Questions raised over value of key industry customers

Last winter’s propane shortage shed light on number of will-call account complications.

The phone rings. Will-call customers call continuously, pleading for retailers to deliver propane at this very moment.

The ongoing blizzard won’t make any delivery easy, as roads are iced over and snow covered. But will-call customers tell service reps how they’re about to run out of fuel. Their children are going to freeze, they say.

Their sympathetic stories tug on heartstrings, so every employee is motivated to meet customers’ requests. But executing a wave of deliveries like this with efficiency is nearly impossible. There isn’t enough fuel on site to fully go around, so shortcuts like short filling tanks are taken to push through this tough stretch.

The pitfalls of such a scenario for propane retailers are seemingly endless. Drivers tirelessly work overtime. Trucks are chaotically routed to meet the influx of will-call customer demands. And safety issues arise because road conditions are treacherous, drivers spend more time on roads and retailers must perform Gas Checks if tanks bottom out.

Last winter’s regional propane shortage shed light on many issues retailers face when servicing home-heating accounts. But the shortage raised questions about will-call customers who ask for propane on demand, as well.

Questions about the will-call customer’s value and retailers’ general approach to them are among the most pertinent.

“Every customer can be a good, profitable customer – even will calls,” says Dan Binning, a territory manager at Kiva Energy in Arvada, Colo. “The big issue with will-call customers is that they tend to not check their tanks far enough in advance to allow their delivery to be performed on a route. This either creates an off route or an out-of-gas delivery, both of which take lots of extra time and destroy delivery efficiencies.”

Customer breakdown
Binning breaks will-call customers into four categories: those who own their own tanks and are concerned with getting the best price on every delivery; those who don’t want large deliveries and the accompanying large bills; those who are will calls because of credit issues; and those who are concerned with propane retailers having access to their property.

The large number of customers who own tanks prohibits the elimination of will calls, Binning says, but he offers advice to address two core types of will-call customers.

“They may be offered budget plans [and] price-capping plans to eliminate the getting-of-the-lowest-price-on-every-delivery concern and the affordability-of-a-larger-bill issue,” he says. “If price and payment concerns are taken out of the equation, a great number of will-call customers may become routed.”

Binning suggests the industry can also address the will-call customer who has credit issues.

“Is this a profitable customer?” he asks. “Are we making money delivering to them? Are our extra office costs, costs of route delivery and smaller deliveries worth it? Are we buying new tanks when we have unprofitable steel at will-call customers?”

Andrew Levinson, president of Schagrin Gas Co., a Mid-Atlantic propane retail company, argues that customer-owned tanks are problematic for the industry. But Schagrin Gas came up with a solution.

“We have a policy of not selling tanks to customers,” Levinson says. “We make an exception if there is a standby generator only. We just don’t want to be attached to the liability afterward, because after you sell a tank, the liability doesn’t go away.”

Another retailer, Lori Murawski of Christoff Mitchell Petroleum in central Pennsylvania, counters Levinson’s argument. She says customers who own tanks offer value.

“[For us], most of these customers are commercial or large residential users, so we have the flexibility to work with them on price,” says Murawski, Christoff Mitchell’s COO and CFO.

According to Levinson, Schagrin Gas has another policy in place to deal with will-call customers. The company expects five days’ notice to make a delivery to a will-call account, Levinson says. The policy has simplified the company’s routing.

“It affects your routing when you have to try to slip customers in,” he says. “When I look at customers who run out of gas, the vast majority of them are will calls – I would say at least 75 to 80 percent.”

Schagrin Gas has converted some will calls to keep-full accounts in the last few years with the occasional marketing effort, Levinson adds. Those efforts have helped to alleviate some pain.

“Efforts should be made by marketers to convert will-call customers to automatic and customers that own their tank to be contracted for the season to avoid problems,” he says.

Valuable or not?
Gail Bailey, president of Michael Oil & Propane in Big Rapids, Mich., brings a different perspective to the will-call customer debate. Like many retailers, Bailey says her company would love to have all keep-full accounts.

Will-call customers are an industry reality, though, and they can offer benefits for businesses, she says.

“Their business adds up to some nice gallon numbers at the end of the year,” Bailey says. “We can’t turn them away, nor do we want to. We just try to do the best we can.”

Michael Oil & Propane’s will-call deliveries make up 30 to 35 percent of its customer base, Bailey estimates. Challenges can arise with will calls, she adds, because many are not interested in big-gallon drops.

