THE RETAIL INITIATIVES - PHASE I Contd..

BPCL was the first oil company in India to issue a co-branded credit card in a tie up with Bob
Card Limited in August, 1995. The card was launched in select cities to enable customers to
purchase fuel on credit from any of its outlets in those cities. The vehicle owners could even
authorize their drivers to purchase fuel using this card. This facility was particularly useful for
fleet operators and truckers who would otherwise have to carry huge amounts of cash on their
long-haul routes.

BPCL took special attention to avoid the problems an average petrol pump owner associated
with the usage of such ‘petrocards,'e.g. the long time taken by oil companies to collect the card
slips and reimburse petrol pump owners. Also, the transaction fee (below 1%) offered to them
was considered to be very low.

BPCL gave the cardholders pre-embossed slips so that the pump attendant did
not have to run the card and slips through the embossing machine. The company
made arrangements to collect the charge slips of the day the same evening, and
depositing them at the BoB cards office - where the cheque for each dealer was
prepared immediately for delivery the next morning.

During 1998-2000, BPCL took the help of consultants Arthur D. Little to make
itself more ‘market savvy.'BPCL CEO, U Sundararajan, said, “If our staff had to
be geared to satisfy the customers, we needed to change our organizational
structure.”

The company was split into six strategic business units (SBUs) and efforts were taken to reduce
bureaucracy and increase interaction between senior managers and the customers.

The six SBUs thus identified were retail outlets, commercial users, lubricants, LPG, aviation, and
refinery. This classification helped the managers focus on specific customers and cut
bureaucratic layers, speeding up decision-making. For instance, while earlier a sales officer
typically serviced customers from 30 retail outlets, 12 LPG distributors, six kerosene dealers, and
10 bulk customers, now he talked to customers from a specific SBU. Earlier, only General
Managers had the right to decide on discounts offered to BPCL customers. Under the new
regime, even sales officers were authorized to take such decisions. BPCL also set up cross-
business councils that functioned across the six SBUs in areas like strategy, human resources,
and brand building.

This restructuring gave special emphasis to marketing: BPCL initiated a series of steps for taking
the company closer to its customers. The 22 divisional offices were replaced by 61 branches in
smaller territories, based on smaller geographical areas, resulting in closer interaction with the
customers. For instance, earlier a division office at Jaipur looked after the entire state of
Rajasthan. Now, four territory managers in the state managed the smaller geographical areas.

The most important change on the marketing front was the renewed focus on retail outlets. In the
early 1990s, BPCL identified 1,234 new outlets that would be strategically critical after
deregulation of the industry. The company then appointed a ‘site procurement team'to acquire
these outlets. The team had the authority to talk to the owners of the sites and take decisions on
their own. Within a short period, the sites were acquired. BPCL then started modernizing
individual petrol pumps throughout the country and launched the ‘Bazaar'range of stores on the
lines of Shell's ‘C'stores. To complement the launch of the first few ‘Bazaar'outlets, BPCL
released an advertising campaign as well. The five advertisement press campaign carried the
baseline: ‘Each pump has a story to tell - a story of care & commitment.'

THE RETAIL INITIATIVES - PHASE II

By July, 1999, 35 of BPCL's retail outlets across the country had the ‘Bazaar'stores running
successfully. In October, 2000, BPCL pioneered another revolutionary concept by launching a
McDonald's fast food outlet at a petrol pump near Mathura (UP) on the Delhi-Agra highway.
The 4,000 sq.ft., 180 seat outlet was set up at a cost of Rs 40 million. McDonald's paid a fixed
rent, besides a percentage of its sales to BPCL, for using the facility. The outlet was expected to
pull in foreign and domestic tourists headed to and from Agra, besides the residents of
surrounding areas.

The company closely monitored the performance of these retail outfits and
through customer feedback. Based on its findings and the recommendations of
consultants Dhar & Hoon, BPCL realized that it needed to further modify and
improve the ‘Bazaar'stores.

BPCL's research on these outlets across the country revealed that most of the
customers arrived between 8 pm to 11 pm, usually on their way back from work.
So, the company decided to keep the stores open till at least 11 pm. BPCL
realized that a lot of the products being stocked, like soft toys were not really
selling.

