Caywood Propane's Strategy for Higher Sales Volume - Butane-Propane News (BPN)

In the second installment of BPN's marketing series on unique selling propositions, we caught up with Chris Caywood, president of Caywood Propane Gas Inc., with offices in Hudson, Michigan. Learn what he had to say about how his company adapts to changing market trends, doing business in an ongoing pandemic and more below. Read the first installment of our series on our website at bpnews.com/marketing-series.

BPN: What makes Caywood Propane unique in the marketplace?

CC: We spend a lot of time thinking about that question. When I first got active in the business about five years ago, one of the first questions I asked my team was, 'Why should a customer buy from us instead of another provider?' And the answers they gave me were 'great service' and 'great prices.' The problem is, there really isn't a retailer out there promoting bad service at high prices. After a while, we zeroed in on three characteristics that distinguish us from other retailers — reliable, transparent and value-priced services.

We realized that we provided a combination of all three characteristics, and that many retailers — often intentionally so — only focus on one or two. For example, a low-cost service provider will often make no bones about the fact that they provide a low-cost service, but it is not necessarily going to be reliable.

Higher cost providers frequently provide better service, so they're not afraid to tell the customer that they're paying a little bit more for the value-added service. We have chosen to focus on being somewhere in that middle ground. We're not charging really high prices, but we're still providing terrific service.

BPN: Digital marketing has been a big part of your evolution lately. Would you talk about that?

CC: That is something we deliberately started about five years ago. To give you some background, I ran some divisions at a few publicly traded companies that provided education online. Those were entirely digital services, and I learned from these companies how to provide digital services online that are usually rendered in a classroom. With respect to propane, we realized that we could stand out in a crowd fairly quickly by offering digital services. We also realized there is some background benefit to it.

On the front end, with respect to the customer, I recently completed a review of about 45 websites of retail propane marketers that provide services in at least part, if not all, of our delivery area. I evaluated them, trying to figure out if they have digital access. Can their customers go to their website and do anything besides look at information and get a telephone number?

Secondly, with respect to the transparency I alluded to earlier, do they make their terms readily available on their website? Do they tell their customers, 'This is how we do things with you?' Do they offer tank monitors? Do they allow customers the technology to track the level of propane in their tank? Another important question regarding transparency is, 'Does their website post prices?' And then finally, an important consideration for customers that lease tanks from us is, 'Does that other company provide free price protection?'

After all, when you have an active customer with one of your tanks, especially after that first year, you know what their usage is, so it's easy to predict and to provide price protection to that customer by doing hedging on the backside yourself. We evaluated all those websites and discovered that propane retailers are increasingly providing digital services. We found that about 60% of retailers were providing some sort of digital services. With respect to transparency and making their terms available, it quickly drops to about 40% of retailers.

With regard to retailers with monitors, there is a dramatic drop-off. We were able to identify four retailers out of a little over 40 that provide unlimited monitor service — whether it's compensated with a charge or it is provided free as part of the service – where both the customer and the company can take a look at the level of gas in the tank using technology. With respect to posted prices — again, a key element of transparency — there are only five retailers in our delivery area that we are aware of that actually post their prices.

Finally, we're the only retailer, at least as far as I can tell, in our delivery area that provides complementary price protection. So in the process of answering this question, I've alluded to a combination of business and technology coming together, and that's what we think gives us a real edge compared to most of the retailers that are out there, at least with customers who want digital service.

BPN: Has the process of attracting customers to digital offerings been an easy one, or have there been several steps along the way?

CC: "Steps along the way" is a very polite way of saying we have learned a lot in the last 2 or 3 years. I appreciate the way you've asked the question. We thought [it would be] like in the baseball movies many of us have enjoyed over the years — if we build the technology, the customer will come. Turns out, they don't. We rolled out full digital access in the fall of 2018.

At that point in time, we had just licensed some new technology that gave our customers the opportunity to download an app on their smartphone or to access the browser on our website online. We thought, 'OK, the phone calls are going to go away now. The customers are going to go to the portal; they're going to download the app; they're going to pay digitally; and it's going to be wonderful.' It didn't work out that way, so we did some research.

The Pew Research Center has a sizeable study about online purchasing that they did about 2 or 3 years ago, and one of the findings was an especially big tell for me. More than 90% of Americans have done some sort of business online. In fact, it's almost 90% who do so regularly (defined as being one transaction or more in a one-month-long period). So I thought, 'OK, online options are a convenience to everyone. Why aren't they using it?' When I dug into the study a little further, that's where I got the wisdom.

