RPMI - Stage III Implementation Refined Products Marketing Improvement

1. RPMI - Stage III Implementation Refined Products Marketing Improvement Customer Research Workbook A Knowledge Transfer and Discovery Document

2. RPMI - Refined Products Marketing Improvement Project Stage III Implementation KII Philosophy "Our sucess is defined primarily by how well we utilitze our combined knowledge to anticipate and meet customer needs." Customer Research Workbook Objective Overview A. Prepare for research B. Apply external resources C. Define segments and select tools D. Conduct and consolidate research E. Document respondent feedback Detailed workplan - Appendix 3

3. Objective Customer Research RPMI Stage 2 Objective • Vision • Target "To- - Be" Decision • Change Plan Customer Research Design and implement customer research to help align the RPMI process improvements with those major customer segments having a long term interest to Koch fuels. Level 3 "To-Be" Level 3 "To- Be" Involved front line marketing and accounting staff to map day-to-day interfaces with the customer. Involved front line marketing and accounting staff to map day-to-day interfaces with the customer Processes Change Actions External Inputs • Use ASQC and"Best Practices" • Apply PMAA results • Update Stage III • Continued Research Align to Processes Stage III Research Activities E Prepare Define Conduct FeedBack • Customers • Segments • Techniques • Questionnaire • Interviews • Focus Groups • Consolidate Results • Align to Process • Set Objectives • Understand old initiatives • Identify RPMI Processes • To PCM's • To RPMI Team • To Customers Components, tools, techniques Benefits • Past Research Results • ASQC and "Best Practices" • Questionnaires • Facilitated Sessions • PMAA Results • Interviews • Focus Groups • Identify Change Actions • Fit with RPMI objectives • Feedback from wide range of customers is solicited • Commitment to effort is built in marketing

4. Overview Customer Research D. Conduct and consolidate research A. Prepare for research C. Define segments and tools E. Document respondent feedback B. Apply external resources Activities Deliverables • Customer segment definitions High-level research plan for individual segments • Interview / focus group guidelines • Consolidated feedback • More change actions Effective customer research is not a one-time event. The real power lies in Koch''s ability to monitor levels of customer satisfaction over time

5. Customer Research Workbook A. Prepare for Research Description (1) An examination of previous and ongoing Koch efforts to understand needs of the customer. (2) Identification of key RPMI processes that touch the customer. RPMI Level 3.0 Map Analysis Past Research Assessment Purpose/objectives • To establish close understanding of past research activities conducted with the customers. • To pinpoint target processes for the research. Risk of omission • New research not consistent with current customer perceptions. • Research design that has little or no RPMI impact.

6. Customer Research Workbook B. Use External Resources Description ASQC and "Best Practices" PMAA Results Risk of omission • Not making best use of outside experts. • Not appearing as professional to the customers as other surveys This planning activity review applicability of outside resources available to the Koch customer research planning team. Purpose/objectives • To ensure appropriate selection of: • The approach • The questions • The style and format for the research

7. Customer Research Workbook B. Support for Research Customers can be divided into those that are "transaction driven" and those that are "relationship driven". The table below lists the common characteristics which describe the two major customer segments. They need to be carefully considered as the RPMI project goes forward. The characteristics are common to the major customer groups -- regardless of channel-of-trade. Common Customer Characteristics Relationship Driven Long Term - Loyal Customers Transaction Driven Short Term - Shopper Customers • Have a long time horizon • Supply reliability important • Have belief they are getting "good" value for the price • Believe commitments will last and have high "switching costs if the supplier changes • Make investment in lasting assets: • Procedural • Fit customer term supply operating plans • Annual contracts • Relationship • Focus on the organization • Have a short time horizon • Immediate availability important • Lowest price is important • Are different no term of commitment, and have low cost to change suppliers • Have few investments in lasting assets: • Procedural • Limited to immediate purchase • Load-by-load commitments • Relationship • Focus on the sales rep.

