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NeighborOil introduces modern marketing techniques to the home heating oil business

Posted by Scott Kirsner  January 17, 2012 10:36 AM

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The business of selling home heating oil is not exactly full of marketing geniuses. When you buy a new house or condo that has oil heat (as opposed to, say, natural gas or electric), they send you a single piece of direct mail to persuade you to become a customer. And once you pick a provider, they assume you will be with them as long as you own the home. The relationship is simple: they send a truck to deliver oil every few weeks, and you pay the bills.

An Andover-based start-up, NeighborOil, wants to inject some modern marketing techniques into that relationship. Namely, they want you to be able to shop around online for the best price per gallon of oil — the same way you can when you fill up your car — and they want to reward you with discounts if you refer friends to the service, or do some of your online shopping with any of NeighborOil's 4000 retail partners.

"There are about nine million homes in the U.S. that use oil to heat their home or to heat hot water," says founder Paul Harkins. "And about six million of those homes buy oil on an as-needed basis, as opposed to being on a long-term contract. But most people don't know that they can shop around to find the best value."

When you create an account on the NeighborOil site, it asks for your ZIP code; the service currently covers more than 80 percent of the parts of the U.S. that use oil, Harkins says. (Not Arizona or Hawaii, for instance.) You can accumulate points by inviting friends and neighbors to use the service; by allowing NeighborOil to post a marketing message on your Facebook wall; or by shopping at sites like Home Depot, Sears.com, or Barnes & Noble. (The site offers a toolbar that integrates into Firefox and Internet Explorer to make that last task easier.) You also earn points when you buy oil through NeighborOil. Each point can be converted into a dollar off when you purchase oil.

Screen Shot 2012-01-17 at 10.18.08 AM.pngThe big behavioral shift that NeighborOil asks consumers to make is to start monitoring the level of oil in their tank, so that they can order a refill well before they run out. (I use oil at my house, and it's kind of nice to let the oil company worry about that — especially if you travel a lot.) But the upside is that you can save a Boston-area customer about 30 cents a gallon, according to the site. (Looking at my most recent oil bill, using NeighborOil would have saved me about 10 cents a gallon, or $14.50. But I'm still benefitting from a "new customer" discount that reduces the price I pay per gallon with my current provider, and the NeighborOil price I'm comparing it to is also before any additional discounts I could have earned through doing online shopping or pitching all my friends on the service.)

Harkins says the site, which launched last summer, is adding about 30 homes a day. "The main acquisition strategy is members inviting other members," he says, "but we're also doing some search engine advertising."

For many oil dealers, Harkins says, "marketing is really a secondary consideration. We help them with that, and it's guaranteed payment. They don't need to invoice the customer and worry about that percentage that don't pay, or pay late."

Eventually, Harkins says the company hopes to help consumers upgrade older, less efficient boilers and furnaces: "Our thinking is that you'd take a picture, and we'd look at it and be able to tell you that it's a 1985 unit, running at 45 percent efficiency, and that you'd use half as much oil with a newer unit." He says the company plans to start testing a new financing offering within the next month or two that would help consumers purchase more efficient equipment — and they'd be able to apply their points to that, too.

Among the start-up's advisors are David Baum, managing director of Stage1 Ventures; Julie Roehm, SVP of marketing at SAP; and Ian Bowles, a former secretary of energy and environmental affairs in Massachusetts.

Harkins says the company has been self-funded so far, but has lately been in conversations with several venture capital firms. No doubt January is a better time of year than July to be pitching this business to investors...

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Scott Kirsner was part of the team that launched Boston.com in 1995, and has been writing a column for the Globe since 2000. His work has also appeared in Wired, Fast Company, The New York Times, BusinessWeek, Newsweek, and Variety. Scott is also the author of the books "Fans, Friends & Followers" and "Inventing the Movies," was the editor of "The Convergence Guide: Life Sciences in New England," and was a contributor to "The Good City: Writers Explore 21st Century Boston." Scott also helps organize several local events on entrepreneurship, including the Nantucket Conference and Future Forward. Here's some background on how Scott decides what to cover, and how to pitch him a story idea.

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