Yesterday I filled my car with petrol. There are a number of petrol stations near me, but I tend to use the same one, by habit, without any real form of comparative pricing with other stations in the area.
It is convenient, is in a backstreet, the bloke who swipes my card is pleasant, it is an independent, so I just assume the price is OK without checking. None of that stupid discount applied if you have a supermarket loyalty card, where you know the price is inflated to accommodate the discount, a practice I find is as irritating as it is immoral, so avoid them like the plague.
I wonder how many of his customers just use the place habitually, without checking prices as I do?
Consider the implications of pricing on the profitability of the station.
I will not try and do the maths, as I do not know the costs or the volumes involved, but two questions are relevant:
- How many of the customers are regulars, like me, who do not check prices?
- At what point do regulars, like me, check prices, weigh up the other factors that influence our behaviour, and move elsewhere?
Would it be worth knowing the answer to these questions, and managing price accordingly?.
At some point, you will lose the price checkers, those who chase the cheapest price on the day, and seem to be prepared to drive around looking for the cheapest petrol.
How many added cents/litre will motivate a habitual user, like me, to actually check the comparative prices, and move to a less convenient station?
If I was running this petrol station, I might consider putting in a system that in some way recorded the regulars, those who seemed always to use the station, and those who just used it occasionally, and then experiment with the price elasticity of the regulars, assuming that the price checkers will never come in unless you are the cheapest on the day
An added cent to the price would probably not be noticed by the regulars, not drive any of them away (poor pun there) but would drop straight to the bottom line. If the regulars were 60% of your sales, it might well be a great strategy. It gets rid of the lines at the pump, increases the chances for interaction at the cash register, and that extra sale from the grocery and confectionery lines, which is after all, where a lot of the profit hides.
Every business, no matter what it is, should consider deeply the drivers of profitability in their business, and pricing strategies should be number one on the list of considerations.
