Getting more out of Indian oil & gas retail sector

Dhanish Ahsen, Sebin K. Joseph, Vaisakh K. V.

Students, MBA, Oil & Gas Management
University of Petroleum & Energy Studies

Abstract
Petroleum retail sector is one of the largest segments of the industry. Petroleum retailing industry in India faces
significant challenges and is forced to adopt new and innovative strategies. Todays consumers are demanding, but
tomorrows consumers will be armed and dangerous. So focus is on quality & quantity assurance, rewarding loyalty,
premium fuels, cashless transactions, on-fuel services, quick filling and efficient fore court service. The new look
petrol pumps, apart from dispensing fuels; now offer the best of retail chains providing a value added service to busy
consumers.
Empowered by technology for unprecedented choice, they will demand products and services that meet a constantly
shifting kaleidoscope of expectations, from convenience and affordability to a customized experience and
sustainable sourcing. GOI on April 1, 2002, opened up retail marketing to private and foreign companies. Indian
retail sector gets flooded with innovations of various forms those customers to buy more and spend more. One of the
more visible transformations in the retail business of auto fuels is the recognition by the oil companies that non-fuel
activities could be an important source of revenue at their retail outlets. The retail outlets have the potential to
become a one-stop shop for meeting innumerable needs of the customers on the one hand, and increasing the
revenues of the outlet on the other.
Strong brands drive revenue growth and to drive revenue growth, petroleum retailers may have to either attract new
consumers or increase their share of the existing consumers wallet. Enabling Oil companies to refine its product
offering , improve its brand and enhance customer relationships with targeted promotions. AS companies expand
into nontraditional markets, the barriers between retailers are blurring, creating and exploiting new market dynamics
The expectations of customers have been changing as customer belonging to the trucker community is now
demanding higher levels of product & service delivery. Businesses are putting intense pressure on entire logistics
cost optimization: travel times under scrutiny. Also the urban customer has become more vocal in demanding
services like one Stop Shop, rest & recreation for highway travel, automatic car wash, alliance with automobile
manufacturers to provide service at pumps, allied facilities like ATMs, Cyber cafes, courier services etc.
This paper deals about the innovative marketing strategies used by the National Oil Companies and private players
to attract consumers and build a brand affinity.






Introduction
The convergence of several market and consumer trends is fundamentally changing the fuels retail industry in the
world and placing additional pressure on volume and profitability. The growing appeal of alternative fuel sand more
stringent Corporate Average Fuel Economy (CAF) standards are expected to continue for the foreseeable future.
This continuation means that sluggish demand for petroleum will likely be the new normal for the industry in the
forthcoming years. Today, more than a dozen alternative fuels are in production and use or are under development,
including compressed natural gas (CNG) ethanol, electricity and hydrogen. As these fuels gain widespread
adoption, they will present a significant competitive threat to traditional motor fuels. This threat is reflected in the
anticipated sales of nontraditional vehicles in the coming years.
A number of trends beyond high oil prices and weak demand are poised to change the downstream competitive
landscape. At one end of the spectrum are structural changes in the refinery business, reflected not only in the
above-average number of spin offs, sales and closures seen but also in the number of recently announced refinery
upgrade projects, which will allow refiners to accommodate new sources and types of crude oil and potentially
increase their capacity. While the effect of these changes on the fuels retail industry is not fully known, it is
anticipated that refinery owners and shareholders will be looking to recoup their upgrade investments and lower
their cost to serve as they try to capture a greater share of a sluggish retail market.
Retailers recognize the crucial role of innovation for the performance of any retail business, but attribute a real range
of meanings to the term. Shortages are seen in relation to technical, leadership as well as project management skills.
The majority of retailers claim to know their markets well and to have little concern that lack of knowledge about
technological possibilities works to prevent innovation. In relation to regulation, the majority of retail firms report
no experience of barriers preventing innovation, although a number of specific issues do emerge. These include: the
availability of allowances for mitigating some of the risks of innovation, as well as a lack of a common agenda
across Government to stimulate investment in sustainable innovation, which often results in conflicting outcomes on
the ground for firms.
The Pricing Mechanism

Under the Administered Pricing Mechanism (APM), product prices were directly administered by the
GoI. The APM was abolished in April 2002. Now the OMCs would be free to set retail product prices
based on an import parity pricing formula. The opening up of domestic refining and retail sector to
private-sector firms, has led to the advent of small private-sector retailing presence in India such as RIL,
ESSAR etc. Per unit subsidies funded from the governments budget were maintained on LPG and on a
fixed proportion of supplied kerosene to safeguard the low income population. Now the retail prices for
petroleum products (including prices for domestic kerosene and LPG) are also expected to fluctuate with
changes in the price of Indias crude basket. The GoI increasingly looked to restrict the ability of OMCs
to increase retail prices in order to protect Indian consumers as the crude prices begin to rise in 2004.
Soon the GoI once again centrally controlling upward price revisions and the post APM model was
dismantled.

