Bundling of Petrol and Grocery
Secondary data from Roy Morgan Marketing Research firm done in 2006iii provides some interesting results on customer reactions to petrol price hike: 76% Australians would drive the same in spite of the petrol price rise1 41% Australians are willing to spending less on other items to make-up for the increased cost of fueliii35% said that they will drive less than usual if the petrol price reached AUD 1.50- AUD 1.59 but 16% won't cut back on the amount of driving regardless of the price of fueliii
Hence, we may infer that Australians give preference to convenience of driving to higher petrol prices and willing to sacrifice on other costs to do so.
The following data from Annual Reports of Woolworths, Caltex, Shell and Coles seem to indicate that people prefer using the convenience store at a petrol station:
Petrol retailer, Caltex has a network of 470 stores jointly branded with supermarket retailer Woolworths. Total average convenience store sales in 2005 were 4.6% higher than in 2004, much higher than the group average.2Coles Express, the convenience store at Shell petrol outlets of supermarket retailer Coles & Myers had increased sales of 14.9 % in 2005 over the previous year.iv
However, its important to understand the increased sales is being effected in two ways – discount schemes (eg. Woolworths offer discount of 4 cents per litre for spending $30 or more at any of its stores) loyalty schemes (eg. Coles Express fuel offer is part of Coles Myer loyalty scheme). Coles supermarkets offer discount vouchers for Shell petrol while Woolworths supermarkets offer discount vouchers for Caltex petrol. Hence, this is a case of bundling of two unrelated products groceries and petrol.3
So, say, if a customer buys more than $30 of groceries at Woolworths, he gets a discount on petrol purchases at Caltex. He may now be tempted to change his petrol retailer to Caltex in order to use the discount voucher.v
Again a customer who regularly purchases at Caltex might be tempted to shift his grocery purchasing to Woolworths, as he will receive a discount on his petrol purchases. Indeed, a customer who currently purchases from neither Caltex nor Woolworths might be tempted to begin purchasing from both retailers in order to avail themselves of the discount.v The customer may perceive a benefit in the reduced petrol price and is forced to make grocery purchases above a certain amount or forced to buy it from a particular retailer, thereby reducing his choices.
Hence, it may be important to analyze how much is the is the discount worth. As per analysis from Choice.com4 , Money Magazine reported that the average motorist used 32 L of petrol a week (based on Australian Bureau of Statistics data). The magazine calculated that the average motorist would save approximately $1.30 per week with the discounts. Further, market research from Choice.com subscribers revealed that 90% wouldn’t drive more than 5 km to collect a 5 ¢/L discount.
So, from the above analysis, one may question whether the discount on fuel is really worth and do the increase in sales at convenience stores of Caltex-Woolworth or Shell-Coles really indicative of customer preference?
As John Clark, Managing Director, Reliance Petroleum says, “Not all customers want the offer and retailers do not have to have a petrol offer.”5
Our hypothesis is that customers are probably accepting the status quo and paying higher for grocery items at the convenience store than in a normal supermarket while the retailers are able to maintain their market share through assured sales and higher margins.
Or is it just the perception of discount that customers are accepting this !!
1 http://www.roymorgan.com/news/polls/2006/4061/ 2 http://www.caltex.com.au 3 http://www.mbs.edu/home/jgans/papers/petrol.htm 4 http://www.choice.com.au/viewArticle.aspx?id=104249&catId=100286&tid=100008&p=3&title=Supermarket+sales+tactics 5 http://www.c-store.com.au/magazine/archive/2005/marapr05_2.html
Hence, we may infer that Australians give preference to convenience of driving to higher petrol prices and willing to sacrifice on other costs to do so.
The following data from Annual Reports of Woolworths, Caltex, Shell and Coles seem to indicate that people prefer using the convenience store at a petrol station:
Petrol retailer, Caltex has a network of 470 stores jointly branded with supermarket retailer Woolworths. Total average convenience store sales in 2005 were 4.6% higher than in 2004, much higher than the group average.2Coles Express, the convenience store at Shell petrol outlets of supermarket retailer Coles & Myers had increased sales of 14.9 % in 2005 over the previous year.iv
However, its important to understand the increased sales is being effected in two ways – discount schemes (eg. Woolworths offer discount of 4 cents per litre for spending $30 or more at any of its stores) loyalty schemes (eg. Coles Express fuel offer is part of Coles Myer loyalty scheme). Coles supermarkets offer discount vouchers for Shell petrol while Woolworths supermarkets offer discount vouchers for Caltex petrol. Hence, this is a case of bundling of two unrelated products groceries and petrol.3
So, say, if a customer buys more than $30 of groceries at Woolworths, he gets a discount on petrol purchases at Caltex. He may now be tempted to change his petrol retailer to Caltex in order to use the discount voucher.v
Again a customer who regularly purchases at Caltex might be tempted to shift his grocery purchasing to Woolworths, as he will receive a discount on his petrol purchases. Indeed, a customer who currently purchases from neither Caltex nor Woolworths might be tempted to begin purchasing from both retailers in order to avail themselves of the discount.v The customer may perceive a benefit in the reduced petrol price and is forced to make grocery purchases above a certain amount or forced to buy it from a particular retailer, thereby reducing his choices.
Hence, it may be important to analyze how much is the is the discount worth. As per analysis from Choice.com4 , Money Magazine reported that the average motorist used 32 L of petrol a week (based on Australian Bureau of Statistics data). The magazine calculated that the average motorist would save approximately $1.30 per week with the discounts. Further, market research from Choice.com subscribers revealed that 90% wouldn’t drive more than 5 km to collect a 5 ¢/L discount.
So, from the above analysis, one may question whether the discount on fuel is really worth and do the increase in sales at convenience stores of Caltex-Woolworth or Shell-Coles really indicative of customer preference?
As John Clark, Managing Director, Reliance Petroleum says, “Not all customers want the offer and retailers do not have to have a petrol offer.”5
Our hypothesis is that customers are probably accepting the status quo and paying higher for grocery items at the convenience store than in a normal supermarket while the retailers are able to maintain their market share through assured sales and higher margins.
Or is it just the perception of discount that customers are accepting this !!
1 http://www.roymorgan.com/news/polls/2006/4061/ 2 http://www.caltex.com.au 3 http://www.mbs.edu/home/jgans/papers/petrol.htm 4 http://www.choice.com.au/viewArticle.aspx?id=104249&catId=100286&tid=100008&p=3&title=Supermarket+sales+tactics 5 http://www.c-store.com.au/magazine/archive/2005/marapr05_2.html
Comments