8. Customer Research Workbook B. Support for Research Common Customer Characteristics (cont'd.) Relationship Driven Long Term - Loyal Customers Transaction Driven Short Term - Shopper Customers • Physical (more definitely true) Tankers, Tankage, Facilities E. Require a Relationship approach F. Care a lot about long term issues: • Consistency • Information accuracy • Smooth growth of product availability G. Are especially sensitive to any sign of weakness from Koch. They depend on Koch. Koch's performance is very important; and must communicate the overall reliability and long term capability of the whole organization. H. Are buying a company, not just a product • Physical (only directionally true) • Common carriers, leased tankage E. Emphasize a Transaction approach F. Care about immediate attractiveness of individual purchase: • Price • Immediate availability • Indifferent to volume growth G. Are never locked in or consider they could be with Koch long term. Over time, it is best to view these customers as a series of short term commitments - not closely related in the customer's eye. H. Do not expect relationship to ever last

9. Customer Research Workbook B. PMAA Support for Research The PMAA (Petroleum Marketers Association of America) "Supplier Cup" Survey was originally designed in 1985. The PMAA Survey asks independent marketers (jobbers) to rate the factors "most important in selecting a new supplier". What is Priority For? In order of importance Long Term Koch Customer 1) Supply Stability 2) Pricing Competitiveness 3) Product Quality by Segment 4) Consumer/Brand Acceptance 5) Supplier/Jobber Communications 6) Credit Card Program 7) Brand Programs Short Term Koch Customer 8) Credit Terms 9) Refinery/Rack Proximity 10) References of Other Marketers by Segment 11) Crude Oil Reserves Other factors listed by respondents include intangibles such as honesty and quality of personnel; as well as selecting a supplier that would agree to compete in jobbers' market area.

10. Customer Research Workbook C. Define Koch Segments and Select Tools Description A way to determine segments important to Koch; and select tools to get valid research data. Appendix 1 - RPMI Questions Appendix 2 - Questionnaire Template Koch Purpose/objectives • Relate processes to specific customer groups • Set RPMI priority for improvement • Match some / all customer's demands • Develop Questionnaire Questionnaires: Risk of omission • Research is unrelated to customer priorities • A loud minority sets the standard • Not all customer requirements met

11. Customer Research Workbook C. Define Customer Segments Key Objectives Who the segments are? What they value? How to tailor Koch service delivery? Interviews Focus Groups or "Ideally Use A Ranking of Koch Against The Competition" Sample Questionnaire in Appendix 2

12. Align RPMI Processes Validate with Future Research Customer Research Workbook C. Proposed Customer Segments • The RPMI "customer driven" processes should be defined and aligned with the major customer segments...Pine Bend, Corpus Christi, and/or Koch Fuels is the most common definition. However, there are: Alternative Major Customer Segments: • First: By type of "supply" defined as: - operating out of a Koch or exchange terminal, - rack or delivered and - transported by common carrier or Koch • Second: By type of sale defined as: - end user - reseller, or - retailer (dealers) • Third: By other factors specific to each channel of trade, such as: - end user customers can be either loyal or price shoppers, - jobblers are either very sophisticated businessmen, or less sophisticated, and -retailers are either long term, good businessmen or new-to-Koch, poor businessmen. • Fourth: By geographic market and supply characteristics.

13. Customer Research Workbook D. Conduct Research Description Interviews with Questionnaire Selection of the best way to get valid input from a cross section of Koch customers -- in a cost effective manner. Purpose/objectives • Pre-test questionnaire and approach • Get valid input • Assure confidentiality • Be as specific as possible Focus Groups Risk of omission • Unreliable and misleading results Get valid input

14. Customer Research Workbook D. Conduct Research • Small number of major customers • Relatively large dollar purchases • Decision to purchase is complex • Customers know Koch, the industry, & the products • Close working relationship with Koch Business market research is different from Consumer market research Ref: ASQC Article April 1994 Appendix 4

15. Customer Research Workbook E. Document Respondent Feedback Interview Results Focus Group Results Description Customer research is a documented, multipronged strategy which should build on Koch's existing efforts and continue. Purpose/objectives • Complete Definition of segment • Clarify strategic and RPMI issues for each segment • Interpret and present results to: • RPMI team • Koch marketing management • Customers • Determine method and frequency of future surveys Risk of omission • Unfullfilled customer expectations • Survey approach backfires

