Cost Leadership and Gasoline Prices (Craig Douglass On Marketing)

by Craig Douglass  on Monday, Jul. 1, 2013 12:00 am  

Craig Douglass

Read any good signs lately? It seems that summertime reading includes eyeballing gasoline signs hunting for the best price per gallon. As miles driven increase during the summer months, particularly among younger drivers, finding the lowest price for more frequent road trips has become a summer ritual, even more so as gasoline prices have stayed above the $3 mark for nearly 30 consecutive months.

The frugal consumer always likes the best deal. Looking for leadership in the low-cost category, consumers are willing to be loyal to a brand if the price is right, and right consistently. That’s why marketers who adopt “cost leadership” as their primary strategy consider price not as a tactic, but as a day-in and day-out mission.

Cost leadership as a marketing strategy uses price as the primary marketing tool. To be successful as a cost-leader brand, gasoline sellers — convenience stores, kiosks, supermarket and big-box retailers — need to become the low-cost producer, reducing, wherever possible, costs in production, distribution, promotion and operation. And the price on the sign tells the story. In fact, in a survey by the National Association of Convenience Stores, 65 percent of those who cited price as the most important factor in making a purchase decision agreed that the price sign at the store was the key factor. “I observe prices while driving” was the most prevalent comment in the survey.

Price sells gasoline. The NACS survey asked respondents, “When buying gas, which of the following factors is most important to you?” At the time of the survey, with gas at more than $3.30 per gallon, 71 percent said price. This is up from 63 percent in 2012 (with average gas prices about the same as this year). So if price is the most important factor, how does a brand create loyalty among consumers (understanding that only 18 percent of the surveyed motorists said location was an important factor)?

We believe the answer resides in the notion that a business can create and sustain its brand based on price. Not periodic promotions necessarily, but consistent low-cost leadership using price as the primary brand attribute. Couple cost leadership with loyalty programs such as cash discounts or rewards, and the brand can create added value, thus keeping the fuel consumer coming back.

Consumers will change their behavior to save 5 cents per gallon, according to the NACS survey. Paying cash or paying with a debit card to get the discount was a motivator to more than 74 percent of the respondents in the survey.

The price on the sign is important, of course. However, to make the low-cost leader a destination for fuel consumers, advertising and social media, including smartphone apps, are critical to the success of the brand. Consumers must be instructed and reminded where they can get the best deal, with the creative message clearly associating the brand name with the price advantage. Because gasoline is considered by consumers as a commodity, cost leadership in this category will not happen in a vacuum.

Americans will change their driving or lifestyle habits when they consider gasoline prices as “too high,” according to a recent AAA survey. And “too high” to more than 60 percent of consumers means when prices reach $3.50 per gallon. With more fuel-efficient cars, and car and truck owners stating they will drive less when gasoline prices are more than $3.50, sellers must strive to attract and keep customers through the dual strategies of leadership and loyalty, employing and consistently communicating price as the primary consideration.

Craig Douglass is a Little Rock advertising agency owner and marketing and research consultant. He is president of Craig Douglass Communications Inc.



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