Cash Discount for Gas

With the ever increasing competition to bring in and keep new recurring customers, convenience stores that offer gas have tried a multitude of different campaigns to latch onto the regular customer. Free membership and rewards cards, coffee refill discounts, and even movie rental kiosks have all been heavily leaned upon to help with creating and retaining the very lucrative regular, and it's no surprise that they have crossed over into the realm of offering cash discounts to customers in an effort to stay ahead of the competition. But are these cash discounts effective and advantageous to the customer? Or even the retailer? Lets take a look at some of the major points that have been attributed to the cash discount and see if it ends up holding its weight.

EVHRFO by NCCRPR...Or
The Study for Short
The largest study regarding the measure of new to repeat customers occurred in 2012 over the course of 9 months and was run by the National Council for Convenience Retailers and Petroleum Resellers. Or NCCRPR for way short. The study, Economic Values of Highway Retail for Federal Oversight, was the first of its kind to take raw data over such a wide sample area and make it available to public interests.  The study set up more than 3400 cameras across 17 states and recorded data from 1200 convenience stores. The information gathered included recording of time and frequency of license plates, as well as pump location, form of payment used, time at location, retail pricing of every item purchased on same receipt, as well as a number of additional information.
As "clumping" of location tends to occur naturally through economics, the majority of locations (92%) that were a part of the survey had at least one competitor within 3 miles and a significant portion had 5 or more within 5 miles (81%). Additionally, over 95% of "Retail Clumps" are part of the survey.
Let's see what they have to say about some of the following.

Cash Discounts Create New Residual Customers
A common tactic of gas stations is to downrate their competition by advertising slightly lower prices for what are essentially the same products. You commonly see this when a few gas stations directly across from one another all have their prices a penny or so lower than each other. Game theory explains why the locations and even prices "huddle" right up next to each other, but that aside, does offering an even lower cash price get customers to ditch their normal spot for a cheaper alternative?
The answer is "Eh, kinda".
What the data suggests is that although there is a .003% chance of betraying your normal gas location fill up spot when there is a price variance do to cash discounts, the average purchase amount is 80% lower than an average credit purchase, as well as additional purchase items of .04. Meaning that only 1 out of 25 purchases of gasoline with cash include additional items on the same order, such as a bag of chips, soda, or gum. Coincidentally, cigarettes comprise of over 40% of the additional items purchased.
The return to a non cash discount does not statistically alter the residual customer rate, and overall traffic and volume numbers do not change.

Cash Discount is Substantial Consumer Savings
While the cash discount for gasoline purchases are on average 1.4%, the amount actually becomes negligible when other factors are considered. Most engines made with OBDII sensors and also sold after 1997 have Ethanol Readjustment Valves. (ERVs) which automatically readjust the amount of fuel that is used based off of the consistency of its flammability rating. The Detroit Manufacturing Alliance maintains that the engines ability to properly read and evaluate the consistency of the quality of fuel allows it to more efficiently regulate fuel consumption. The effect when a different supplier of gasoline is used can reset the valve to less efficient values until it can reassess the most suitable consumption rate. This can result in up to 20% less fuel efficiency!
People have often requested the Department of Weights and Measurements to verify that gas stations are giving consumer the correct amount of gas, and comprise up to 70% of complaints.
"One of the first questions is if they have ever used that gas station or brand before. If they say they haven't, 99.9% of the time we know its because of ERVs in the car and we just toss the complaint." says Barbara Greenwaithe of the DWM. "It takes too long to explain, so we normally just mark it a mathematical error on the customer's part"

Cash is More Profitable to the Retailer than Other Forms of Payment
While there usually is a cost associated with accepting credit cards, the amount typically falls below .04% of the transaction cost. So why would the retailer offer a larger discount than what they are charged to use cash? That doesn't make much economic sense as cash tends to increase risk in a multitude of forms. Cash is more tangible, and eventually must be deposited into a bank as opposed to simply transferring there in direct form, as a credit card would allow. This adds to the cost of manpower and security, as more resources need to be placed on the upkeep and protection of the actual cash.
There is a direct correlation between The Report and the amount of robberies that any location received. Their was a 44% larger chance of being robbed if you worked in a location that offered a cash discount even once in the past 30 days, and a 80% higher chance of being robbed when a cash discount is being offered.
Although not part of the survey, shrink, or loss through theft could also play a large role in decreasing the value of cash. Average shrink of .001% of cash intake results in substantially higher losses when cash is prevalent. Margins of 5% can quickly result in losses if offset by larger theft. $10,000 of retail sales daily can equate to $400-$600 in daily profit. If cash amounts on hand are larger, theft increases while product margin remains the same, resulting in larger losses.

So if the major reasons for cash discounts for gas are all pointing to the contrary, why do some retailers still offer the cash discount? Some of the reasons may seem obvious, but what was uncovered in a recent court case may show the creativity, as well as the darker truth, behind one of the largest and least known lobbying groups in the United States.

More in Part 2.