Lance Klatt, executive director of the Minnesota Service Station Association, has a game he likes to play with dealers in his state.
"I tell them, the next time a customer comes in to pay for a fill-up, ask him what brand of gas they just bought." He pauses, allowing me to consider the interaction. (In all honesty, when he mentioned "game," my mind drifted to the Nintendo Wii. He cleared his throat and I was back on track.)
"Most won’t even know. They’ll just know the owner of the store. It’s an interesting market experience."
Would such an exchange play out similarly in your store?
For BP franchisees, the answer, at least during the past few months, is probably no. Several were targets of local protests, where sales sufÂfered. For those operators, the BP brand was foremost on their cusÂtomers’ minds; it took the form of a Scarlet Letter that produced tanÂgible sales losses in many instances.
"Thanks for your support! This BP station is locally owned and opÂerated!" blared one sign at a Cincinnati station, whose owner pleaded with customers to shop his station, despite his brand association.
Indeed, hurt by BP’s branding after the spill (bear in mind, less than two perÂcent of the country’s 11,000-plus BP stations are BP-owned), some BP gas station owners began lobbying to change their gas station branding to Amoco in an efÂfort to distance themselves from public resistance.
Their concerns, at least long-term, may be unnecessary. Public opposiÂtion to the BP brand, while stiff at the spill’s outset, has already begun to wane. Immediately following the spill, sales dropped as much as 50 percent at some BP Gulf Coast stations, but by mid-August, the decline had eased to 10 percent on the Gulf and to less than five percent in other areas, according to John Kleine, executive director of the BP Amoco Marketers Association, as reÂported in The Washington Post.
But the event and its aftermath prompted assessment of the lasting and future significance of affiliating a store with a branded fuel product. The issue has separate implications for both conÂsumers and retailers, which collectively affect operators’ profitability.
Does the fuel brand matter today for consumers? If not, why should it matter to retailers? What can be done to elevate a fuel brand’s stature, and what effect, if any, will that have for retailers? The anÂswers shed light on an issue that will diÂrectly influence the future landscape of petroleum retailing.
According to the 2009 NACS Consumer Fuels Report, the brand matters little to consumers, with only nine percent of reÂspondents citing fuel brand as the most important factor when purchasing gas, trailing far behind price (70 percent) and location (19 percent).
The brand’s waning value is acknowlÂedged nearly universally among industry executives, who reference the brand’s high point in the past tense (emphases mine).
"Back then, Mobil was always known to us; they had such a large market share," began Peter Romano, president of the InÂdependent Oil Marketers Association of New England.
"Amoco or Standard were the top brands in the Midwest," explained Ed Weglarz, executive vice president for Associated Food & Petroleum Dealers.
"In the state of Georgia, Amoco was the number one brand ... But today ..." reÂmarked Henry Colley, vice president of retail operations for Augusta, Georgia- based Sprint Food Stores.
Still others were more blunt, and if not trumpeting the death of the oil brand, they noted its diminished stature: "The major brands, especially here, have seen better days," Klatt said.
Operators and industry executives cite a number of reasons for the brand’s marÂketplace decline, though nearly all pointed to one thing â€" you guessed it, price â€" as the primary factor motivating decision-making today.
"Price seems to have trumped so many other factors," said Weglarz. "It is defiÂnitely moving more and more toward the motorist’s choice [and] he wants to go with the cheapest gasoline, and the unÂbranded tends to be cheaper."
Colley agrees, citing noticeable beÂhavioral shifts with even just modest gas price movement. "A penny or two higher and you can see the volume shift," he said. And as branded fuels costs in his region are "on average, two to six cents per galÂlon higher," his fuel choice has become an easy one for his company’s 12 stations: "Since 2000, we haven’t built any brandÂed [stations]."
Commensurate with price concerns comes the ability to pay for fuel purchasÂes, and while the brands’ proprietary credit cards held significant sway among consumers a decade or two ago, that adÂvantage today has largely eroded.
"In the old days, you had the brand because people had branded credit cards, but the way credit cards have progressed with U.S. consumers, if you’re operating a station that gets 5,000 visits a month, the actual visits purchased with a proprietary card are tiny these days," said Tom Kloza, chief oil analyst at the Oil Price Information Service (OPIS). "Now, with almost all sales gravÂitating to Visa and MasterCard, you’ve lost that significant edge."
While price has produced a major purÂchasing shift, a number of other factors have contributed to the brand’s decline. Weglarz believes BP erred after it re-branded its Amoco stations, as it lost sigÂnificant brand recognition in the Miwest.
"I think they made a big mistake when they rebranded to BP; they lost some brand identity and especially the amount of premium fuel that was being sold with Amoco Ultimate," Weglarz said. "The volume [sold] of BP premium blend didn’t compare."
Additionally, many consumers historiÂcally chose a branded fuel for its quality assurances, but with the rise of minimum government quality standards, that disÂtinction is largely lost.
"For the most part, everyone who has an understanding of fuel knows there are minimum specs that everyone follows," said Rick Koch, owner of Rick Koch Oil Company, a distributor in Weatherford, Oklahoma.
"This is unlike the 1980s, when there were [unbranded fuels] with enough lead to start your own mine," added Kloza. "But for all the gas laws in the last 20 years, the standard for gasoline is raised. They all have detergents, and octane specs are pretty strenuous."
Finally, several executives cited the evoÂlution of the jobber and his alliances as contributing to the brands’ decline.
"The oil companies have moved to multi-branded jobbers and that’s devalÂued the brand," Weglarz explained. "It’s a free-for-all out there. And the geographic boundaries for jobbers have, in some casÂes, been eliminated and they can market anywhere. [Jobbers will] represent four to six brands and go anywhere in the reÂgion."
