Gas Marketing

In 1989, I got a job working at a full service Texaco gas station in Elk River, Minnesota. My job was typical gas attendant work. Cars would pull up to the pump, I would say “Hello, welcome to Texaco. How can I help you today?” The customer would tell me how much gas they wanted, usually in cash increments, ten dollars or five dollars worth, or “fill ‘er up. I would wash the windshield, check fluid levels and recommend our products if they needed topping off. “Looks like you’re about a quart low, can I get you a quart of Havoline?”

I would ask. As anyone who has lived in the upper Midwest during the winter months can tell you, it gets cold. Many cold mornings, I would see a line of cars more than a city block long waiting to have me pump their gas as we were one of the last “Full service” facilities in the area.

Many customers came to us only on these cold mornings, but many others would come to us regularly, in all weather conditions, even though our prices were higher than the “self serv” competition. Some told me that they liked the service we provided, some liked the nostalgia of the gas station experience, but many claimed that “Texaco has the best gas.” Although hearing that we had the best product gave a sense of pride in the company I worked for, I could not understand why they thought we had the best gas. My thoughts were, “isn’t all gas the same?

Texaco doesn’t bring their crude to the refinery, wait for it to be refined into gasoline, and then take it to the gas station. It’s all the same pipeline, right?” According to epa.gov, since 1995 the EPA requires that all gasoline sold in the U.S contain a minimum level of detergent additives to control deposits left behind in engines by the gasoline. (epa.gov 2010)

“Six of the world’s top auto makers, BMW, GM, Honda, Toyota, Volkswagen, and Audi have recognized that the current EPA minimum detergent standards do not go far enough to ensure optimal engine performance.” (toptiergas.com) These 6 automakers came up with a new standard for gasoline. This new standard ensured that the additive levels provided greater deposit controls for better engine performance. Gasoline that meets this new standard is called top tier gasoline. (toptiergas.com) “Each integrated refiner has a special package of additives that it adds to its gasoline at the “rack,” the end of the pipeline or supply line from the refinery.

The perception of this quality varies from firm to firm.” (Kleit,2003) In 2001, Texaco merged with Chevron, and in 2005, acquired Unocal. Today Chevron sells its refined products under the name brands Chevron, Texaco, and Caltex. The major marketing strategy is the promotion of the patented detergent with Techron technology, which is in all of their brands of gasoline. Chevron claims that the additive improves engine performance and lowers emissions by eliminating deposits that are left behind by the competitions inferior gasoline products. “Chevron’s marketing network supports outlets on 6 continents.”(Chevron.com 2012)

Similarly, Phillips 66 promotes their product as “performance gas” stating that they use higher levels of detergent additive than other top tier gasoline producers. Phillips 66 sells their gas through the brand names Phillips 66, Conoco, and 76. Each brand markets the product independently by combining the quality of the gas with freedom such as the 76 commercial for the weekend warrior (76.com), or adventure as the Phillips 66 commercial for route 66. (phillips66gas.com) As top tier integrated gasoline refiners, a lot of emphasis is put on the quality of the product.

They target consumers that care about the performance of their cars and understand the importance of a healthy engine. A list of top tier gasoline retailers can be found at (http://www.toptiergas.com/retailers.html). Gasoline providers that are not top tier gasoline retailers employ a different marketing strategy. They target consumers that are more concerned about price, and perhaps less concerned about the quality of fuel or recommendations of the auto manufacturers. Brands such as Arco,(arco.com) purchase “rack” gasoline from refiners, ( Arco purchases rack gasoline from BP) and markets their gasoline products with emphasis on lower prices. Arco uses a price differentiation strategy.

By blending only enough additive to meet or exceed the EPA and ASTM standards, Arco claims to save consumers between 5 and 10 cents per gallon based on a Lundberg price survey* (July 2011 to August 2012). Another marketing strategy of a non top tier gasoline is co-branding. Marathon brand gasoline has co-branded their gasoline products with STP. By utilizing the well known and respected STP brand of detergent additives in their gasoline and using double the amount required by the EPA, they have achieved a perceived quality differentiation from all other non top tier retailers.

This strategy enables Marathon to attract price conscious drivers as well as consumers loyal to the STP brand of products. (marathonpetroleum.com 2011) Integrated refineries such as ChevronTexaco, Phillips 66, Marathon Ashland, British Petroleum and many others sell their products through a combination of company owned and operated outlets, franchised outlets, and independent dealers called “Jobbers”.

Although each category has different levels of control maintained by the refinery, the refiner needs to ensure both the quality of the product through inspections and prices being charged for the product. (Kleit,2003) Because “Jobbers” may own several retail franchises and purchase from more than one refiner, refiners spend substantial time and money to test and inspect franchisee and jobber outlets that carry the brand logo for cleanliness and quality, as well as ensure that the outlet is not free riding on the brands reputation by offering a gasoline of lower quality than that which is implied by the trusted brand name of the refiner.

Refiners must also ensure that franchisees and jobbers alike do not price the product noncompetitively. Another form of distribution is the Hypermarkets and Super convenient stores. These retail outlets specialize in selling gasoline at or near wholesale price. They offer low priced gasoline in an attempt to lure customers in for gasoline in hopes that they will purchase other products or services that the outlet offers.

These outlets purchase a portion of their supplies from the integrated refiners but have a large impact on zone pricing. Refiners understand that competitive conditions vary from one location to the next. In response, they set their wholesale prices differently to ensure demand for their product. Some of the factors that are considered include competition, economic conditions, taxes and difficulty of supplying the area.

Hypermarkets that sell gasoline at or near wholesale prices will force the refiners to lower the wholesale prices to their distributers as a way to ensure their franchisees ability to compete as well as protect the investment that the refiners have put into their branded franchises and outlets. Below is a diagram of a distribution system taken from Kliet’s” The Economics of Gasoline Retailing, Petroleum Distribution and Retailing Issues in the U.S, 2003”

References 76.com (2012). 76® Gas-Advertising. [online] Retrieved from: http://www.76.com/Advertising.aspx [Accessed: 11 Feb 2013]. Arco.com (2011). ARCO Gasoline - Straight up gas. [online] Retrieved from: http://www.arco.com/sectiongenericarticle.do?categoryId=16002945&contentI