By Paul Nazzaro, National Biodiesel Board
Fuel quality continues to be an issue that unfortunately has taken a back seat in the delivery of an important message to our customers. As changes occur up and down the supply chain, creating excitement in some marketing footprints, many companies are missing the opportunity to eliminate price as a buying metric by replacing it with a value proposition that resonates with many heating oil customers today. Are we buying and selling effectively? What does buying and selling effectively actually mean?
I have posed the question countless times over the past few months to individuals that manufacture, store, blend or distribute. It was through these interactions that I learned that few disagreed that fuel quality was challenged up and down the supply chain. My follow-up question was, why then not share these challenges with those to whom you sell your products? The response was often, “It takes too long, and only price matters.”
Our Fixation With Price
Before delving into the core of fuel quality issues and how they negatively impact operational performance of vehicles, stationary engines and home heating oil systems, it’s important to discuss the psychological reasoning behind why those in the petroleum industry focus so intensely on making certain they offer the lowest price each and every night.
The sales strategy of most fuel distributors revolves around price because, as the saying goes, “Price is king.” Deployment of this strategy comes with another adage: “Live by the sword, die by the sword.” Essentially, if you wish to lead with price you may succeed in the short term or run the risk that you will not earn customers’ business because your rates were not low enough to crown you today’s “low-price king.” You are now perceived as a player in the price game. You’ll now be treated that way.
I searched Wikipedia to determine what it had to say about price-based selling. Interestingly (and disappointingly), it stated that, “Price-based selling is a specific selling technique in which a business exclusively reduces their price in attempt to close the sales cycle. Price-based selling clearly exists in businesses such as: commodity sales, auto sales, hospitality, and even some retail stores. However, it is only recommended that commodity items like petroleum be sold exclusively by price.” Are you kidding me?! In this “price is king” sales model, the short sales cycle doesn’t work for us.
The Price Trap
Wikipedia goes on to declare that most businesses sell their items based upon price, not because it is the most profitable, but because they believe it is the easiest way to attract customers. Price creates a certain expectation. With a higher price there comes perceived higher value, and what’s wrong with that if you have a value proposition? There is irony in conversations that go something like this at a trade show or networking event:
“What do you do?”
“I’m an oil marketer.”
“Oil marketer? How do you market your oil?”
“I have consistently low pricing and the best service.”
“What are the top three benefits of the oil that you sell?”
“Price, credit and availability.”
“What kind of oil do you sell?”
“The same as everyone else!”
It is this thought process that takes our quality story out of the equation. Even as the energy market introduces new higher quality blend options like biodiesel and renewable diesel, many marketers fail horribly in positioning these enhancements. Instead, they position low price to win the business. These new, improved products never had a chance to be marketed as something unique that would help enhance operational performance of diesel powered vehicles and home heating systems, simply because, “price is king.”
Reconsider the Approach
Why is it important today to shift your thinking and strategies downstream? Because there is an opportunity to increase market share and improve earnings if you invest time to understand the product you are “selling,” not marketing. Step out from behind selling petroleum on the “price is king” strategy for a moment and visualize yourself as a company that is more concerned with helping the customer than selling the customer, and all will be good in your world. Taking this thought back to selling petroleum, you could say that it’s easier to sell low than it is to invest the same amount of time helping your customer understand your product’s value proposition. You help a customer by conveying product benefits in their home or fleet.
Consider opportunities available to you if you elect to discuss fuel quality and market challenges with your customer. Companies’ upstream activities such as sourcing, production and logistics have been clearly commoditized or outsourced, while downstream activities aimed at shaping a customer’s perception and reducing their costs and risks are emerging as the main sources of competitive advantage for the progressive energy distributor.
Build Customer Value
To compete effectively, a sustainable companies recognize they will not win long-term by leading with price. They educate and influence their customers and prospects and declare advantages by sharing the supply chain story, as well as the issues that negatively impact lifecycle performance for diesel-powered equipment and heating oil systems. This small group of companies is choosing to innovate and solve problems for those who want to be their long-term business partners. Mastering downstream activities has and will continue to allow these organizations to build new forms of customer value and lasting differentiation.
When asked about the market research that went into the very device on which I am writing this article, my iPad, Steve Jobs replied, “None. It’s not the consumers’ job to know what they want.” Distillate consumers connect to the “price is king” mantra because we put that thought in their minds. “The tail is wagging the dog.” Not enough is being done to educate customers on the challenges associated with supply chain processes and its impact on our fuels. The lack of product differentiation encourages competition. You can stay ahead of the competition by continually redefining your brand and introducing new criterion of purchase. With that, let’s talk supply chain and its impact on fuel quality.
Managing Fuel Costs
Managing fuel costs has always been a top priority for fleet managers. They are vigilant to make smart buying decisions and evaluate fuel management strategies, including right-sizing their vehicles; using GPS tracking to reduce vehicle idling; ensuring fuel card compliance; educating drivers about fuel-efficient driving; utilizing fuel hedging programs; and more.
Through it all, oil prices remain volatile. Conflict in oil-producing countries has contributed significantly to this volatility, echoed by Wall Street’s real-time response to each supply tremor. You need not go far to recognize that fleet management professionals are concerned about volatility and committed to identifying and implementing strategies to alleviate the consequences on the bottom line. The breath of fresh air in all this clearly is the nation’s emergence as “king of crude supply.” The U.S. is now exporting more product than importing for the first time in years.
Today’s fuel quality must be discussed. For home heating oil distributors continuing to stem declining market share, you must eliminate sedimentation driven by storage duration and temperature. Keep fuel fresher longer, mobilize sedimentation, protect fuel systems from corrosion and teach your customer about the inclusion of biodiesel in today’s blends.
Fuel Injection Issues
For the fleet customer, common rail fuel injection issues have become front and center. Fleets operating on these high pressure and temperature platforms are wrestling with reduced filter life, reduced fuel consumption and premature injector failure. If you have been fortunate enough not to have endured these series of negative consequences in your own fleet or those that you serve, it’s a matter of time.
For stationary generator owners, it’s all about reliability; when they turn that system on, it better go on. If you think generator fuel quality is not important think about Hurricane Sandy necessitating the evacuation of a New York hospital, compromising the health and safety of hundreds of individuals last year. Then there is the controversy about ultra-low sulfur diesel and its negative impact on fuel dispensing systems nationwide through corrosive attacks. Are these issues a figment of our collective imaginations? Not likely.
It’s easy to believe that customers want only the lowest-cost diesel, gasoline and heating oil, but we need to look beyond the assumption. We previously assumed and frankly often believe that price is the only important factor in the markets that we serve. Reflecting back to when this 10 billion-gallon heating oil industry was vibrant and contrasting it to now, hovering around 5 billion gallons if you add residential, commercial and industrial, says it all. To check the numbers for yourselves, visit www.eia.doe.gov and view the volumes of diesel and heating oil being consumed on your marketing footprint.
Although diesel fuel sales nationally weigh in at 38 billion to 42 billion gallons and remain the workhorse of the trucking industry, you’d better take a look over your shoulders at the progress compressed natural gas has made converting diesel trucks, especially in the refuse industry. Trucking companies rely on you to guide them to operational excellence both on the road and on their bottom line.
We owe it to customers to share what we know about the evolution of equipment and fuel quality. Our job is to make them aware that the deficiencies are real, and while educating them, to give them choices so they can buy the absolute best product
at the most competitive price.