How Gas Prices Affect Consumer Behavior

If you sell fuel, you know the importance of good pricing decisions. For example, fuel pricing decisions can help terminals optimize their wholesale prices to maximize profits.

Good pricing decisions do more than protect your profit margins. It improves the buying loyalty of your current accounts and improves the chances that you will be introduced to new buyers.

However, your fuel pricing strategy does not just take into account what competitors are doing when it comes to fuel pricing strategies; it also considers what consumer trends exist and how the market is reacting to any changes.

Gone are the times when fuel pricing would change infrequently and incrementally. Now we’re seeing daily material changes happening in real-time. Today, fuel pricing is no longer a “set it and forget it” decision.

DTN FastRacks provides comprehensive, data-driven insights that directly inform your fuel pricing decisions.

This article will outline how the market reacts to fuel pricing changes and how you can optimize your fuel pricing decisions.

 

How gas prices affect consumers

A surprising metric to learn how consumers react to gas prices is the consumer confidence index. A 2020 Gallup study found that consumer confidence decreased as gas prices increased. But, interestingly, people were also found to be more pessimistic about the general state of the economy when gas prices were higher.

In terms of shopping habits, we’ve spoken before about how the cost of gas has relatively low elasticity. Low elasticity means that fuel prices are unlikely to strongly influence fuel consumption.

This means that regardless of the price of gas, our society relies too heavily on it to give it up. Between shopping, work, and other necessary errands, most people need to drive at some point during their day. While public transportation use and other forms of conveyance (such as walking or cycling) rise commensurate to gas price increases, it’s not a feasible option for many people.

However, a study has shown that the type of gas purchased changes depending on pricing. The economist studied how consumers make gasoline purchases when prices rise. When gas prices increased, people behaved as if they were considerably poorer, buying less expensive gasoline.

Since consumers will purchase fuel regardless of the price, the question becomes: how can you set your fuel prices to be competitive in your market? 

 

How to set competitive fuel prices

With profit margins so thin in the fuel industry, price-setting is more important than ever. First, however, you need to recognize opportunities presented in your market and move immediately to capitalize on those opportunities.

 

Looking at market conditions

First, sellers should set fuel prices based on market conditions to optimize pricing strategy. It would help to analyze the current cost of crude oil and real-time gas prices for your local fuel markets. Making data-driven decisions optimizes pricing more than any other factor.

Most importantly, you must be aware of competitor fuel price data. Again, looking at the local market will help you understand what options are selling in your market, whether at a terminal, PADD, or city-level.

While many things are going on globally, and fuel price fluctuations can sometimes feel unpredictable, this does not mean sellers must be caught off guard when fuel pricing shifts.

Knowledge is power, so make sure that you have all the necessary information before making fuel purchase decisions. Market conditions can change quickly, so fuel prices should be set to reflect these changes. Having reliable data in real-time is essential to react appropriately to those sudden moves.

 

Examining demand

There are conditions that will increase or decrease demand. For example, certain times of year have increased fuel consumption (such as during the holidays or summer vacation season). Conversely, demand was significantly lower in many areas during the COVID-19 pandemic when stay-at-home orders were in place.

 

Consider your profit margins

If fuel prices are set too low, you will not cover your costs. Therefore, fuel sellers need to consider their profit margins when setting fuel prices.

Have there been changes in the upstream market? When the price of crude oil changes, this trickles down to fuel prices. When the cost of oil increases, it is essential that you look at your profit margins and ensure that they are sufficient for this change. Likewise, if oil prices decrease, you need to ensure that you can jump on those opportunities to increase your profit margin.

However, the cost of crude oil comprises 54% of the price of retail gas. In addition, many other factors influence fuel pricing that are simply out of your control, including inflation and taxes.

Having the right fuel pricing strategy will protect your margins, so it is essential to be aware of all of those factors. Therefore, you need to have your finger on the market’s pulse and be in a position to react to any changes.

The bottom line? Staying competitive in a volatile market requires fuel sellers to be flexible, decisive, and accurate. Simply put, fuel sellers need strong operational intelligence. It’s not enough to have data – you must make appropriate decisions based on that data.

 

Operational intelligence when selling fuel

The quality of the data you rely upon directly impacts the quality of your pricing decisions.

DTN FastRacks digitally gathers rack prices in real-time and uses multiple control checks to ensure that we provide the highest level of accuracy in the industry.

Not only do we provide data, but we also provide insight. Our data experts are available to give insight, information and deliver market closing reports that furnish your data with context. We make the numbers make sense and help you plan for tomorrow. 

How fast you can react is directly related to your success in today’s volatile market. With comprehensive data compilation and real-time price alerts, you will have the operational intelligence you need to optimize your pricing.

Improve your place in the market by adding DTN FastRacks to your systems today.