Biofuels: Moving customers from "Why?" to "Why Not?"

Alternative fuels have work to do, say retail marketing experts, to win customer acceptance, but the work can be done. Here are 14 points to consider.

In Australia, Nic Moulis, CEO of the Australian Convenience and Petroleum Marketers Association, and Charles Wright, GM of Neumann Petroleum, encouraged the biofuels industry on the promise of alternative fuels, but warned that the industry had not done nearly enough to win sufficient consumer acceptance. Speaking at the Alternative Fuels Summit in Brisbane, the retail experts outlined 14 points that alternative fuel developers, and partners throughout the value chain, had to embrace in order to build a sustainable market for fuels.

“[Former Queensland premier] Peter Beattie was right,” said Moulis, “alternative fuels need many things, but the most important thing they need is a customer.” He went on to highlight seven factors that are driving the marketplace, and needed to be paramount in the minds of alternative fuels producers.

1. Move towards diesel. In Australia, diesel has now overtaken gasoline in market share, and worldwide usage is moving towards diesel as well. Developers need to provide for the growing demand for diesel in their fuel expansion plans, and governments and developers that were overly focused on ethanol mandates would have less success in the market place.

2. Low margins in retail make conservative incumbents. Moulis said that all parties, from the refiners through to the station operators, shared just 4 cents per liter (15 cents per US gallon) in margin, and the very low margins made all downstream partners highly resistant to risk, investment in infrastructure, and limited in their resources to win customer acceptance for new fuels. Moulis said that government [in Australia] collects twenty times as much as the entire downstream industry, in the form of fuel excise taxes.

3. Changing marketplace. Supermarkets were increasingly becoming the dominant point of sale for all fuels, as opposed to branded stations. Moulis said that, in Australia, the Coles and Woolworths supermarket chains controlled 46 percent of fuel distribution as of 2010, in a massive increase since the beginning of the 2000s, and that fuel developers should be cognizant of the changing marketing environment, and the special challenges and opportunities for winning and keeping alternative fuel customers in those new channels.

4. Displacing too much gasoline. Moulis warned that alternative fuels were setting themselves up by focusing too much on displacing gasoline with ethanol, by putting pressure on oil refiners to push back on more efforts to displace product coming out of their refineries. “You are creating a surplus by blending more and more ethanol, and you will inevitably get resistance because marketers want to sell what they make, not what you make.”

5. Small family operators and real estate investors. Many station owners, Moulis said, are in fact owned by real estate investors and small family operators, no matter what brand is on the fuel, and their access to information about alternative fuels, and awareness and support, is invariably different than the perspective of oil companies, who are typically the ones on whom the alternative fuels industry places emphasis. “There are different trigger points,” Moulis warned.

6. Cost of infrastructure change. New fuels brings new infrastructure needs, said Moulis, even if it just the problem of old tank storage systems that have their rust and build-up cleansed when first exposed to clean fuels (dumping the build-up into the fuel, and potentially causing filter problems for customers). But most importantly, Moulis warned, small operators simply did not have the capital structure for tank storage and blender pump infrastructure changes, and the government needed to become more involved to effect change if it wanted change to occur rapidly.

7. Air of inevitability. Referring to products like Air Jordan and iPads, Moulis said that more work had to be done to sell fuels on the basis of “Why Not?” instead of “Why?”, and to build broader support based on clear differentiation of product attributes.

Charles Wright, executive GM of Independent fuel retailer Neumann Petroleum, echoed many the same themes in his presentation at the Summit.

1. Low-quality fuels. Wright warned the industry against letting exuberant growth opportunities lead to low quality fuel developers putting best intuitions above best practices, and putting sub-standard fuels into the marketplace. He warned that the result would be a consumer backlash that would take years to overcome.

2. Closing refineries. He said that the closure of more and more oil refineries as they became obsolete and yet too expensive to replace, represented an opportunity for alternative fuels marketers, but only if they provided product at prices that customers will accept.

3. Climate of uncertainty. Wright warned that a policy “climate of uncertainty” was casting a pall over the future of alternative fuels, and said that a key to sustainability was stability, and that fluctuations in policy, even if well-intentioned, could create a chilling effect on the adoption of new fuels.

4. State needs to promote. The state is setting mandates, said Wright, and it can’t think that once the mandate is set, the work is done. In fact, he said, the work of promotion only began with the mandate, noting that only the state had the resources and the compelling interest to promote alternative fuels, and had to do a better job in promoting the benefits of cleaner fuels, beyond environmental benefits that were already understood and not enough.

5. Tighter specs. Wright said that variance in the quality and performance of B100 biodiesel, depending on the feedstock, demonstrated that biodiesel specs needed to be tightened in order to provide sufficient assurance to customers, who viewed cars as a prized asset not to be exposed to “shonky” fuels.

6. First fill is critical. Wright noted that once a customer had tired alternative fuels, they were highly likely to keep coming back. He suggested that more emphasis had to be put, in marketing messages, on the first fill. He said that sponsorship of racing teams, especially for high-performance vehicles, helped to provide reassurance to the first-time customer.

7. Sell biofuels as a quality fuel, not a discounted fuel. Wright said that discounting for lower energy content of alternative fuels such as biodiesel and ethanol was a good idea, but that discounts should not drive the sales story. Rather, he said, alternative fuels had to be positioned as quality fuels, and customer attitudes would have ago change a great deal before this was achieved.