Monday, May 28, 2007

A clever plan

This may seem like a given for everyone out there, but no one's really talking about it. So I will. Two weeks ago AAA released a report stating that if gas prices rose to $3.40 a gallon , there could be as much as 25% fewer travelers over the Memorial Day weekend. If the price rose to $3.50 a gallon, the percentages could be as high as 40%. Gas companies make a pretty penny from vacation travelers, so this was a dilemma. They needed to find a way to make that two or three day mega blitz income without freaking out the public to the point where they stayed home. Quite the conundrum. The answer? Clever timing.

On Wednesday here in Ohio, gas prices rose from an average of $3.09 across the state, to a staggering average of $3.49. Forty cents in one day! While this would seem to throw stupidity in the face of their little problem, it wasn't the end of their plan. While the state (and country) cried foul for two days and threatened to cancel all their travel plans, the oil companies sat back and waited. On Friday, they lowered the prices to an (Ohio) average of $3.19. Why would they do this when they need to make that huge profit they were aspiring to?

By lowering the prices, they tricked the general public into only thinking about the price reduction of thirty cents, and not the price increase of ten cents. (Does anyone remember that gas prices were under $2.00 a gallon just two years ago?) And with the Memorial Day weekend being the second most travelled holiday of the entire year, the big oil companies could be on target to have their best Memorial Day numbers ever if no one cancelled their plans. And guess what? On talk radio this morning, they reported that AAA released another report showing an actual increase in holiday travelers this year. An increase.

It would be easy to just write off the increased travel numbers by saying we are selfish Americans who don't care about anything but ourselves. I think a more accurate description is that we are ignorant Americans who are easily tricked into paying more and feeling good about it. And the oil companies are sitting back laughing at us as they count their money.

11 Comments:

Anonymous Rob Osborn said...

This is an interesting post, Sam. There are a bunch of things i feel should be addressed, but as usual, i don't have time to address them right now...i've got to head out to a job in a few minutes. I'll do my best to get back to it.

to kick things off though, I think that blaming 'big oil' for all of this is a bit narrow minded. For one thing, oil prices aren't as high as everyone acts like they are (especially if you factor in inflation) and we're paying a lot more for a lot of our luxuries than we are for gasoline without thinking twice about. Gasoline is an easy target because we have to buy it 15 gallons at a time-- but i don't hear mass public outrage that starbucks charges over $30 a gallon for a coffee flavored drinks. And yet, there is always as long a line at the starbucks as there is at the gas pump.

if oil prices are too high, i think there are a lot more places we should be looking (and throwing blame) than big oil. Before we start throwing around conspiracy theories about big oil doing it's best to dupe the public masses, lets take a closer look at supply and demand theory, taxes, governmental regulation, and especially the environmental protection movement in this country--because my hunch is that that is where the real problem is.

9:30 AM  
Blogger Sam said...

Great points Rob, as usual.

My post wasn't about blaming Big Oil for anything. Nor was it a post complaining about the price of gasoline. (I read the same email about mayonnaise costing $25 a gallon, Starbucks costing $30, and superglue $250.) My post is about the marketing and timing.

I live, breath, and function in the business world on a daily basis. And I know that you don't build a big business, or keep a big business, without an effective marketing strategy. Marketing is the means of making your product look prettier and smell better than your competitiors. And it's all about timing. It's the reason you don't see ads for mens electric razors any other time besides Christmas and Father's Day. So to think that the major price flucuations of last week didn't have something to do with timing and planning, is burying your head in the sand.

I don't like paying more for gas (or anything else) but I gotta give props to those guys for their timing and pricing strategies. Like I titled my post, pretty clever.

10:50 AM  
Anonymous Rob Osborn said...

I hear what you're saying...and i don't have a gripe if you're just talking about marketing strategies. I've just heard a lot of uninformed people (i don't consider you one of those people) complaining about gas prices lately--saying things like, "if we have to shoot someone to get the gas prices down, then i'm all for it--we have to do something" (actual quote i overheard). So, i used your post as an opportunity to step up on a soapbox. Sorry.

12:27 PM  
Blogger Sam said...

Rob, I assure you that you never have to apologize for getting the soapbox out here. I love that stuff.

Like I said, sure, I would love it if the gas companies didn't raise the prices every time I wanted to drive somewhere. But that's price and demand, right? I am stressing the point that we as American's so quickly forget the increase when there's a decrease. The marketing teams of oil companies know that and use it to their advantage, which is genius if played correctly.

7:27 AM  
Blogger Adrienne said...

This was fun to read.

12:17 PM  
Blogger 3rd string's finest said...

you can fill your tank over here for about 10 dollars (give or take a couple). I am going to stop here cause I can write for days on this subject and there is no soapbox high enough for me.

8:44 AM  
Blogger a.k.a. Zooomabooma said...

"oil companies are sitting back laughing at us as they count their money."

That sums it all up. It's like sports teams who can charge as much as they want for tickets and they can allow hot dog and soda and beer prices to rise, too... so long as there are enough people willing to pay those prices.

Oil companies can charge as much as they want for gasoline because so long as they're pulling in billions of dollars in profits each quarter, what incentive is there for them to lower prices?

3:39 AM  
Blogger Kyle said...

I would be interested in what you have to say, Evan. I know that $35-40 to fill up my tank now is a heck of a lot more than the $15-20 i paid when I first started driving. It does get expensive. $10 to fill up would be more than amazing right now.

I don't like the analogy that compares gasoline to super glue or lattes because you don't really see those prices jump tremendously in one day. the price for a tube of super glue may jump a dollar in a year (which would probably be extreme) because of inflation or the increasing cost to ship products. Gas jumped 40 cents in one day last week... Don't those poopoo head oil companies realize that some people can't make it to work if they can't afford to fill up their tank? ...and all to get a little more profit

6:59 PM  
Anonymous Rob Osborn said...

I was going to stay out of the rest of this conversation, but i can't. I think several of you guys are severely missing the point.

Do you know why oil companies bring in billions of dollars in proffit? The do it because they are selling gasoline (and heating oil, and the main component of plastic etc.)to every single driver in the United States. They are making more profit than anyone else because they are selling more of their product than anyone else. In my own business, i service about 50 customers a year, and generally make about $400 profit from each one. No one is out there screaming that i'm making too much profit and cheating my customers out of their money. Howerver, there are over 195 million drivers in the united states today. If the oil companies made 1/4th of the profit per customer that i do, they would be well into the hundreds of billions of dollars profit per year. So is it fair for us to ask them to only take profit on the first few million customers and then give the rest of their product away for free? None of us would ever agree to such a thing in our own businesses, and we shouldn't ask that of anyone else either.

Another thing we need to remember is that "Big oil" is not just a few men sitting in their new york skyscrapers rolling in $100 bills. The big oil companies are publically traded firms--which means that millions of stockholders around the world are earning income from those profits. It's the blue collar man in colorado, or the 85 year old grandfather in florida that are benefitting from those oil profits, not just a few rich businessmen.

10:50 AM  
Blogger Adrienne said...

I have never heard anyone defend the oil companies...however, those are some very compelling points!

But...even if your points are correct (and I can't disagree with a one of them), why the need for drastic increases from day to day?

I'm seriously asking...not arguing.

11:30 AM  
Blogger Adrienne said...

I have never heard anyone defend the oil companies...however, those are some very compelling points!

But...even if your points are correct (and I can't disagree with a one of them), why the need for drastic increases from day to day?

I'm seriously asking...not arguing.

11:31 AM  

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