As a result, the company reduced the range of products being carried and focussed on impulse
products like chocolates and essentials like milk.

In January, 2001, BPCL further upgraded the ‘Bazaar'stores and, a month later, launched the ‘In
& Out'stores at around 40 outlets in Bangalore, Mumbai, Delhi, Kolkata and Chennai. A BPCL
spokesperson said that the stores intended to offer all the ‘top of the impulse'items to customers.
The company planned to convert the complete ‘Bazaar'network into this new and larger concept
in a phased manner. Around 600 outlets were targeted in the first phase of expansion. After the
metros, BPCL planned to launch these stores in north Indian cities like Chandigarh, Amritsar,
Ludhiana, Jammu, Jaipur, Udaipur, Lucknow, Agra and Meerut.

To offer enhanced services to its customers, BPCL tied up with various companies from a
number of different industries: fast food, photography, music, financial services, ISPs, e-
commerce portals, document centers, ticketing, greeting cards, ATMs, and courier services. The
companies involved were McDonald's, Tata Internet Service Ltd., Pepsi, Kwality Walls, DHL,
Skypak, Essar, Kodak, HMV, Sony, Qwiky's, Canon, ITC, UTI Bank, Standard Chartered Bank
and Kotak Securities. These companies were all given counters within the stores for selling their
services. The ‘In & Out'stores remained open till around midnight and reopened around 4 am.
The company was closely watching the traffic at each outlet and was planning to extend the
working hours if needed.

The ‘In & Out'outlets offered Internet browsing facility, along with assistants to guide the
customers with their online shopping. BPCL also proposed to use the Internet facility to deliver
products to consumers in a timely and cost-effective way. While products could be sent to the
customer's geographical area easily, it was not always easy getting them to their houses when the
customers were home to receive the goods. BPCL proposed to use the solution developed by a
US based company Peapod, which used the local petrol pump as a delivery point. The products
were delivered to a BPCL outlet so that people could come and collect them. The customers
could even call the outlet when they were home for the goods to be delivered. Thus, the petrol
pump acted as a convenient channel between the companies and the customers.

One of BPCL's innovative plans concerned the distribution of LPG cylinders. A company source
said, “For couples who are both out of the house on work, getting the gas cylinder delivered is a
big problem.” This prompted the company to implement a Fixed Time delivery system, where
arrangements were made with the local dealer, or even over the Internet, to have the cylinder
delivered at a particular time, rather than in the course of the delivery man's rounds. With an
investment of around Rs 6,00,000-9,00,000 per ‘In & Out'store, BPCL expected the convenience
stores to break even by February 2002. The company was expecting daily revenues of Rs
25,000-30,000 from the bigger stores and Rs 8,000-10,000 from the smaller ones. BPCL's rivals,
IOC and HPCL, had also begun refurbishing their petrol pumps - IOC's stores called
‘Convenio'were running very successfully across the country. The one who gained the most from
this new found retail focus of the oil companies, was the customer.

QUESTIONS FOR DISCUSSION:

1. Examine why the Indian oil PSUs decided to renovate their petrol pumps and increase the
focus on customer service. Do you think that such heavy expenditure in setting up retail stores at
the petrol pumps would be a wise move? Support your answer with reasons. 2. Study the changes
brought about at BPCL as a result of the 1992 market survey findings and creation of SBUs.
Critically comment on the company's marketing initiatives. 3. Do you agree that of the three oil
PSUs, BPCL was likely to be the most successful after the deregulation of the industry? Give
reasons to justify your answer.

