Branded Gas Stations: Consumer Behavior at Point-of-Sale
In the late 1990s, major companies such as Shell running branded gas stations faced an intensely competitive environment. The market was highly fragmented and not very differentiated. The share of each of the major companies hovered below nine percent, separated by less than half a percentage point. Consumers saw virtually no difference between Shell, Exxon, Amoco, Chevron, Mobil, and Texaco based on service, security, one-stop-shopping, speed, price, and the quality of gasoline. As far as many consumers were concerned, gas was gas. These companies also faced potential new competition from retailers such as Wal-Mart who could use the gasoline business as a loss leader for retail.
This meant fuel companies needed to be more sophisticated in their segmentation and positioning. "Even in what was considered a commodity category, not all customers were looking for the same thing," said Wharton Marketing Professor David Reibstein. "Some wanted friendly service, some wanted speed, and some wanted clean bathrooms, well-stocked mini-marts, or environmentally friendly products. By understanding and positioning for these different segments, the companies had a chance to target their marketing and differentiate themselves." The understanding of consumer segments—as well as the strategies of rivals—would have a significant impact on the market share and profitability of these companies.
In a recent session of Wharton's Essentials of Marketing program, participants examined the gas station case and developed their own solutions based on analyzing consumers and competitors. Then, they saw the impact of their decisions in a simulation model.
Gauging the Needs and Wants of Consumers
The program examined a variety of different approaches for understanding gasoline station consumers and some of the challenges of each. These tools include in-depth interviews, focus groups, and formal surveys. Companies also use time-series studies and conjoint analysis.
While consumers may not intentionally lie about what they want, they will not always be able to accurately assess their true needs and desires. They may be less than truthful because they want to protect their own reputations or self image. They also may want to please the researcher by offering the answer they think she wants to hear.
Another problem is that consumers are not very good at making decisions about specific attributes of a product out of context. How important is it for a gas station to accept cash at the pump? Consumers may not be able to answer this type of question well in a vacuum. But they can tell you that they prefer a station with a low price, a good mini-mart, and fast transactions better than another station that lags on all these dimensions but accepts cash at the pump. After making a number of such tradeoffs, researchers can then infer the value consumers place on each attribute.
This is the approach used in conjoint analysis, a widely used marketing research tool developed by Emeritus Professor Paul Green at the Wharton School. Conjoint analysis reveals consumer preferences about attributes by asking consumers to make a choice between specific offerings (which combine several different attributes). It is like comparing cars on the lot versus trying to build one from scratch by making decisions about each option. While car buyers may not be able to accurately assess the value of having a multi-CD changer, they can decide whether they want to buy one car that has the CD changer versus one without it.
Conjoint analysis can be more effective in understanding consumers than asking them straight out. For example, when a group of MBA students was asked what was most important to them in a job, they ranked salary as number six on their list. Factors such as people and location were considered more important. But when the same students were surveyed using conjoint analysis, salary emerged as far and away the most important factor. The respondents didn't mean to lie, but they perhaps didn't want to appear to be too driven by salary. As every recruiter knows, this is obviously a key concern in choosing a job.
Positioning: Lowest Price or Quick-and-Easy?
With developing a strategy, managers need to look at segmentation (what drives different customer groups), recognizing that not everyone is looking for the same thing. Companies can "target" specific segments and then "position" to create a unique appeal to those groups. Segmentation is done by clustering people based on their needs (psychographics) and then using demographics and psychographics to extend the segments. In deciding which segments to target, the managers needed to understand the size of the segment, the company's own ability to serve it, and how well they are currently being served by the competition.
In gasoline stations, combining several segments led to different potential brand identities: quick and easy, one-stop convenience, best gasoline performance, lowest price, friendliest service and community support. The choice of identity for a given brand depends on the attractiveness of the segments as well as the company's own capabilities to fulfill it. For example, the major oil companies may need to concede the "lowest price" position to discount retailers.
Finally, in developing strategies, managers need to look at competitors. At the close of the session, groups of participants acting as managers of different companies set marketing strategies and put their choices into a simulation model. The model showed them their resulting market share and profits based on their decisions. For example, while participants were tempted to build many new stations, significantly increasing their market share, the cost of building them led to serious losses. The model revealed that the market share and profits earned by a company are affected both by their understanding of the consumer and their ability to stand out from competitors. If four competitors choose the same position, even if it is the best one in isolation, they will have to share profits from this segment four ways.
Faster to the Pump: Challenges of Implementation
After careful analysis, Shell actually chose the "quick and easy" positioning, with commercials showing cars being refueled like jets in mid-air and drivers finding sneak routes out of traffic jams. The tagline was "moving at the speed of life." Shell tested a robotic attendant at stations in Indiana and California.
Shell also rolled out a pilot for "Shell Easy Pay," using RFID technology to create a keytag that could be brought near the pump instead of a credit card. But Shell was slow to do a full-scale rollout (perhaps preoccupied with its acquisition of Texaco). Rival Mobil leaped into the market with its Speed Pass. (This demonstrates the perils of test marketing.) After Mobil stole Shell's thunder with the Speed Pass, Mobil owned the "quick-and-easy" positioning. By 2001, Shell had moved to a "clean-and-safe" positioning, with advertising that showed a brightly lit station with the tagline "Lookin' Good."
This illustrates how the original marketing plan is shaped by the actions and reactions of competitors. Companies not only need to know consumers better than they know themselves—but also rivals.
© 2007 The Wharton School, University of Pennsylvania
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