Thursday, July 06, 2006

Iggle-nomics

This really isn't meant to pick on Giant Eagle.. but someone pointed out to me that they felt the bird's gas discount program was unfair to those who drive small cars. I am not trying to be an advertisement for anyone, I think most know about the FuelPerks program where you get a variable number cents off per gallon based on how much food one buys at the chain. The discount one gets is for a single purchase at the pump. Thus no matter how many gallons you purchase, you use up the discount 'earned' via food purchases to date. You obviously get a lot bigger discount if you put 30 gallons into a Hummer than 10 gallons into a Prius (it was a prius owner who pointed this out to me).

So without getting into the philosophical debate over whether any market prices are fair or just efficient, it's a little curious. Normally, supermarkets work to give less affluent customers lower prices. The availability of 'generic' brands or coupons are classic examples of price discrimination or so we teach. Those who need lower prices and are willing to clip coupons can buy products at lower prices while higher prices can be extractred from those who are not as price sensitive. From a profit-maximizing perspective it makes perfect sense.

So why does this gas discount seem to work in the opposite direction. Sounds to me less like price discrimination but some targeted marketing. The large minivan or SUV driving family is likely to have more food purchases, let alone more higher margin products, than a lot of urban and small-car-owning customers. So it makes a lot of sense for a marketing campaign to target the large gas tank market. Short of buying the list of Lincoln Navigator owners, this may be the holy grail of marketing even... I am surprised nobody has really implemented such a scheme before. It also makes me think they like the way this works and despite whatever protests their are, I suspect the program will remain as it is. Just an observation.

6 Comments:

Anonymous Anonymous said...

I think the claim isn't as solid if you consider it in terms of mileage rather than purely as a cash discount. Every $50 apent at Giant Eagle turns into:

$3.00 off a 32 gallon hummer fill-up (limited by Fuel Parks' 30 gallon limit), which is about one gallon, which is about 13 miles of driving.

In contrast, the Honda Civic EX sedan has a 13.6 gallon gas tank, so a fill-up saves you $1.30, which amounts to about 14 miles of driving.

On the other hand, my Saturn LS2 has a 12 gallon tank but gets 24 mpb, which amounts to about 9.6 miles of driving.

Of course, put in those terms I'm amazed at how small the actual value of the discounts works out to -- it seems to rely more on people's objection to high gas prices than any price considerations.

Thursday, July 06, 2006 6:39:00 PM  
Blogger C. Briem said...

well sure. I grant the point if you really want to look at a discount given per mile... but I think it still comes out as effectively a regressive discount vis a vis income.. and that is even before one takes into account the zero discount given to non-drivers... although I have noticed some non drivers 'lending' their cards for others to get their discounts. Whether there is a market for this, I would not be surprised. How fungible are FuelPerks credits I wonder?

Friday, July 07, 2006 7:49:00 AM  
Anonymous Anonymous said...

Interesting point Chris, although I think the program is designed more to capture the convenience store market than extend general supermarket brand loyalty or capture fuel sales.

What Prius and hummer drivers share in common is the need to pick up coffee in the morning or stop for a quart of milk on the way home from work. (To take this theory too far, will they make even more money on the Prius driver who cost less in fuel discounts and spend more for fair-trade, organic coffee?)

Even if the point is general brand loyalty to the supermarket, I think the emotion around gas prices and savings also extends to the full range of car owners.

I seem to remember a quasi-study not too long ago that showed that the best supermarket savings were at chains without all the gimmicky discount cards and specials, just with regularly low prices.

Friday, July 07, 2006 8:59:00 AM  
Blogger C. Briem said...

good points and I will attest it seems to be working in that the lines at some of the local GetGo's can get quite ridiculous.. If I had time, and a horde of underpaid minions, I would do some primary research and characerterize the customers at the GetGo's versus other gas/convenience centers. Seems like there is a testable hypothesis here somewhere.

but one of the casualties of the whole fuelperks deal seems to be the free turkey they used to give out each year based on a certain amount of purchases. I can tell you that was a big deal in some households in town, probably the same households that are not getting any benefit out of the gas discount.

Friday, July 07, 2006 4:20:00 PM  
Blogger Jonathan Potts said...

Actually, my dad, who retired from Giant Eagle last year, told me that the FuelPerks program is indeed designed to drive customers to the grocery stores, not to capture convenience store purchases. Now, perhaps they've recognized the value in convenience store purchases, which may be why they now carry all those gift cards that count toward FuelPerks.

Saturday, July 08, 2006 9:14:00 AM  
Blogger Amos_thePokerCat said...

While the FeulPerks program limits your fill up to 30 gallons max, and one car, ... they to not exclude the use of gas cans. In fact, a sticker on the pump tells you to place the approved containers, i.e. real gas cans, and not just milk bottles, on the ground. In other words, don't try to hide them, balance them in mid-air, or keep them in your trunk, because they don't care.

Personally, I can't stand the idea of being data mined by beinng forced to use a card to get a fair price, and therefore I buy 95%+ of my groceries, and household products at the local super Wally World.

Thursday, July 13, 2006 5:48:00 AM  

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