“A lot of customers are calling for their tank to be topped off or for minimum deliveries,” she says. “Other customers are getting assistance from [governmental] agencies to help with their bill, so they can only have so many gallons.”

Education can improve relationships with will-call customers, she adds.

“They need to understand what we’re up against for deliveries,” Bailey says. “It can take two or three days to get to them – or possibly longer. They need to watch their tanks and call in plenty of time.”

Still, as Murawski points out, competition drives retailers to gain an advantage. And will-call service can provide that edge.

“We feel a propane customer should be on auto delivery, and we promote the reasons why with our customers,” Murawski says. “However, with competition mounting in the industry, customers will go with a will-call vendor because of price – until they get their future invoice from these vendors, who do the bait-and-switch tactic on them.”

Once these retailers realize they aren’t getting a return on investment from these customers, Murawski says out-of-route delivery and minimum-use fees are elevated.

Another perspective
An allied trade representative offers a more critical take on the will-call customer’s worth.

“Will-call customers have the least amount of value of anyone beyond the customer-owned tank person,” says David Lowe, a sales consultant with Pro Image Communications, a company that provides marketing, sales, training and consulting services to the propane industry. “A will-call customer is your customer from delivery to delivery. They’re not a long-term customer. They may be with you 20 years, but they’re calling around on each delivery.”

Lowe, who previously owned Lowe Bros. & Dad, a Michigan propane retail company, encourages retailers to crunch a few numbers to truly gain an understanding of the burden will-call customers put on their businesses. One metric retailers can examine is the effectiveness of their deliveries in relation to the amount of space available in each tank.

“When companies are filling at 30 and 40 percent, what they’re actually doing is buying more fuel than what they need or can use,” Lowe says. “By that I mean if they’re continuously filling at 30 or 40 percent you will purchase more fuel periodically than if you fill at 20 percent.”

The lack of effectiveness is magnified in a crisis situation like last winter’s shortage, he adds.

“If you continue to fill at 30 and 40 percent, you’re buying fuel and putting more stress on the [overall propane] system than if you fill at 20 percent,” Lowe says. “When you get 100 marketers doing that, they’re drawing on the system quicker and longer than if they fill at 20 percent and allow the production system to gain inventory.”

Lowe also argues that retailers shouldn’t standardize 20 or 30 percent as the mark when they should absolutely deliver propane. Retailers can do better, he says, and they can achieve greater efficiencies.

“Start making deliveries when customers are down to 15 percent,” he says. “If you have 100 gallons in a tank and a customer uses 7 gallons a day, they still have a lot of fuel. Theoretically, they could go 14 days without running out. You’re compromising your delivery system when you drop everything you’re doing to fill a tank that’s at 20 percent.”

Retailers should also use equipment and technologies to mitigate issues related to any kind of customer, Lowe adds.

“If you don’t have monitors and you don’t have delivery software, talk to folks who are providers of it,” he says. “Yes, this will be an investment and a change, but those kinds of things will now tell you what your actual delivery cost is.”

Fire your worst customers

Nobody wants to lose customers, but David Lowe, a sales consultant with Pro Image Communications, offers a compelling case for why propane retailers should consider customer loss.

He doesn’t mean significant loss, but the kind that can help a business eliminate inefficiencies.

“Every year you should give yourself the opportunity to fire a select few customers,” Lowe says. “For various reasons, I would contact 24 accounts and tell them we will no longer be able to take care of them.”

Retailers should not fire all 24, he points out. They should retain the majority, but approaching customers to say you can no longer serve them – and explaining why you can no longer serve them – usually benefits the retailer.

Lowe, who previously owned a propane retail company in Michigan, speaks from experience.

“Interestingly, they would tell us they don’t want to leave us,” Lowe says. “Then, you give them choices and explain you’re going to have to be a customer under these parameters. You offered what was best for the company, but ultimately you’re doing this for the customer. They didn’t have to be home and sign for a Gas Check. It’s more cost-effective for them or for the customer by offering price-protection program options.”

Retailers should contact customers with 250-gallon tanks or smaller, Lowe says. Those are a retailer’s most inefficient customers, he adds, because deliveries, on average, are smaller and perhaps more numerous than larger tanks.

SPECIAL REPORT FROM LP GAS
The propane industry experienced one of the most challenging winter heating seasons on record in 2013-14. In preparation for future winters amid a changing energy environment, LP Gas is examining the issues that led to what some called a crisis supply situation. We are reaching out to all segments of the industry to explore our past and future, bringing attention to key subjects, initiating industry dialogue and providing necessary education to our readers.