Price is Paramount in Where Consumers Buy Fuel

JERSEY CITY, N.J. -- In real estate, it is all about location. In gas retailing, it is all about price.

Recent motor fuels research by The NPD Group found that prices, deals, discounts and loyalty programs are increasingly influencing where consumers purchase gas, how much they spend, and which brands they purchase. According to "Price, Deals, and Discounts: Consumer Expectations at the Pump," volatile gas prices and a challenging economic environment have taught fuel consumers to seek out the best value for their money.

Notably, according to the report, of the changes that have taken place in the retail fuels environment over the past decade, loyalty programs appear to have had the greatest impact in changing consumer behavior. The NPD report, which examines how fuel buyers perceive and use deal and loyalty programs and identifies the potential opportunities and threats for fuel retailers, found that of the 3,740 consumers surveyed, 28 percent reported participating in a motor fuel brand loyalty program.

In addition, consumers are particularly interested in loyalty programs that offer cash discounts. Thirty-eight percent of these consumers said they were more likely to use gas brand loyalty programs that offered cash discounts. Female consumers were more likely to be swayed by these cash discounts than males.

In terms of discounts, the NPD report found that two out of three fuel buyers reported switching brands due to price. More than one-third of all gas buyers said it would take a discount greater than 10 cents per gallon to get them to switch gas brands, while one in 10 said they would not switch for any type of discount. Discounts of 10 cents and less are swaying the bulk of this behavior in the marketplace.

"Clearly fuel discounts are a game-changer in today's market," said David Portalatin, NPD motor fuels industry analyst. "Whether or not fuel marketers implement a discount program, it is imperative that they create value for the consumer in some aspect of the purchase occasion -- whether price, quality, rewards, or some other attribute of the purchase experience."

Another recent report, the 2013 NACS Consumer Fuels Report, found that nearly nine out of 10 consumers -- or 88 percent -- surveyed in a national poll of gasoline purchasers said that the price at the pump has an impact in how they feel about the economy.

"Gas has clearly gone beyond being just a commodity -- it is also a leading indicator for how consumers feel about economic conditions, and that has implications for both our industry and the overall economy," said NACS Vice President of Government Relations John Eichberger.

In addition, 71 percent of respondents rated price as the most important reason why they select a particular location for gas, added NACS, the Association for Convenience & Fuel Retailing. Of customers citing gas prices as their primary reason for shopping at a specific store, 65 percent said that the reason they select a location is because of the price sign at the store.

NACS also examined how much consumers will change their behavior to save even a few cents per gallon by driving across the street, driving up to 10 minutes out of their way or paying by cash or debit card inside the store. Cash discounts proved the most popular option for consumers to save money at the pump. Nearly half of all consumers (46 percent) "strongly agree" that they would seek out cash discounts, and 78 percent are open to the idea. Sixty percent of consumers who buy fuel at night (7 p.m. to 6 a.m.) strongly agree that they would seek out cash discounts.

It should not be a surprise that consumers are looking for the best price at the pump. According to the U.S. Energy Information Administration (EIA), gasoline expenditures in 2012 for the average U.S. household reached $2,912, or just under 4 percent of income before taxes. This was the highest estimated percentage of household income spent on gasoline in nearly three decades, with the exception of 2008, when the average household spent a similar amount.

Although overall gasoline consumption has decreased in recent years, a rise in average gasoline prices has led to higher overall household gasoline expenditures, according to the EIA. However, these expenditures as a percentage of overall household income are still low when compared to the early 1980s, when the estimated portion of household income spent on gasoline surpassed 5 percent.