In light of the numerous factors contribÂuting to the brand’s decline, it’s not inapÂpropriate or even rhetorical to cite brands’ enduring qualities, which are still tangible. And while brands play a deÂcisive role in the fuel-buying process for only nine percent of consumers, that figÂure is likely to change â€" either up or down, depending on how certain attriÂbutes are leveraged. For consumers, the diminishment of the brand’s cache is not necessarily permanent.
"Were it not for the [Gulf oil] spill, BP might have had a good differentiation program with their Invigorate campaign," Kloza said, adding that the comÂpany’s ad money has recently shifted to PR. "I give them credit; they were spendÂing money on brand differentiation. And Shell, too. It remains to be seen how much kick they’re getting for their buck, though."
Whether BP can distinguish itself again in the eyes of the consumer is the difference between remaining a brand, and further slipping to a more permaÂnent characterization as just gasoline.
"Brands only get built by the compaÂnies, and if you don’t build a brand, you have a commodity," explained Al Ries, chairman of Ries & Ries, a marketing consultancy in Atlanta. "And if I were a [branded] station owner, I would be screaming at [my oil brand] for not doing anything about their brand."
The difference, Ries said, is percepÂtion, and what consumers are willing to pay for the product. "If people will pay three times as much for Evian water verÂsus Poland Springs, that shows you the value of the Evian brand," Ries said. "But if there’s no difference in price, that means the brand isn’t very valuable ... and in fuel, there’s almost no [price] differÂence, which tells you the brand isn’t worth very much."
While big oil might not be focusing on brand development to the extent Ries sees in other industries, they have not folded their hands in marketing their product. The most significant way they’re going after consumer pocketÂbooks is with their proprietary loyalty or payment programs, which tie into both price as well as convenience.
For instance, Exxon- and MobilÂ-branded retailers offer Speedpass as a quick and easy contactless payment method, and Shell consumers can obtain fuel discounts by purchasing groceries at Kroger â€" both strong incentives that help (re)build a brand and generate awareness.
"The [oil brand] card programs offer things that are better [than I could offer at a small, independent station]," Koch said. "They’re able to promote them now more than ever, they provide trackable data to operators, and they’re even availÂable to people with poor credit. If I wantÂed my own credit card deal, I could do it, but it would be harder to do an attractive offering with just a few stores. The brand has that mass appeal."
However, not everyone is sold on the strength of loyalty card programs as a brand salvation, in light of the risk involved. Case-in-point: BP.
"I believe that the loyal marketing thing can have some magic," Kloza said. "But the problem with that ... if you’re Best Buy or Starbucks, do you want to have BP as your partner? It’s a setback, at least right now."
Still other consumers are swayed to a brand based on associations, a form of advertising that tends to have geographic relevance.
"There is still some cache that comes with putting Sunoco stations where you have a lot of NASCAR fans," Kloza said. "And it’s kind of the same thing with the 76 brand ... you gain street credibility when you are associated with that."
For the retailer, supply concerns used to be a major value proposition in associatÂing with a brand, but that holds less weight today.
"The support of the brand, the reason for branding, has really disappeared," Colley said. "It was a method of insurance of supply that was erased during [Hurricane] Katrina when unbranded fuel was more available."
Additionally, inventory surpluses have negated supply as a branding attriÂbute. "We have more than one million barrels a day of extra capacity and we’ve got plenty of gasoline," Kloza said. "It’s hard to look at it in the next five years and say that you need the assurance that I’m not going to be cut off if there’s some sort of event."
Supply benefit or not, a major brand can help elevate the image of a small operaÂtor without hefty resources and make operations more efficient.
"I think the brand value is greater for a retailer if they have just a few pumps," said Greg Parker, president and CEO of The Parker Companies and NACS vice chairman of research. "You can’t comÂpete [with larger independents] on price, and with just a few fueling positions, you can’t drive that much volume. So you need to be a brand, [and then] you get the guy who’s brand-loyal."
Colley agrees, adding that a brand adds instant credibility to an operator trying to make inroads in a market. "It gives you a look or image if that’s what you’re looking for," he said. "If you have one or two stores and can’t invest in your own brand, you buy that when you [carry a major brand]."
And even if that brand doesn’t carry the same pull with consumers as it once did, from an operations standpoint, the brand offers a small operator a number of resources that would be difficult to create on its own.
Â"You can get a ready-made package; you don’t have to reinvent the wheel," Colley said, citing the brands’ credit card loyalty programs, business training tools and the ability to tie into their adÂvertising.
Executives and retailers cited a numÂber of other benefits of brand association, though they characterized most of them as holding secondary appeal.
For travelers, a brand offers a familiar buying choice, as out-of-town motorists frequently purchase fuel from a familiar name â€" less important as unbranded staÂtions spread across regions.
In addition, a branded station may be easier to sell. However, others said it could just as easily create a greater burden, citÂing the BP spill as deterring would-be buyÂers. And finally, as the oil companies conÂtinue to divest themselves of their stores, many are in high-traffic areas with an alÂready developed customer base.
The list of brand benefits is indeed long, as are the qualifications that temper those qualities. But rather than focus on fuel brand, Parker insists that it all comes down to retailing fundamentals, and that the overall shopping experience will generate the most profound influence on consumer purchasing behavior.
"Ultimately, the consumer decides, and the consumer will go to the place that does the best job of meeting their needs," Parker said. "What we hear from our consumers is that they want products in stock, they want a fast transaction, and they want a safe, friendly and clean enviÂronment ... and if one of the major oil companies offers that, then they win.
"But so far, they haven’t."
Jerry Soverinsky is a Chicago-based freeÂlance writer and a NACS Magazine and NACS Daily contributing writer.