consumers who are spending $50 to $75 each week save five cents per gallon the first week they spend $100, 10 cents per gallon the second consecutive week they spend $100, and 20 cents per gallon the third consecutive week they spend $100.

    --In club-store fashion, drive gas buyers into the store by offering gas savings to consumers who stock up on selected categories. Allow consumers to save two cents per gallon for each roll of paper towels they buy, up to 20 rolls. And if they buy more than 20, increase the savings from 40 cents per gallon to 50 cents per gallon.

    --Work with key vendors to channel their account-specific spending to gas offers. By tying these dollars to gas purchases, you're able to earn monies that otherwise aren't eligible for "price reductions," and at the same time help your customers save dollars on a commodity they really need and value. This enables your vendors to use their promotion monies to focus on brand building, while you can focus on delivering value to your customers.

    --Allow your frequent shoppers to see your current gas price by going to a Web site. Even better, alert your best shoppers to upcoming gas price changes by allowing them to opt in to receive e-mail messages on the latest changes. Show your best customers that you feel their pain, and help them deal with fluctuations in price as effectively as possible.

    Technological twists

    These promotional tactics, and others like them, can allow smart food retailers to turn their gas pumps into an engine that builds business inside their stores.

    But it's not just the ideas that need focusing; the technology does, too. Most gas savings promotions I've seen are relatively clunky, requiring the manual hanging of extensive POS signage in the store, and using the store's POS system to deliver paper coupons, which need to be manually redeemed at the pumps.

    While there's nothing wrong with this approach, it's cumbersome enough to make it less appealing for retailers and less interesting to consumers. The technology exists to make integrated gas/store promotions work, but retailers must work with the various technology vendors to make these promotions as easy to execute and as effective for the consumer as possible.

    Here are some technological twists that can make integrated gas/store promotions work better:

    --Use in-store TV to promote gas offers. Lots of money has been spent on installing plasma screens in stores at the checkstand and in other departments. Gasoline promotions are exactly the kind of offers that use this medium to its best advantage.

    --Work with your signage vendor to provide integrated price labels, highlighting SKUs participating in gas offers. This extends the offer directly to the shelf, where most purchase decisions are made, and helps convince vendors that they're getting their money's worth.

    --Use your POS printer and e-mail marketing to publicize targeted offers. If you're going to segment offers, use the POS and e-mail -- two low-cost but effective options -- to inform the targeted consumers of the offers you've selected for them, and to remind them to continue to use them.

    --Engage your fuel pump vendor to display the promotions at the pump. See if you can have the discount appear automatically at the pump when a coupon is scanned. Do everything you can to allow your consumers to take advantage of gas savings programs without having to take extra steps.

    --And if you really want to make a great impression, integrate several of these ideas, so, for example, when you scan the coupon, the price per gallon drops to the new low level, and after the fill-up is complete, the price pops back up to the standard price. Nothing makes a fuel customer feel more special than seeing the price per gallon drop before his or her eyes.

    A fuel program can be so much more than a way to make use of vacant real estate or boost same-store sales. It can fuel a promotional engine that allows you to develop meaningful offers, communicate them to key audiences, cement shopper loyalty, and build profitable sales inside the store.

    By David Diamond
    • About David Diamond

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