Week 2 - Marketing In The News

No matter who you are or where you're located, the surge in gas prices has affected your life in one way or another.  Whether it's been in your gas tank or extra shipping costs on items ordered, no one's pocketbook has gone unscathed.  The causes, we're told, stem from the pandemic, Russia invading the Ukraine, and a post-pandemic inflation.  Regardless of the reason, the price of gas has been steadily on the rise settling at an incredible $5 average per gallon nationwide.

And that was just coming into summer.  

Historically, many of us know that gas prices rise during Memorial Day weekend and don't rescind until after Labor Day weekend.  Camping, seeing grandpa and grandma, or venturing to Disneyland are just some of the reasons that most Americans hit the roadways.  But not this year.  According to an article on www.bloomberg.com written by Chunzi Xu entitled "A Dip In Gasoline Use Stokes Debate Over Demand Destruction," the data from the first few short weeks of summer 2022, shows that there has been a 2.9% drop in US gasoline consumption.  That decrease has made quite the stir in the business world causing companies to determine what it means.  Some are speculating it is the ebb and flow of the stock market.  Others see it as a mere "shaving off of the seasonal increase."  Another group, however, sees it as a response by consumers.  A message, if you will, designed to tell the oil companies that enough is enough -- a message considered to be a sign of demand destruction.

Demand destruction occurs when persistent high prices and/or limited supply ultimately result in a permanent reduction of demand for some good.  In many cases, this demand destruction reduces demand permanently; however, in the case of fuel consumption, this idea is the center of the debate.  John Kilduff, co-founder of the energy hedge fund Again Capital, argues that the evidence shows signs of a swelling supply, saying that inventories are 10% above the five-year average.  This indicates that consumers have reached their breaking point and simply are not driving any more than they have to.  At the same time, Morgan Stanley claims that demand growth is merely going into a slowdown as opposed to an outright decline.  In correlation with Morgan Stanley, RBC Capital Markets does not believe anything more than a slowdown will occur as a prolonged demand destruction is historically rare. 

    "Over the past 30 years leading into the pandemic, there were 39 individual months in which retail gasoline prices increased by more than 30%.  Of those instances, we have seen gasoline demand fall by 2% or more on only 12 of those occasions."

Despite where you fall in the debate, it is not difficult to imagine that the whole current fuel crisis would cause nothing less than a marketing migraine.  The challenge of many representatives will be to sell the consumer-centered value propositions to the consumers themselves.  A value proposition is a positioning statement that explains what benefit you provide for who and how you do it uniquely well, a challenging task for most marketing agencies given the current economic climate to be sure. 

To date, we haven't heard much from the oil companies.  The ads are running as normal, but nothing extra has been done to ensure the American public that they can survive these increases.  And it's not surprising.  The task they face is certainly a daunting one.  Many consumers are cynical and feel that gas prices will remain elevated simply because people have to drive and therefore will pay whatever amount is required to fill their tank.  That prices can stay high because they have us "over a barrel."  And if that wasn't a high enough mountain to overcome, the President of the United States is calling out oil companies, making it quite clear that the companies have plenty of profit margin to play with to drop their prices and still keep their shareholders pocketbooks fat and sassy.  Which is in fact, the only reason we have heard from oil companies as of late -- to respond to the President.

Our country is the most divided politically that most of us have ever known.  There is a very large chasm separating the conservative and liberal sects of our political makeup.  It would depend on which side of the chasm a person landed on as to how the message to President Biden was received.  From a marketing standpoint, it seems to be a dangerous game of Russian Roulette, a game in which no one wins.  While some applauded the response, others felt it was a childish attempt to refocus the blame back on to the shoulders of the Biden administration. (https://www.chevron.com/newsroom/2022/q2/a-letter-to-president-biden-from-chevron-ceo-mike-wirth)  The ultimate losers of this treacherous strategy is the American consumer.  It sends a message that the oil companies are not interested in to helping their customers find relief at the gas tanks.  In fact, no resolution came of the episode of blame tug o' war, only more uncertainty at the pump.  

So, what could have been done instead?  Bottom line, as we have learned, to increase sales requires consumer confidence.  To instill consumer confidence, you have to prove that you care about the consumer.  Not consumers as a whole, but the individual consumer.  The best way to do that in this case is to bring your prices down.  Show the American people that they are more important than your profit and I guarantee your shareholders will win every time!  The blame game is a immature act that should be beneath any corporation.  Rise above, put your consumer first and watch your profits soar!!

 

Xu, Chunzi. “A Dip In Gasoline Use Stokes Debate Over Demand Destruction.” Www.Bloomberg.Com, 15 July 2022, www.bloomberg.com/news/articles/2022-07-15/high-gas-prices-dent-demand-during-summer-travel-season.

Author. “US Majors Respond to Biden’s Letter by Calling out Federal Policies | Upstream Online.” Upstream Online | Latest Oil and Gas News, 21 June 2022, www.upstreamonline.com/politics/us-majors-respond-to-biden-s-letter-by-calling-out-federal-policies/2-1-1240061.

Chevron Policy, Government and Public Affairs. “A Letter to President Biden from Chevron CEO Mike Wirth.” Chevron.Com, 21 June 2022, www.chevron.com/newsroom/2022/q2/a-letter-to-president-biden-from-chevron-ceo-mike-wirth.