Performance Management Solutions

There are different interpretations of the term ‘customerization’ and in my next few blogs I will look at one aspect: the process in which the customer is encouraged or made to carry out the transactional activities of the business.

Close on 50 years ago, my father, then working for Mobil, was project manager for the development and subsequent opening of the very first 24-hour self-service petrol station in the UK somewhere near Southampton. Today, just about every petrol station/service station is self-service but back then this was a radical shift in the operating model for retailing petrol.

The logic behind the move was impeccable as far as the company was concerned. The margin on petrol sales was minute, often as low as pennies per gallon, and the government saw it as an easy target for taxation which meant that there was adequate cash-flow but very little operating margin with which to develop the services on offer and to pay the staff of attendants who, until then, had filled the cars (‘pumped gas’), cleaned windscreens, checked the oil and water and generally provided a useful service to the customer. Now that was about to change – the attendants were to be no more, the customer himself or herself would now have to get out of the car in all weathers and fill their own tanks, clean their own windscreens, check their own oil and so on whilst still paying exactly the same price for their fuel as they did in pre-self-service days. The retail margins were simply too small for price discounting.

The self-service petrol station was not well received by the car driving public, as they derived no value-added benefit from the change such as a price reduction. On the contrary, the customer was now faced with major negatives (they had to get cold, wet, dirty, etc.). The petrol companies were not slow to respond and petrol stations started offering ‘a shopping experience’ and 24-hour access to fuel, but very little else. The car driving public were not particularly enamoured of these supposed ‘benefits’ and were very slow to change to using self-service. With this failure to convince the customer of the benefit of getting themselves cold, wet, dirty and smelling of petrol, the companies were faced with a huge marketing challenge – while the consumption of fuel was growing as car ownership expanded, the margins were still wafer-thin, and the only retail petrol outlets that could make money and still offer an attendant service were the ones which subsidised the forecourt from other activities such as car repairs, car sales, shopping facilities, etc. The traditional operating model of the retail petrol sector needed to change in a dramatic way.

It slowly dawned on the petrol companies that simply changing the model in a way that suited themselves but was disadvantageous to the customer was not wise and, despite offering all the additional ‘retail experiences’, they had got it wrong. The simple truth finally dawned on them – customers went to a petrol station to buy petrol and that they only bought other things on an impulse basis. The pumps still accounted for 95%+ of sales although the accessories and other retail products generally accounted for 25% of operating margin. This meant that the self-service petrol station had to attract the customer away from the car/pump interface and into the store and if you have wondered why, at most places, you can’t pay for your fuel at the pump or at a drive-by cash desk – now you know the reason.

This approach still didn’t make the self-service fuel-buying experience any more attractive and the petrol companies finally acknowledged that a major change was needed in the entire model – retail fuel outlets would have to be owned and operated by the companies themselves unless they were attached to other retail experiences that could subsidise the cost of running the pumps and forecourt. Fortunately, they found willing partners in the form of the out-of-town shopping complexes and the larger food retailers who were happy enough to add another high-volume low-margin product to their mix – and the need to purchase food and have the opportunity to fill the car at the same location while collecting discount loyalty bonuses which they could utilise in the store all made sense to the customers.

The conversion of the public to the use of self-service petrol stations was long and slow and required multiple changes to the operating mix before the customers could be persuaded to carry out an activity themselves that had previously been provided by the company. The lack of clear benefit to the customer for carrying out the company’s transactional activities for them was the main issue.

In the next blog, I will take a look at another example of a business seeking the ‘customerization’ their activities – the banks.