The lower product retail prices than crude input prices has been the increasing accumulation of under-
recoveries by OMCs. However, the rationalization of petroleum product taxes and duties has been
considerably disturbed and uneven across various levels of administration.
Current policies within Indias downstream petroleum sector clearly have implications for investment
decisions within this sector, which in turn will determine the way the sector evolves in the medium-term.
As of now, the petroleum product pricing policy seems to be in a situation of inertia.

OMCs & GoI

The uniqueness of the relationship of OMCs with the GoI has dramatically enhanced the investing
potential of these companies and therefore the dynamic growth of Indias downstream petroleum sector.
The OMCs will be kept solvent and profitable over time lends was guaranteed by the government
provides OMCs huge advantages when raising capital for investment in financial markets. With OMCs
assistance, the Indian government has been able to pursue its official policy of providing affordable
energy for Indias developmental needs and its significant poor population. At the same time, by
absorbing OMCs losses under this system and explicitly guaranteeing their operations, capital financing
and investments, the government has created an investment climate for OMCs which has resulted in
robust capacity expansion and growth sector wise. The GoI aims to establish India as a global refined
product exporting hub, instructing OMCs to take a more outward-oriented operating posture, and on the
other hand encouraging private-sector refiners to invest in export-oriented refining capacity.
The measure of Indias refined product export capacity over time will be the build-up of excess refinery
capacity over domestic demand. Indias actual refined product export volumes are bound to surpass the
aggregate of excess capacity. OMCs look to first supply the Indian market, and then to export the balance
of refined product produced. Private-sector refiners have no operational directive to first supply domestic
markets so they will tend to produce a product schedule which optimizes total refining margins from
period-to-period, and will sell to customers, irrespective of location, to allow this. There is thus the
possibility of a situation in India of large exports of refined products in parallel with product imports to
satisfy domestic demand.

Need for a transition

Over the past several years, many of the Oil Marketing Companies have announced an exit from company
owned and operated businesses. Several forces are driving this shift. First, oil companies have recognized
that they generate far less profit from retail operations than they do from their upstream operations.
Moreover, oil companies have proven less effective as retail-site operators than as fuel suppliers, and their
overhead costs are typically not competitive with those of standalone, non-oil company retailers. In
addition, there is growing pressure for oil companies to improve returns on invested capitalwhich have
proved more attractive in the upstream sector. The most common point of contact of customers with Oil
Industry is the Petrol Pump. In Oil Industry vernacular, Petrol Pumps are referred to as Retail Outlets
(ROs). As per the existing Government policy, Petrol Pumps can be set up by Public Sector Oil
Companies as well as Private Sector oil Companies dealing in storage and distribution of petroleum
products as per published guidelines. Presently the Oil Companies engaged in retail business of
automotive fuels are IOC, HPC, BPC, NRL, MRPL, ONGC, RIL, Essar and SHELL. These companies
are referred as Oil Marketing Companies (OMCs).

Emergence of new age consumer in the fuel retailing sector
A pivotal area for fuels retailers to consider is product/service innovation or offering something entirely
new that will help attract and retain customers and, at the same time, capture new revenue streams.
Partnerships can potentially help retailers take advantage of such new revenue opportunities. This is
especially true if retailers are able to share and leverage customer information. In fact, at least one major
auto manufacturer leverages customer and telematics system data to generate unique leads and email
marketing campaigns to support the growth of local dealer businesses.

Customer relevance is an increasingly important concept to retailers striving for high performance,
especially given consumers desire for highly personalized offerings and experiences. By developing a
better understanding of the consumer and the marketplace than their peers, fuel retailers can deliver more
appealing products and services to their customers across multiple categories. The key to improving the
revenue potential of each customer lies in understanding as much as possible about buyers needs
preferences and purchasing behaviors. Building customer analytics capabilities can pay off in a number of
ways and allow fuel retailers to truly engage with their consumers at the local level.

Incorporating integrated telematics systems
The customers can now locate the nearest gas station from sophisticated integrated telematics systems or
via a smartphone app which are quite common which also helps to compare prices at nearby stations. The
regional players could notify customers about fuel price changes and allow them to purchase fuel in
advance or monitor prices via their smartphones. Smartphone app can help customers to prepare their
shopping lists, download coupons and check their fuel rewards balance. As the demand for fuel declines,
incorporating innovative use of technology to attract, retain and engage customers will become a
determining factor in achieving competitive advantage.
At the other end of the downstream spectrum is the continued expansion of hypermarkets and other
nontraditional fuels retailers. With their combination of forecourt and backcourt offerings, hypermarkets
offer attractive retail alternatives for fuel consumers and will likely continue to build more brand loyalty
and market share. Addressing the challenges and opportunities that will accompany these changes
requires players in the fuels retail space to reexamine and adapt their existing business models,
technologies and business practices. Those players that fail to do so risk losing market share and the
competitive advantage that will reinforce high performance in the years to come.