ADDITIONAL READINGS & REFERENCES:

1. Seshan Sekhar, Starting trouble, Business India, August, 28, 1995.
2. Bhade Abhijit & Subramaniam Ganga, Pumping it up, Business India, October, 21, 1996.
3. Apollo Tyres to pump brand at BPCL outlets, www.indiainfoline.com, July, 22, 1999.
4. BPCL bazaar set to enter town, Indian Express, July, 30, 1999.
5. The race begins, Business World, December, 6, 1999.
6. Goyal Malini, Slippery Terrain, The Economic Times, January, 14, 2000.
7. Sarkar Ranju, BPCL Drives down a New Road, Business Today, July, 22, 2000.
8. January 15, 2001, A&M.
9. Sarkar Ranju, Oil on The Boil, Business Today, November, 21, 2000.
10. The Economic Times, January, 17, 2001.
11. Kumarkaushalam, In & Out - BPCL to brand retail outlets, Financial Express, January, 30,
2001.
12. ‘In & Out'stores promise a happy petrol pump visit, Business Standard, February, 5, 2001.
13. Bharat Petroleum - the one to watch, www.biz.yahoo.com, August 3, 2001.
14. Basu Jaya, Coming Soon: McMathura, Business Today, August 7, 2000.

Bharat Petroleum Corporation Ltd (A)

1. Introduction

Burmah Oil Refineries Ltd. was incorporated in 1952 as a joint venture between Burmah Oil

Company, UK and Shell Petroleum Company by an agreement with the Indian Government

to set up a refinery at Mahul in Mumbai, which went on stream in 1957. In 1976 the Indian

Government nationalized the petroleum industry and acquired 100% equity in Burmah Oil

Refineries and named it Bharat Refineries Ltd. The name was later changed to Bharat

Petroleum Corporation Ltd. (BPCL) in 1977.

BPCL was an integrated refining and marketing company. It markets a diverse range of

products from petrochemicals, solvents, specialty lubricants, aviation fuel and LPG. The

Mahul refinery had a capacity of 6 million tons per annum and it operated at 127% of the

capacity in the year ending March 2000. It also had an installed capacity of 98000 MT of

benzene, 17600 MT of Toluene, 90000 MT of lubricants and 10950 MT of sulphur. It was

the first Indian industrial unit to obtain ISO 9002 and ISO 14001 certification and the only

Indian Refinery (and one of the 34 refineries worldwide) to achieve a Level 7 on the

International Safety Rating System (ISRS).

BPCL’s retail network was the third largest in the country with around 4,500 retail outlets
(petrol pumps / gas stations), around 950 dealerships for kerosene and light diesel oil, and

1200 LPG distributors. It had 22 LPG bottling plants, 3 lube blending and filling plants, 6

port installations, 13 aviation service stations, 67 company operated depots and 23 dispatch

units. It completed a 250 km long cross-country pipeline between Mumbai and Manmad in

March 1998. It had a market share of around 22% in petroleum products and 20% in LPG. In

2000, the total sales grossed over 36,000 crores of rupees and 18.86 million tons of

petroleum products. Industrial customers contributed to 27% of sales, LPG 7%, aviation fuel

3% and lubricants 0.5% of the total sales. The refinery and the marketing infrastructure are

considered the best in the industry and most efficient.

2. Industry Environment

The petroleum industry had many international players operating in the country till it was

nationalized in the 1970s. BPCL acquisition was part of the Indian government’s

nationalization program. It was highly regulated and controlled by the government till

economic reforms started in 1991. The prices of the raw materials and the end products,

procurement of the raw materials, production capacity, distribution, and returns on

investment were regulated by the government. There were only three major integrated

refining and marketing companies and a number of independent refineries supplying to these.

Since the focus of the government was to improve the coverage of the distribution network

across the country it regulated setting up of new retail outlets reducing the chance of any

competition between the outlets of different players.

3. Administered Pricing Mechanism

Administered Pricing Mechanism (APM) came into existence on 1977. Prior to APM the

realization of oil companies was restricted to the import parity price of finished goods. Oil

Pricing Committee (OPC) set up in 1976 recommended discontinuing the import parity
pricing. It suggested that the cost of domestic production should determine the pricing of the

petroleum products as more than 90% of the requirements were produced within the country.

The major drawback of the import parity pricing was the delinking of the local cost of

production to the price. This was taken care of by Retention Pricing Mechanism, by which

refineries were allowed to retain out of the sales the cost of crude, refining cost and

reasonable return on investment. This was allowed for the marketing companies also. In

1977, the government fixed the prices of the petroleum products and delinked the cost of

production to the final price of the products. With the administration of the prices by the

government the pricing system evolved to APM.