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July 29, 2004

Upper-Class Gas

While recent headlines report a slight drop in gas prices across North America, reports indicate it's not expected that prices will reduce in the upcoming weeks.

So why did Shell pick last week to launch their ultra-premium, higher priced V-Power gasoline?

With skyrocketing prices and sensitivity to our Mideast dependencies, it seems like poor timing for a new line-extension in gas options. In fact, as I researched this post, I found that every on-line article about gas prices also included "top tips" and calculators to assist motorists in conserving fuel to save money.

At my local pumps this fancy fossil fuel is running around 12¢ more per gallon, over even the premium, at $1.27 per gallon [correction $2.27 per gallon (7/31)].

What's the benefit? According to Shell's website...

The new gasoline actively cleans critical engine parts as motorists drive, and features more than five times the minimum amount of cleaning agents required by government standards. Shell V-Power gasoline replaces Shell’s existing premium grade gasoline, and is available now at Shell stations across the USA...

...This level of protection helps prevent the future build-up of carbon deposits on your vehicle’s intake valves or fuel injectors.

Engine deposits? Carbon buildup? Sure, these are ways to prolong the life of a car's engine... Do Americans even own the same vehicle long enough to experience the degradation of their engine due to these pesky deposits?

How about higher efficiency resulting in higher miles-per-gallon? What about less pollution? These features are marketing-worthy and a value worth paying a premium for.

Are owners of gas-guzzlers splurging on this affordable luxury?

Is this a status fuel?

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Comments

With today's high gas prices, more and more consumers are willing to settle with Regular gas as opposed to Premium. It's an easy choice to make at the gas pump, and one that has a significant impact on your wallet. The problem is that there is essentially no reason for the majority of people to buy Premium gas at all. Most cars will run just fine on Regular, even those that "require" it, and once consumers realize this (by experimenting) there's no need for them to switch back!

So Shell needs to up the ante a bit. Since they can't say that Premium adds performance, or improves mileage, or even has environmental benefits; they need to promote Premium gas as being something more. So they add "five times the minimum amount of cleaning agents required" and play the longetivity card.

You're right, most Americans don't keep their cars longer than their first timing belt change, but then again - most Americans don't go offroading in their SUVs.

Paul … you’re not just blowing gas, this is interesting conversation you’ve started.

Gas is the ultimate commodity. Can the typical consumer really distinguish between the performance of their car from using lower-grade gas versus higher-grade gas?

Let’s put this question in a different context … can the typical consumer distinguish between the performance of an Old Navy knit polo shirt versus the performance of a Banana Republic knit polo shirt? I feel more confident wearing higher-quality shirts from Banana Republic (as opposed to from Old Navy) and I believe that "feeling more confident" improves my performance. (Whatever that means.)

And, can the typical consumer distinguish between the performance of their private-label mustard versus the performance of an artisan jar of mustard? I feel my turkey sandwich tastes better with higher-quality mustard and thus, I’ll use artisan mustard over generic mustard any day.

I think Shell is going about promoting this higher-quality gasoline in the wrong way. They need to prove, through insinuation at the least, a cleaner engine improves a car’s driving performance by making it drive better, faster, and with less complications. I pursued their website copy on V-Gasoline and couldn’t find any copy on how V-Gas improves driving performance … just copy on intake valves are cleaner from using this gas.

People will always pay more for goods and services they FEEL perform better.

Note … I feel my car is more responsive and performs better when I use premium gasoline with an octane rating of at least 91. Or maybe I have fallen victim to the car manual which tells me to use higher octane gas. I also “lather, rinse, repeat” when using shampoo. Have I been hoodwinked? Maybe, but my hair is so silky smooth and bouncy from lathering, rinsing, and repeating.

I was so distracted by the price of gas at your local stations that I could hardly concentrate on the rest of your article. $1.27 a gallon? Wow. Try reversing the 2 and the 7 and that's more like what I'm paying here in the oil-producing state of Oklahoma.

It does seems like Shell is promoting the features (cleaner valves) instead of the benefits (better performance or whatever) of their new formula.

The Placebo Effect has been selling products for years, especially those with a premium label. Sure, clothing and mustard are easily relatable examples, but there's one key aspect that they miss out on in the comparison with gas: Simplicity.

Most consumers can easily tell the difference between Old Navy and Banana Republic (different styling, feel of fabric, etc.) regardless of the technical aspects between the two (single-stitch, double-stich, etc). The same goes with mustard.

But the majority of people do not even know what an intake valve is, let alone why preventing carbon build-up would be a good thing, and measuring the difference requires tools that the average person doesn't have access to - it's all very abstract to them. The auto industry has been taking advantage of this lack of knowledge, and lack of access to equipment, for years. So the consumer's perception of quality is driven by other aspects not based on "realty" but rather on "feeling" - and Brand Positioning plays a major role in this.

Create the image of quality, and the perception will be of quality. That's the beauty of marketing!

Follow this link to learn more about intake valves and car engines! -> HowStuffWorks: Car Engines Work

Let's rotate our perspective 180 degrees. What if Shell got it right? That implies that there's a segment that (1) derives satisfaction from knowing it has bought the "best" (from a mechanical engineering perspective) fuel available and (2) assesses the quality of the fuel from a description of its attributes and their effects on an engine.

Is this a mainstream consumer? Of course not. It's probably someone with slavish devotion to his car who chose his car not for status or style or its practical benefits but because of how well its designed and made.

If you assume such folks are 1% of the population and the gas is 2x as profitable as ordinary gas, Shell has increased its profits 10%. Not bad. If you figure in customers that they pulled in from Chevron, the return is even greater.

Now, what I can't understand is why is gasoline colored? You can't see it ordinarily, but Chevron's is tinted blue and Shell's is tinted orange.

JB

I wonder if folks from Shell are tuning into these discussions?

According to the press release, the new V-Power fuel will replace their current PREMIUM offering. V-Power is offered at a higher price point than the current premium offering. When this replaces their premium gas it'll be interesting to see if the price of V-Power is reduced.

I think Shell Answer Man has got something. Sure, for the "average" consumer the V-Power gas is needless, but for the "elite" consumer (who cares less about value and most about quality) it could be a deciding factor against the competition.

I'll throw one more thing out there as well. The V-Power gas also serves as something Shell can actually use in their advertising to appeal to the average consumer. A Flagship product of sorts. They can't have commercials saying, "Shell - We Have 87 Octane" because everyone does! So the V-Power is something with a catchy name, and with desirable benefits, that gives Shell brand recognition and gets the customer through the door.

Much like the Corvette is Chevy's Flagship car - sure, most people can never own one because they need a 4-door sedan, but it attracts their attention and gets them to associate Chevrolet with Quality. The Fashion industry does the same thing - no one will actually wear what these models are wearing on the runway, but it gives Ralph Lauren that association with quality. So these companies need to devote a significant amount of R&D on products that in all actuality aren't the top sellers, but are something that associates them with Quality and gets the customer through the door to buy the "bread & butter" products.


Chevron gas is blue?

All gasolines contain effective detergent additives. The EPA has required all gasolines marketed in the United States to contain detergents since 1995. So V power is nothing but a marking trap

If you assume such folks are 1% of the population and the gas is 2x as profitable as ordinary gas, Shell has increased its profits 10%. Not bad. If you figure in customers that they pulled in from Chevron, the return is even greater.

In regards to gas, I think people will always choose the option that is less expensive.

-Dave
Old Navy

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