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Dear Texaco — I know how you can make more money. A lot more money.

Texaco has started putting up billboards in the DC area (something I haven’t seen much from gas companies). Maybe they feel they’re losing business. While I don’t have any business degrees I know exactly why the Texaco near us isn’t getting any customers. (and I’ve seen similar but slightly less dramatic examples with the other local Texacos)

The Texaco’s price is $3.57/gallon. The Exxon directly across the street is selling it for $3.42/gallon. That’s a $0.15 difference simply for going across the street.

I don’t understand…it’s been like this for the last few months. Started at 7 cents difference, 11 cents…now 15 cents.

When I drive by, the Exxon is crowded with lines…sometimes extending into the shoulder of the road outside. The Texaco has possibly 2 drivers for its 8 pumps. The Texaco also requires you to pay inside, even with a credit card. The Exxon lets you pay at the pump.

So my advice to Texaco:

Just for starters, take the money you’ve been spending on those billboards and use it to lower prices at your gas stations. Nobody cares enough to spend $.15/gal more for your gas when there’s a legit company (Exxon…vs. some no-name station) right there. It’s not even more convenient.

While the gas may make you less per gallon, you’ll sell a lot more–profit ensues.

When this simple but innovative strategy increases your profit by 200%, you’ll receive my consulting bill. πŸ˜‰

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Frugal Dad April 25, 2008 at 12:02 pm

Seems like such logical improvements in their business model. That’s probably why it will fall on deaf ears! The “across the street” gas pricing phenomenon is really intriguing to me from an economic perspective. Imagine if grocery stores put huge signs up on boards that read, “Bread – $1.97/loaf).

Christine April 25, 2008 at 12:24 pm

Oh, but grocery stores do exactly that, at least where I am. Prices for bread, milk, eggs, and fruit tend to get put up in large signs.

Of course, we don’t have many grocery stores across the street from each other . . .

Witold April 25, 2008 at 1:30 pm

I would definitely pump at the Texaco if there was a crowd at the other station. Lets say we are pumping 12 gallons…at a difference of 15 cents per gallon, the difference is $1.80.
Lets say there is a short line and I would have to wait 5 minutes at the other station. 5 minutes of my life is, to me, definitely worth more than $1.80 (that’s approx 22 dollars an hour).

I notice a similar thing with airplane flights. People, in their desire to buy the cheapest ticket, will go ahead and purchase tickets for a less desirable travel time. But then, once the day finally comes, most people would gladly have paid the 20 dollars extra to travel at a more convenient time.

BeThisWay April 25, 2008 at 1:51 pm

Great post! Two-three cents per gallon may not be an incentive to turn around(well, I would, but that’s frugal me). Fifteen cents? You betcha!

Hickepedia April 25, 2008 at 2:25 pm

I’d be one of those two drivers filling up at Texaco (assuming I didn’t just drive somewhere else, which I would, for $.15 per gallon). See, I’ll drive halfway across town before I give money to Exxon. I consider their continued failure to properly pay for their responsibility for the Exxon Valdez disaster to be reprehensible, so I refuse to do business with them, or with any station that buys fuel that comes from Exxon’s refineries. While this limits my choices in places to fill up, I consider it the least that I can do.

Lynnae April 25, 2008 at 2:44 pm

The same thing is happening here, but it’s a Texaco and an Arco. Arco is consistently much cheaper than Texaco, and the traffic shows it.

On one side of the street, the gas station is so full, cars are waiting in the street to get in. At the Texaco, empty gas pumps.

Going Gazelle April 25, 2008 at 2:57 pm

Around my paths of travel….

Costco has the cheapest prices. They’re 5 to 20 cents cheaper.

I also use this site:

Ron@TheWisdomJournal April 25, 2008 at 3:09 pm

If Texaco is meeting their earnings projections, they have no real reason to lower prices. In reality, they may make more from those 2 drivers, than Exxon makes from 10. Gas stations usually make only 3% to 4% on a gallon of gas. If I was the local owner, I’d probably be higher as well. Factor in how many drivers leave without paying at the crowded station and it wouldn’t surprise me that Texaco was doing just fine. There’s always more to it than what’s on the surface.

Also keep in mind that gasoline is a commodity. Exxon may have hedged their reserves better than Texaco and can afford to lower their prices. That particular Exxon station may be company owned and may get its fuel much cheaper than a franchised Texaco store.

S.B. April 25, 2008 at 3:26 pm

We have this too! Only around here Hess is cheaper and Sunoco right across the street is like 10 cents more. I don’t understand why they don’t try and compete more.

Andrew Stevens April 25, 2008 at 5:32 pm

I think the short answer to this is that gas is now so high that stations are at their absolute limit on how much they can compete. The lower-cost stations have cut profits to the absolute bone and higher-cost stations just can’t compete any more. Chances are they’ll be going out of business if conditions don’t change.

Bill April 25, 2008 at 5:37 pm

@Ron: You are absolutely correct. Exxon may be (they’re not, but they could) be making little to no profit on their gas, whereas Texaco is making oodles. Consider this: Exxon is making 1 cent per gallon and Exxon is making 15 cents per gallon. This is not uncommon by the way, in any retail business). Would you rather deal with 1 customer or 15 and get the same profit?

Further, the Texaco is making people walk past very high-margin junk food when they pay inside…not everybody can be, or wants to be, Wal-Mart.

mrsmicah April 25, 2008 at 5:47 pm

Several people made good points about waiting… Of course like saving money on anything, saving time there that just means going at a time when there won’t be a wait. It’s so close that we go by it a number of times a week and can pick a good time to go in. Otherwise Texaco might be easier.

The funny thing is that neither runs a store. They both sell cigarettes, but they just have these cement cashiers’ cages where you pay. Probably both make money on the cigarettes, but not like having a whole Quickee-Mart.

budgets are sexy April 25, 2008 at 7:32 pm

Dear Mrs. Micah,

You are SO right! Why do i allow Exxon to steal all my customers? For your help, i shall put up your blog on my next Billboard to show you my appreciation. YOU ROCK!

Texaco πŸ˜‰

heartbeat April 25, 2008 at 8:48 pm

i think there is more to the story that has not been exposed/told. here in mississippi, you will see the same thing in gas prices and prices of everything else as well being on signs. my question to the customer as well as the retailer is this: how high does the price have to be before you finally refuse to buy and what is the retailer gonna do when his meat, eggs, milk and produce rot? me..i hope i am ahead of the game by being frugal with my money and my time and i hope my “victory garden” produces well this year.

David April 25, 2008 at 10:37 pm

Which station is on the “bad” side of the tracks? πŸ˜‰

workout mommy April 26, 2008 at 12:13 pm

makes perfect sense to me. I would never go to a station where you have to pay inside–even if it was $1 cheaper! I have 2 little ones in the car and am not going to drag them inside.

Clever Dude April 29, 2008 at 9:49 am

The closest station to our house, right around the corner, is a Texaco. They used to always be about 4-5 cents lower than the Exxon a block up, but lately they’re the opposite.

But we don’t get Texaco gas anyway because we don’t get as good of gas mileage or performance. It’s bad when it’s actually noticeable. We opt for Shell when we can get it.

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