Archive for the ‘Gas Prices’ Category

Disney goes Angels & Demons… to boost revenues & profits

August 29, 2022

Disney says; “Annual passholders are amongst our most special guests”, but…
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Let’s flashback: About 20 years ago, Larry Selden & Geoffrey Colvin wrote a best-selling business book titled:

Angel Customers and Demon Customers: Discover Which is Which and Turbo-Charge Your Stock

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In a nutshell, the authors argued that:

One of the oldest myths in business is that every customer is a valuable customer.

Many businesses don’t realize that some of their customers are deeply unprofitable, and that simply doing business with them is costing them money.

It’s typical that the top 20 percent of customers are generating almost all of a company’s profit while the bottom 20 percent are actually destroying (stock) value.

Their prescription: Manage businesses as a customer portfolio.

  1. Determine which customers are profitable (angels) and which are not (demons)
  2. Cater to the most profitable customers — new & old — who buy more and pay more.
  3. For the low profit customers, raise your prices — from free to something … and from something to something higher.
  4. If customers are unprofitable after repricing, fire them

Sound reasonable doesn’t it?

Some companies (e.g. Best Buy) bought in to the concept.

See: Best Buy Decides Not All Are Welcome

How did that work out for Best Buy?

Well, just glance at the below chart showing Best Buy’s stock price.

Yeah, I know that correlation isn’t necessarily causation and that other things were going on (e.g. a financial crisis and a deterioration of BB’s in-store service.  Nonetheless, I think the relationship is both likely and instructive.

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OK,now let’s fast forward to today…

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What’s Disney’s new magic formula?

According to the WSJ: “Wringing every last dollar out of each visitor.”

Said more elegantly, “in a major strategic shift, the company is focused less on maximizing the quantity of visitors and more on increasing how much money each visitor spends, an approach the company refers to as yield management.”

First, Disney has raised prices pretty much across the board for park tickets & merchandise), and eliminated or started charging for other services (e.g. parking for some annual passholders) and features that used to be free (e.g. the Magic Bus from the airport).

Second, Disney is, in essence, branding its customers Angels or Demons.

Who are the Demons?

Annual pass holders (think: local residents).

Why?

Annual passholders tend to spend less than other visitors per visit.

A typical annual pass holder might ride only one ride during a visit, eat an ice cream cone and walk around for a few hours.

They take up capacity that might otherwise be used by out-of-state visitors (the Angels) who stay all day, eat multiple times in the restaurants, stayin the Disney hotels, and buy more merchandise.

Among the actions that Disney has taken:

  • Stopped selling new annual passes
  • Raised renewal prices for current annual pass holders
  • Blacked out more days when annual passholders aren’t welcome

Annual passholders are some of the Disney’s most loyal and ardent fans, and many are not happy.

Disney’s CEO shrugs off the tension caused by rising prices and other changes, especially for annual passholders as “the inevitable result of progress” and notes that “demand has not abated.”

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My take:

Disney execs may have read the 2003 book but, apparently, didn’t do more recent research on Angel & Demon zealots (e.g. Best Buy).

I’m all for raising prices when you can but, in my days as a marketer, I never found hacking off your brand loyalists to be an effective strategy.

I think Disney is forgetting that annua; passholders are the brand’s most effective marketing vehicles … proselytizing Disney virtues to friends and family … often inviting them to go to the park with them (at full price, of course).

When the loyalists go silent (or negative), short term results may spike, but are likely to turn around as quickly as Best Buy’s did.

More: Gas tax “holiday” is a dumb idea…

February 24, 2022

What about the budget impact?
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Following on to yesterday’s post…

Team Biden has floated the idea of waiving the 18.4-cents-a-gallon federal tax on gasoline through the end of the year.

Bloomberg’s assessment: A gas tax holiday would do nothing to fight inflation but would do lasting harm to the federal budget.

Yesterday we drilled down on the inflation effect, concluding that:

Based on common sense behavioral economics, temporarily waiving the gas tax is a play “at the margins” that is likely to have a minimal effect in curbing inflation at the pumps.

Today, let’s look at the budget effect

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Again, building on the Bloomberg headline…

Keep in mind that revenue from the gas tax ostensibly goes into the Highway Trust Fund, which is the primary way the U.S. pays for repairing and maintaining highways

It is estimated that suspending the tax through the end of 2022 (as the proposed Dem-sponsored bill envisions) would cost about $20 billion).

Hmm.

Didn’t the Feds recently pass a bipartisan infrastructure bill intended, in part, to repair roads & bridges?