Partnership with auto manufacturers .
The companies could partner with auto manufacturers to transform existing pricing models. In a potential
partnership scenario, automakers could include the price of the suppliers fuel for one, two or three years
into the purchase or lease price of the car. Offering a purchase incentive that significantly reduces the cost
of gasoline at select stations for a period of time. In either case, auto buyers would then be able to fill up
at any of the suppliers stations during the offering period without paying for fuel, or doing so at a steeply
discounted rate. As such the days of searching for the best gasoline prices would be over. Automakers
have already indicated their willingness to use such pricing schemes as a way to attract customers.
Locking in of fuel rates .
For producers and suppliers, volume commitments might help ensure a secure foothold in a market where
overall demand is falling and improve brand loyalty. For wholesalers, the value of pricing transformation
lies in potentially saving money by locking in favorable fuel prices. For retailers, lock-in rates or
partnership agreements might require more flexible onsite payment processing and/or accounting
applications to accommodate the new pricing structures. Costs associated with implementing new systems
and point of sale terminals would likely be offset by the benefits of the new pricing programs, including
increased foot traffic and, presumably, additional sales of other products sold at their locations. Similar
online programs are emerging for individual drivers too. MyGallons.com, for example, allows US
consumers to buy gasoline at current prices and use gallons from their fuel reserve when prices rise. Fuel
credits are stored on prepaid gas cards, which can be redeemed at a number of filling stations across the
country.
Near field communication technologies (NFC) .
Consumers today are starved for time. They want to carry out their purchase transactions as quickly and
easily as possible. In this context, mobile applications that enable multiple transactions via a single device
could simplify the customer experience. NFC or near field communication technologies will be
particularly prominent in the mobile phone market in future which facilitates data exchange and wireless
connections are bound to take customer convenience to a brand new level.. According to market research,
NFC enabled mobile phones will make up more than 53 percent of the mobile market by 2015. At that
time, NFC is expected to also be the most-used solution for mobile payment. What is more, NFC is
expected to enable mobile wallets, providing customers the opportunity to combine payment, loyalty,
offers and coupons at the point of sale.
Google Wallet, an Android app that turns shoppers smartphones into their wallets, provides an early
example of how NFC enabled smartphones and mobile wallet solutions can potentially change the retail
game. By storing virtual versions of existing plastic cards on a phone, customers can simply tap their
phone on a retailers reader to send payments automatically and, at some merchants, redeem offers and
transmit loyalty account information so they can earn rewards for their purchases.

The emergence of apps as described here may be as valuable to retailers as they are to consumers. This is
because these apps present an opportunity to shift consumers to less expense forms of payment. Each time
a customer uses a mobile wallet or text app rather than a credit card, the retailer may be able to avoid
some of the credit card fees that have historically diminished retailers already thin profit margins.
Additionally, mobile payment technologies are already boosting customer loyalty and enabling the
delivery of advertising that will play a bigger role in driving revenue than the actual payment
functionality. In the future, it is assumed that every mobile wallet will have a loyalty and advertising
scheme included. Fuel retailers have a unique opportunity to achieve first-mover advantage by
incorporating these mobile technologies into their business models.

Importantly, they also can position wholesalers as better, more committed customers to suppliers. In the
past, when demand was high and supply was limited, being a good customer was not a consideration.
Now, as the market for fuels retail is shrinking, refiners can be more selective in choosing their wholesale
customers. Those wholesalers and retailers that can demonstrate a commitment to creating a branded
experience and more meaningful customer relationships are likely to be viewed more favorably.

Social Media
Social media applications can play a big role in learning about customers and ultimately creating a more
dynamic and rewarding interaction. The retailers for example, could post special sales announcements for
their followers on various social networking sites. Launching of mobile coupons that are redeemable only
in their stores enhances brand loyalty further. Further, the retailers could once again combine a global and
local perspective in their use of social media to not only promote branded loyalty programs, but also offer
unique and highly valuable experiences that local consumers want.

Back Office Integration
With the help of information technology a real time system that could be integrated with retail outlet and
marketing company to get data on stock available, sales and even can be used to assure the quality.


