Discount schemes lift fuel prices
Rising petrol discount schemes could be ‘‘a symptom of high margins’’, the Commerce Commission said.
‘‘In the past there have been periods of strong competition on board prices. However, in more recent years resellers have increasingly competed using discount and loyalty programmes and by offering different levels of service.’’
But the commission’s report into competition in the petrol market, found the rise of ‘‘discounting’’ was closely linked to rises in importer margins on fuel, sorted consumers into more and less price sensitive groups, and made it harder for people to compare actual prices.
‘‘Discounts appear to have increased alongside increases in the margins . . . If board prices were cost-reflective, as we would expect in a workably competitive market, we currently consider that there would be less scope for discounting.’’
It appeared to the commission that discount schemes were a means of petrol service station brands building customer loyalty, and focusing motorists on the apparent generosity of discounts, not comparing real fuel prices.
Discounting could, the commission said, provide a way for fuel companies to avoid price competition. ‘‘The programmes are costly for the fuel firms to provide and for consumers to take advantage of. It is unclear whether this approach to competing is efficient or whether consumers might prefer, and be better off with, less discounting and lower board prices.’’
Fuel companies reject the commission’s view. ‘‘The increase in the prevalence of loyalty programmes is also indicative of strong competition to retain customers and is of substantial benefit directly to customers,’’ BP told the commission.
Z Energy said: ‘‘Competitors’ strategies are continuing to evolve over time in a manner that suggests competitive retail markets and include: (a) Greater focus on ‘off price board’ discounting strategies through loyalty programmes, such as AA Smartfuel and Mobil Smiles.’’
Discount schemes also allowed petrol retailers to charge some motorists a high price for fuel, the commission said. ‘‘We currently consider that board prices rising alongside discounts is consistent with loyalty programmes and discount vouchers serving as a form of price discrimination – where higher prices are charged to less price sensitive customers that do not use discounts or participate in loyalty schemes.’’