16. Customer Research Workbook Appendix 2: Questionnaire Template Customer Questionnaire Script Introduction Good morning/afternoon, I am _______from Koch/Price Waterhouse. We have been selected by a Koch team to do a confidential survey of some of their major customers to help Koch improve service with their customers. The survey takes about twenty-five minutes. Is this a good time to talk things over. Before I get started, can you tell me a little bit about your business: Background Are you a: Trucking_____, Railroad_____, Auto company_____, other_____. What are the primary products that you use/buy any kind of volumes, where. Is product: delivered to you by Koch _____, picked up at the Koch/other terminal _____, delivered by common carrier _____, by other transportation methods _____. Are you computerized: _____ yes _____ no If yes, what type of applications are computerized. • accounting • pricing • operations Do you have further plans for computerization. _____ when. EDI? Yes:_____ No: _____ EFT? Yes _____ No: _____ Type: Draft _____ CTX _____ Internet? Yes:_____ No: _____

17. Customer Research Workbook Appendix 2: Questionnaire Template Koch Relationship How long have you been with Koch? (If with Koch for a number of years) Have you seen any changes over the last couple of years in the way Koch is working with you? Can you describe those changes to me? (If you are new to Koch) Who was your previous supplier _____. For how long _____. How does Koch compare with your previous supplier _____. Do you currently lift/get product from other supplier's). Who _____. AMOCO Hess Phibro _______ Chevron Marathon Unoven Ashland Lefler Star _______ Dreyfus Mobil ______ Customer needs What is important in selecting your supplier (s) ? 1. Supply stability 7. Brand programs 2. Pricing competitiveness 8. Credit terms 3. Product quality 9. Network/Rack proximity 4. Consumer/approval acceptance 10. Reference of other marketers 5. Supplier/jobber communications 11. Crude Oil Reserves 6. Credit card program

18. Customer Research Workbook Appendix 2: Questionnaire Template Research objectives As I stated in the beginning, this is a confidential survey. We want to get your frank, honest and open opinions. If you want to say some things "off the record", please let me know. It will stay between you and me. Koch's objective is to improve customer service by having the customer tell Koch how to make it easier to do business with Koch. What is your biggest headache in doing business with Koch that you would like management to focus on? What is your second biggest headache ? Order How do you place orders? Rack _____ Delivered _____ Where so you place them __________________________? Is Koch ordering process easy and reliable. If not, give me some specific examples. What do you need most when ordering? Deliveries/Lifting Where do you get product? Are the terminal personnel helpful in handling your deliveries? Are there any other improvements in delivery which Koch should consider? What do you need most during delivery? Billing What about Koch's billing. Is it accurate? _____ Is it timely? _____ Is it clear? _____ is it error free? _____ What do you need most from billing? __________________________________________________________ EFT Are you on EFT? Draft _____ CTX _____ Do you prefer EFT? Is it working okay or do you have some recommendations?

19. Customer Research Workbook Appendix 2: Questionnaire Template Pricing and Taxing Can you tell me a little bit about Koch's pricing notification (excise tax) system and how it affects you. Is it easy, difficult, subject to change? What do you need most regarding price notification? Setup When you started doing business with Koch, was it relatively easy to get set up with them as a customer or did it take a lot of time? What do you need most from setup? Customer Inquiries When you have inquiries who do you contact at Koch? __________ Are the people that you deal with helpful? _____ Do you get inquiries answered in a timely and reliable fashion? If not, how would you like them to be handled? Summary In summary, are you happy to be part of the Koch "family". Do you have any recommendations for this survey or anything to add that I have not covered? Future Koch is considered doing similar surveys in the future, would you be willing to assist on a routine basis? Would you prefer working with someone who can give you third party confidentially or work directly with Koch. I would like to thank you for your time and we appreciate your input. Feedback I do have a one page questionnaire that I would like to fax to you that will take about thirty seconds for you to fill out and return it to _______________________. Would you mind if I do that? Can you please give me your fax number if it's okay? Again, thanks for your time and we appreciate your assistance.