With this cloud computing and software as a service (SAAS) will turn out to become the industry norm,
retailers will then look forward at how this can be leveraged to reduce Total Cost of Ownership and
enhance flexibility.
Stock reconciliation
In order to make it easy to downsize spend time counting and accurately checking both wet and dry
stock and inventory. These systems can do this with accurate methods to ensure that data is flawless.
Data upload
This can focus on replenishing the stock at retail outlet and thereby increasing supply chain efficiently
instead of waiting for each retailer to call and make order. This arrangement can use a single tanker to fill
multiple outlet. It is concerned with controlling data, with the consideration of price and quantity. From
this, stock is managed and sent directly to stores from a centralized system.
Point Of Sales
The back office system with the marketing company will then send accurate findings to the point of sale
at retail outlet, illuminating the correct site for specific items.
Quality & quantity based differentiation
Customer are still cynical about Quality & Quantity, Its most important from a customer perspective to
get an assurance that the fuel provided to them is of utmost quality and perfect quantity. A large base of
trust seeker segment exists who would be loyal to a company for a long time if they are satisfied with
the Quality and quantity provided to them. Challenges are organization wide implementation of checks &
balances and communication of the same to customers. Companies are coming out with various anti-
adulteration measures to give the customers the best quality of fuel.

Customer Evolution

Customers today equipped with superior control over the transactions and the information in hand are
now in a position to demand more from their retailers. The expectation level has also risen with more
Terminal
Replenishment system linked to stock monitoring at RO
Product filling by bulk meters and automated process
Transportation
Comprehensive sealing mechanism
Vehicle monitoring and tracking system (telematics)
Retail Outlet
Automated system for tank gauging and wet-stock reconciliation
Exception reports for online monitoring of stocks
Remote diagnostics
Customer
Accurate preset premix deliveries to 2/3 wheelers
Electronic calibration and tracking of metering assembly of dispensing unit

emphasis on tailored and personalized products, integrated shopping experience, accessibility,
convenience than ever before. With high level of price and quality discovery through vast quantities of
information at their disposal consumers now can exercise greater control over transaction than ever
before.

Retailers today have an unprecedented amount of data at their disposal for attracting and retaining
customers, driving pricing strategies and shaping customer offers. The real challenge lies in optimizing
the access, analysis and use of that data to unearth new sources of revenue. Additionally, the proliferation
of personal technologies makes it possible for retailers to not only better understand and reach their
customers, but also keep their attention long enough to influence their purchases. While the technical
solutions that support fuel retailers strategic objectives will certainly vary, we believe investments must
already be made in three areas: mobility, social media and analytics. Investing early in these technologies
will help fuels retail companies distinguish themselves from their peers.

Conclusion

Impending changes in the retail sector, like supply and demand imbalances, the emergence of alternative
fuels and new customer expectations, are going to ultimately alter how fuels retail companies go to
market, attract and retain customers, and achieve profitability. Fuel retail industry focusses mainly to
setback the challenges put forward by supply and demand imbalance. In this decade of market de-
regularization with customers ready to pay for the fuel without any hesitation from administered pricing
mechanism to market pricing mechanism focus will be mainly on the and look for better quality and
service for the customers. National oil companies particularly oil marketing companies will have to
overcome challenges put forward by the emergence of alternative fuels, new players coming up in the
retail segment and new customer expectations. This in turn will have a big impact on the overall value
chain to improvise the existing strategies and set to become truly global and compete in open market with
these changes will fundamentally alter how downstream companies go to market with new plans to attract
and retain customers and ultimately achieve profitability. Examples from other industry sectors suggest
how fuel retailers can thrive while navigating the new fuels landscape. New pricing schemes, new
revenue sources and new ways of interacting with customers are just a few of the strategies poised to play
an important role in defining fuel retailers future success.

A convergence of changing technology, increased regulatory and competitive pressures, disruptive market
dynamics, and emerging consumer trends will bring dramatic change to the fuels retail industry over the
next decade. The pace of change will continue to accelerate, straining legacy processes, systems and
skills. Understanding what the future might look like and having a plan to compete in a new competitive
environment are essential considerations for companies looking to achieve and maintain high
performance in the years ahead.

References
F
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g
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Customers want
tailored and
personalized
products, services
and
experiences.This
means they are
harder to target
I
n
t
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r

C
o
n
n
e
c
t
e
d

Customers expect a
brand experience
across multiple
channels and touch
points. This means
they are harder to
reach and engage.
W
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l
l


I
n
f
o
r
m
e
d

Customers are more
knowledgeable than
ever before and are
comfortable
integrating
technology into
their lives.This
means they are
harder to impress.
T
i
m
e
-
s
t
a
r
v
e
d

Customers want a
convenient
experience, as well
as the accessibility
and transparency
needed to make
informed
decisions.This
means they are
harder to please.
C
o
n
s
c
i
o
u
s

Customers are
concerned about
value and about
their health and the
environment.This
means it is harder to
win their trust.

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