Specifically, $110 billion was earmarked and split roughly 50-50 for roads & bridges.

For details,see: What  is in the bipartisan infrastructure bill?

So, jacking $20 billion from the highways budget is the equivalent of cutting the infrastructure bill’s commitment to roads by about 40%.

So much for the commitment to infrastructure rebuilding.

They’re not trying to snooker us again, are they?

Bloomberg: Gas tax “holiday” is a dumb idea…

February 23, 2022

Prices at the pump have already soared and will go even higher given the Russia-Ukraine mess (and Biden’s anti-oil policies).
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But, not to worry …

To offset the pump price increases, Team Biden is trying to get Saudi Arabia, Russia and Iran to supply more oil.

Well, maybe strike Russia from that list now.

And, they’re floating a gamechanger: Waiving the 18.4-cents-a-gallon federal tax on gasoline through the end of the year.

What’s the problem with doing that?

Bloomberg’s assessment: A gas tax holiday would do nothing to fight inflation but would do lasting harm to the federal budget.

Today, let’s drill down on the inflationary impact by considering the relevant “behavioral economics” — what are consumers likely to perceive and how are they’re likely to reacrt..

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Some Behavioral Economics

My take: Temporarily waiving the gas tax is a play “at the margins” that is likely to have a zero or negative effect in the market.

For openers, ask: What’s the impact of 18.4¢ per gallon on consumer’s wallets?

It is about 4.5% off a gallon of gas at current pump prices.

That’s sounds good.

But, it translates to about 2 bucks off at each pump stop … down from around $50 to just under $48.

Assume  a 16 gallon tank, refilled when it’s down to 1/4 of a tank: 75% x 16 = 12 gallons; 12 gal, x 18.4¢ = $2.20 … and assume gas at $4 per gallon at current market prices..

From a behavioral economics perspective, the driving number (<= pun intended) is the $48 … which is still a “piss-me-off” $20 per fill-up more than we were paying pre-Biden.

There’s little likelihood that consumers will start chanting; “Now you’re talking, Joe”.

So, let’s take another slant: What’s the annual impact on wallets?

Teaching point: In my pricing course, I professed that a way to “inflate” the appearance of a small number, simply multiply it by some number, e.g. go from cents per gallon,to dollars per fill-up to dollars per year.

Conversely, to make a big number seem small, simply “bite size it” by dividing it by some number, e.g. instead of $200, make it 4 easy-pay installments of $49.99 … or better yet: only pennies per day … way less than your monthly cable bill.

Let’s assume that an average person drives 12,000 miles each year.  At 20 MPG, that translates to 600 gallons per year.

At 18.4¢ per gallon, that’s a little over $100 in savings this year.

That’s barely enough to buy one of the two shoes in a new pair of Nike Lebron 19 basketball kicks.

The Nike LeBron 19 “Bred” to release this month at select retailers and Nike.com. The retail price tag is set at $200 USD. Source

Sure, we’d all rather get a “free” $100 from the government coffer (i.e. somebody else’s money), it doesn’t stack up as a life-style changing bonanza.

So, Joe, it may not buy you or your cronies  a lot of votes … or neutralize the perception that you haven’t got a clue.

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P.S. What if the above logic is wrong and people do sense that temporarily waiving the 18.4¢ per gallon gas tax is a meaningful price change?

What’s the likely outcome?

Based on past history, people are likely drive more and buy more gas … pushing the pump prices back up … possible negating the entire tax cut.

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To be continued…

What’s up (or down) with oil prices?

December 22, 2015

I’m sure you’ve noticed that gas prices have come down at the pump.

If you follow the economy or the stock market, you’ve certainly noticed that oil prices have come down … a couple of years ago it was selling for over $130 per barrel … now it’s selling for under $35.

Most pundits chalk it up to slowing economic growth in China.

But, that sounded too simple to me, so I started asking some questions … why’s it happening? who’s getting helped or hurt?

 

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Here’s my current theory of the case …

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Why is gas cheaper in New Jersey?

March 12, 2015

I’ve always wondered that … especially since NJ is the only place on Planet Earth that won’t let you self-pump your own gas.

Nope.

Gotta wait for the attendant to notice you’re there and do it for you.

 

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Of course, the attendants don’t look like the guy in the picture.

Nope.

They all look like folks who should be reported to Homeland Security.

My point: having attendants should push gas prices up, right?

A common hypothesis is that there are a lot of gas storage facilities along I-95.

Cheaper supply?

That doesn’t square since there isn’t much gas drilled in the local area.

OK, so what is it?

I may have stumbled on the answer …

(more…)


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