Futures $ Options What do you say to your customers now? competitors are touting the fact that they would never recommend a fixed price), what might end up being sacrificed is the basic notion of any pricing program. It might be a case of “throwing out the baby with the bath water,” but as you are scrambling to just try to keep a customer from leaving you, it is quite possible that you are missing out on an opportunity to teach the value of a price cap to a customer and to get the customer on a program that will perform in any market situation—albeit with a “cost to participate.” In the 25 years that we have been working with oil dealers, we have had several different “tag lines” as we expanded and diversified our business. One of my favorites from “back in the day” (anything that my kids can’t remember) was “all the best companies have a cap.” We embroidered that on baseball caps that we gave out at trade shows. The simple fact remains that although participating in a cap program does cost money—say 20 cents per gallon, whether funded directly by the customer or borne by the dealer and simply included in the delivered price—customers who are on a cap are more likely to both stay on a cap and stay with the dealer. The latter is far more important, but the former helps to make that happen. If prices fall, as they did this year, customers would have been better off not being on any program. Why spend the money for a cap if prices are going to be well below the cap level? In years that see sharp price increases, it can well be said that fixed-price offers are better (and often lower) than caps. However, in every case, the cap price will be a pretty good second. With no way of knowing what next winter, and every winter thereafter, will bring, offering caps is not only a good choice, but really is the only choice. Working your way through the process is not as simple as setting prices differently or saying internally that caps are better than fixed price offers. Often, it is a question of psychology, By Philip J. Baratz, CTA Angus Energy pbaratz@angusenergy.com /company/angus-energy /AngusEnergy @AngusEnergy The last time we had to ask that question was exactly six years ago, in the winter of 2008-09, after oil prices rose dramatically—only to fall even faster than they had risen. Though the reasons for the price movements are different now, there still are many customers (actually, millions of them) who are looking for you to make them feel comfortable and confident enough to keep buying from you. Over the years, more so recently, participation in pricing programs has steadily increased. The basic logic of getting rid of a cost uncertainty that relates to one of the biggest expenses of home ownership has won the day, and customers are generally comfortable with the notion of “certainty.” Cap programs certainly yielded better results this year than fixed-price programs, but even those who fixed their prices made the clear statement that certainty beats uncertainty. At least, that is true in most cases. Where it is not true, however, is where there is a risk of losing customers. Companies, often with a maniacal focus on nothing but “customer count”—and just as often an utter disregard for profit margins (“it’s okay, we’ll make money from the customer down the road...”), have chosen the path of least resistance in soliciting new customers. That “path” is quoting the lowest fixed-price fathomable. In return, they have acquired a new customer, and likely set that customer on a path that will continue with fixed-price programs until the customer either gets a better (fixed price) deal from another dealer, or a winter happens with collapsing prices as we are seeing right now. Customers do want low prices. They also want reasonable prices. When homeowners spend over $1,000 more to heat their homes—even with “price protection”—than they would have if they had a capped price, a lot of nasty things can happen. The nasty things do not apply to all customers, but they do to a sufficient number of them. First, the customers can lose faith in you, their dealer, and your ability to “watch out” for them. That might be enough for them to look elsewhere. Most customer losses are over price. Without a serious differentiator, if your price is way off from someone else’s, it can prove to be a big challenge to hang onto customers. Also worthy of consideration is the “silent complainer”. With those who do contact you, at least there is a chance that you can save the account, and turn a negative into a positive. With those who don’t contact you—very likely a larger group than those who do—the opportunity does not even present itself. If the customer manages to not blame the dealer (though this seems to happen less and less, especially when your both within the company, and in dealing with the customer base. You should patiently consider the right steps to get there, and may be best served by looking for consulting help in getting there. There is a saying in sports that “second place is just the first loser.” In this case, second place is always the true winner. ICM 30 ICM/March/April 2015
ICM September-October 2014
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