The Pew Research Center indicated that something like 75% of the customers who make online purchases would actually prefer to do it on the phone or go to a store to transact their business, and the reason they make the purchase online is because of the discounts and pricing breaks that they get. Based on that, during the winter of 2019-2020, we realigned our discount program to encourage customers to do one of two models. First, we encourage customers with a very large discount to sign up for auto-fill and auto-pay.

The auto-fill is simple: we show up when they need propane. The auto-pay is a system where we've either pre-authorized their card, or we hit their card or checking account the morning after delivery. So, the combination of those two things eliminates at least two employee interventions — the phone call for the order and the phone call for payment or processing the check that comes in the mail for the payment. That's now become a completely digital transaction.

The second level of discount that we offer is in case customers don't want to be on auto-fill because they want more control. If they place the order digitally, then we will give them half a discount. If they also paid for it digitally, as opposed to mailing a check or calling us on the phone, they would get a second half of a discount. After we realigned those discounts, we had a dramatic shift in how customers did business with us. In that first winter, only about 1% of our customer base placed a web order, and 57% of our customers were will-call.

Those numbers basically flipped the very next winter. We experienced a 35% increase in auto-fill and a 720% increase in online orders. Today, almost 20% of our will-call orders are placed digitally. We hope to ultimately get all but 10% to 20% of orders placed either digitally or on an auto-fill basis. But it was a dramatic turnaround once we took advantage of the wisdom of the Pew Research Center study.

BPN: Meanwhile, along came COVID-19. How has that impacted the switch to digital?

CC: Well, COVID-19 has had a dramatic impact on business in the industry. As critical infrastructure businesses, we're all allowed to stay in business, but the challenge is to do so safely. Where the digital transition helped us out was more in the back office than in the front office. I remember getting on Zoom calls with many colleagues and discussing how to operate safely and discovering that, at the time, retailers who used paper invoices to make manual entries had to have their drivers put on masks and gloves, and they would drop off the invoices at a particular spot in the office.

The invoices were left alone for 72 hours because, at the time, the understanding was that the virus could transfer to a human from a surface for up to 72 hours. So they had to wait three days to make the billing entry for the customer. Now, because we have digital tablets and digital meters and those tablets talk to our server through Wi-Fi, we don't have to go through that process. And so, with respect to order and fulfillment, there were no pieces of paper.

On the payment side, similarly, because so many customers were paying digitally, we were handling far less cash with customers walking in, and with checks that were coming in, there were just far, far fewer of them. A digital transaction had a big impact on the back end. On the front end, because customers could place orders over the phone and because customers stopped going into the offices, it had the impact of reducing our telephone volume.

BPN: Is it tougher to attract good employees with the need for knowledge of digital tools?

CC: It is. I am in the process of interviewing for a driver and a service technician for one of our plants, and we also recently filled a position. Actually, one of the litmus tests that I engage in to get the right kind of candidate is two-fold: First, I use a digital submission process. I don't use want ads anymore in the local newspaper, which was previously our primary source for candidates. I don't use employment agencies anymore. I use technology that is deliberately attracting the kind of candidate that is used to sitting around with a smart phone using an app or at a desktop using a browser to look for their job. By virtue of that, I know they are have some ability to work with technology.

Secondly, all my interviews are conducted with a video conference, and that has literally served as a screening process for about 20% of the applicants. Twenty percent of the applicants are simply unable to get the technology to work, or they're unable to get someone to get it to work for them. I'm able to filter out a lot of applicants quickly, and I'm left with applicants who at least have enough familiarity to wind up on a Zoom call. During the course of that conversation, I actually do warn them that the most important tool in their job is going to be their tablet because they don't have any paper in their job.

All our forms are digital — even the Gas Check form. So, when they perform a gas check or they need to fill out a Department of Transportation form to bring a tank that has more than 5% of gas in it back to the plant — it's all digital. The pre- and post-trip inspections are all digital. If they don't know how to use a tablet or if they don't know how to select parts when filling out a purchase order on-site, then they're not going to be able to function with our business.

BPN: do you have any further thoughts regarding your unique selling proposition?

CC: A lot of our colleagues in the business have elected not to provide a digital offering, and they attract customers who don't want one. These are customers who have a landline. If they have a cellphone, it might be a flip phone. These are customers who prefer to walk in and put cash on the table or write a check and put it under the hood of the tank.

We still serve those customers, and we're happy to serve them, but we don't provide the level of discounting that's available to the customers who engage in a digital offering. What we've discovered over the last two years is there are a lot of customers who are looking for [discounts]. They're not going to use our technology for convenience, but they are going to use it to save money. We're attracting that customer, and retailers who cannot make that offer to those customers aren't going to get them.

What we have learned is that we've expanded our market by looking for a different kind of customer. Those customers are out there, but where we find them now is in very different places than where we used to look for them.