Factor In Fuel Cost Vacillations

Using results of a survey by marketplace intelligence firm Prosper Insights & Analytics, the National Retail Federation is warning U.S. store operators that concerns about gas prices are affecting shopper spending.

• The impacts of the concerns on spending are greater for shoppers ages 18 to 24 than for those 65 and over. Probably related to this, the impacts are greater for those making less than $50,000 a year than for those making more than that. They’re greatest among consumers in the Southern states and least among consumers in the Northeastern states. 
• Overall, about 42% of the survey respondents said they’re driving less. The major spending impacts are on dining out, vacation travel, and clothing. The major shopping impacts consist of taking fewer shopping trips and shopping closer to home. 

     Prompts in the survey included “How have fluctuating gas prices impacted your spending?” and “As a result of fluctuating gas prices, are you doing any of the following?” Notice that the word was “fluctuating,” not “high.” The concern expressed by consumers appears to be due to the unpredictability in ups and downs of the cost of fuel.
     When shoppers feel substantial uncertainty from any source, they assess the competence of the retailer more closely. Researchers at University of California-Los Angeles found that consumers describe competent retailers as reliable, intelligent, and successful. Impressions of being daring, spirited, and exciting can detract from the image of competence. The Prosper results indicate this will be most important to younger consumers, those of less financial means, and those in the Southern states.
     It’s likely you’re also suffering uncertainty about fuel costs and their effect on your retail pricing. You might be tempted to add a fuel surcharge. The argument for doing this is that your customers all realize gasoline prices are rising.
     Partitioned pricing, in which you state an item’s cost as a main price plus one or more surcharges, can work. However, the problem with a fuel surcharge is that the partitioned pricing calls attention to transportation as the reason for a price increase on an item. Researchers at University of Pennsylvania and University of Florida found that customer anger is most likely when the retailer's explanations for increases in product costs are in terms of transportation or insurance. They concluded that the explanations most likely to head off customer anger center on the cost of goods to the retailer from the supplier.

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