It looks like we’re in for another wild price ride this winter. I just finished facilitating three of our Breakthrough Groups and dug into the ramifications of this challenge with 27 fuel companies. It’s been a while since we’ve all faced these dynamics, so I thought it would be helpful to raise some issues that deserve your focus.
When prices rise this much, it drives a wedge in your customer relationships. While many people are generally aware that world energy prices are rising, it doesn’t mean they’re prepared for the delivery ticket you leave at their door. Saving 20 or 30 cents when fuel is $2.50 per gallon delivery is enticing; when you hit $3.50 or $4.50, it becomes compelling. You can’t change the reality that prices are higher, but you can diffuse some of the motivation to shop around.
History teaches us that you should:
Your people are on the front lines of this battle, and how they handle the customer conversations will result in keeping or losing accounts. You need to spend some time helping them understand why prices are higher, and how the dynamics work, so they can explain it properly to your customers. Moreover, the nature of these calls will leave them feeling beat up and frustrated. We once surveyed fuel company employees asking whether they thought their company made more money from prices rising. A majority said yes. Not good!
Give them answers to questions like:
Also, give them parameters for how much they can negotiate in order to keep a good account. Define what you mean by a good account. Keep track of how much you are giving away, and to whom.
The easiest thing for you to do is offer fixed price deals to attract new customers or mollify existing ones. If it’s pre-buy, that’s one thing. But if it’s not, make sure you have their commitment in writing, and have sufficient penalty for them canceling (liquidated damages) to deter them from skipping out if prices suddenly turn around. When prices are spiking, it’s hard to imagine they could plummet. You only need to remember 2008 to get religion about why this is so important. If you do decide to offer this option, consider hedging the downside risk, just in case.
While you are focusing on defense, there’s no reason you can’t also take advantage of the increased shopping to add more business. And since most fuel companies won’t read this article, they probably won’t be taking the above steps to reduce their losses. You need to ensure you get the phone call.
Now is a good time to:
I know this may seem counterintuitive, since I’ve spent most of this article talking about the risks of customer losses and steps you should take to mitigate them. But one thing you should avoid doing is getting yourself in deep **** because you are absorbing too much of this increase without passing it along. In my experience, and this was borne out in our Breakthrough Group discussions, many fuel companies tend to hold back, for fear of upsetting the apple cart or getting too far ahead of dumb competitors. Fair enough. But at some point, you don’t get the degree days back. Worse, the weather might turn warm, and you fall even further behind.
Given how much your other costs are also rising — for drivers, technicians, tanks, parts, and more — it is very dangerous to not keep pace. Perhaps you will incrementally lose some more customers, but you will avoid getting hammered, and won’t run afoul of your banks. You can always gain new customers. You can’t make up for a lost year. Besides, if you effectively execute the game plan I’ve laid out, you will go a long way towards mitigating customer defections.
Nothing about this is going to be easy. Play it smart, and you can keep your headache from becoming a migraine.