Thursday, May 8, 2008

No Free Lunch Here

It is now conventional wisdom that we are all paying too much for petrol, so it’s only natural that we keep looking for ways to save money where we can. We cut down on the number trips we make in the car. We fill up on Tuesdays when the price is usually cheaper. We use our shopper dockets to save four cents a litre, even though with prices over $1.50 a litre now it doesn’t really represent much of a discount. But it’s worth it, isn’t it? Even a few cents is better than nothing?

Well, actually, maybe not. The A.C.C.C.’s petrol commissioner, Pat Walker, has targeted Coles Express service stations for what has been described as a blatant rip-off. According to Mr. Walker, Coles Express service stations have consistently set the highest prices for petrol at a significant number of locations in the four major capital cities. As a result, the discount voucher often will not actually deliver the best available price.

It is a clever piece of loyalty marketing because people have possibly deliberately chosen to shop at Coles to obtain their vouchers, and then seek out the appropriate service station to redeem them. By that stage people may not even realize that another outlet has a better price. In fact, it would be reasonable for people to assume that a very large company like Coles would be in a position to offer the most competitive price.

Of course, it should be obvious that nothing is given away for free. The profit margins on both the groceries and the fuel must be sufficient to make the discount offer worthwhile for the retailer or else they wouldn’t do it. But with the market power available to them, you would expect that the high volume of turnover would mean Coles could undercut everybody else and remain profitable.

Unfortunately, it seems the opposite is true, where market power leads to exploitation of the loyalty of unsuspecting customers.

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