The end of May brings Memorial Day and with it, the kickoff of the summer season and higher gas prices at the pump. Even though gas prices overall have been extraordinary low for a few years, you can count on one certainty: the Price at the Pump will be higher than it was in Spring.
While travel does increase in summer, it is not nearly as high as you might think nor match the price increases that occur annually. In fact according to AAA, this year US travel is expected to increase by only 2.1 percent for the May 26 to May 30 holiday weekend. That’s an increase but not massive compared to the price increase that is expected at around ten percent.
My observation for you to learn is that regardless of where prices are overall, they are going to go up at the start of summer, whether Americans truly drive more or not this summer.
Core Question:
So, are the higher prices a direct result of an industry making TACTICAL adjustments due to real changes in their business factors; OR are the increases a result of a planned STRATEGY?
Takeaway Question:
Most importantly, regardless of the reasons, what can every Business Owner, CEO or Entrepreneur learn from what the Gas Industry has MASTERED?
Here’s 4 Key Observations:
1. Supply is NOT Always Tied to Demand
We’re all taught that Price is controlled by Supply and Demand. But that is not always the case. Price is also a derivative of “what the market can bear” and in the case of Memorial Day, price isn’t really set to true supply.
As we know, gas prices have been extraordinary low for a few years. That is entirely a result of increased Supply fueled by new technology and innovations. So, supply is higher and demand is actually flat or in some cases, lower. Based on that analysis, prices should be flat or lower, not higher.
Therefore, the Takeaway on Memorial Day gas prices is simply this: Price is what a Customer Will Pay.
Think about your business or company and how you could alter your viewpoint or business model to use this approach in how you determine prices.
2. Raise Your Prices Every Year
Similar to #1, it doesn’t matter if your cost of goods or services have increased, remained flat or even decreased. Price is determined by many factors but one of the key observations related to summer gas prices is simply this:
Gas Prices will always go UP at the start of summer no matter what.
This is something you could incorporate into your business. Raise your prices every year, if at all possible, even by a minor, nearly inflation low level of less than one percent. Look, by always raising your prices, even ever so slightly, you build CONSISTENCY year over year and manage your customer’s expectations.
Here’s another way to look at it: I find that the worst thing to do for a business and for your customers is to never have price increases and then one day, raise them massively. A large price increase could have significant, adverse affects to your customers and revenue. To avoid that outcome, consider annual price increases, if your market warrants.
3. Capitalize on Seasons
If Memorial Day and higher Summer Gas Prices have taught us anything, it is to always CAPITALIZE on the upcoming season. The Gas Industry knows this. Their production costs may stay relatively stable but you know that gas prices are going to be raised at the pump compared to Spring due to the summer season regardless of where they are at in year to year comparisons.
The industry capitalizes on both the “reality” and “perception” of the consumer. You can do the same.
For those of you who have any type of seasonality to your business or revenue streams, consider deploying this strategy more fully like the Gas Industry has mastered.
4. Train Your Customers
If the price of gas going up on Memorial Day to kick-off the summer season teaches us anything, it is that the Gas Industry has “trained” all of their consumers for that very outcome. We’ve come to “expect” that prices go up. In fact, it’s a tune that our parents sang and now we sing. As long as there are gasoline cars, you can expect gas prices to go up at the start of summer.
The takeaway is that a company can actually “train” or “set” the expectations of its customers. While businesses and industries vary, start to think about how you could APPLY this concept to your customers and your business models.