Kiwis love a discount. So much, in fact, that Nielsen research shows that 59 percent of all sales in New Zealand come from products that are on promotion, giving the nation one of the highest levels globally. Comparatively, North America sits at only 31 percent. This in turn means that competing companies are constantly engaged in a discount war, vying against each other for the (bought) loyalty of consumers. And according to Nielsen’s executive director of marketing effectiveness Vicki Riggans, this culture is starting to impact the way Kiwis shop.
“Aggressive trade promotion strategies are driving an increased level of consumer promotional buying behaviours,” she says. “Shoppers simply wait for one of their repertoire of brands to be on promotion before purchasing a product.” So pervasive is the trend in the Kiwi context that Riggans believes that “price discounting is not an investment in this market but a cost of doing business.” And, when it comes to fuel discounting, that cost stretches into the millions, if not hundreds of millions of dollars.
While exact figures are guarded quite closely by the corporate machine in the New Zealand context, the costliness of fuel discounting was recently evident across the ditch where Coles and Woolworths were estimated to have spent $500 million on such promotions. Although most of this expense was carried by the Australian grocery chains, petrol stations also take significant hits to their profits when it comes to fuel discounting. And what seems like only a few cents to a consumer adds up and becomes a significant revenue leech to the business over the course of a year.
In an effort to reduce this loss of revenue, BP’s head office decided to cut the company’s AA Smartfuel discounts. But given the proclivity of Kiwis to shop on discount and the hyper competiveness this encourages between businesses in the same market, this move came with the risk of losing customers, who knew they could find a better deal elsewhere. At the outset, BP did have the benefit of a sound loyalty scheme on its side in the shape of AA Smartfuel. The programme had since its inception attracted significant interest from the Kiwi public (see case study page 46) and a huge portion of the Kiwi population was engaging with it on a weekly basis. The problem, however, was that AA Smarfuel was a coalition-based programme, meaning that BP was precluded from using its customer data to communicate directly with the consumers that would be affected by the discount cuts.
Given that this lack of a communication link increased the precariousness of what was already a risky move, BP set out to build its own database from scratch. But doing this was easier said than done; it was a project that required a substantial amount of groundwork and training, and one that had more than a few encumbrances along the way. For starters, the initiative required BP to work with two customer groups within its business to gain an accurate picture of customer behaviour: BP’s company-owned Connect sites as well as the range of independent dealer sites throughout the nation.
While the Connect sites were obligated to follow the decisions of the head office, BP had to gain indivual approval from each the 114 independent dealers to gain access to their transactional data. Given that a project of this gravity had never been attempted in the past, the independent dealers responded with trepidation on account of the complexity it would add to the point of sale at their stores. To convince the owners that it was a worthwhile risk, BP tapped into the salesman’s tradition and sent marketing reps across the country to sell the programme to each independent.