The Marketing Magic Behind Rising Gas Prices

Back in 1988, when the price of oil bottomed out, almost every small Texas entrepreneur suffered cash flow problems unless they were smart enough to diversify. Business in Houston, especially, depended on some facet of the oil economy for healthy cash flow. One evening after a board meeting at my luxury high rise, I struck up a conversation with a neighbor who worked for a big oil company. I asked him what he did at his forty-story office tower in downtown Houston. “I’m one of the big nasties that sit around all day and decide how much you’ll pay at the pump,” he chuckled. He was a career marketing man at one of the big four oil companies. The whole country was in an uproar about the recent rise in gas prices and it was a hot topic of conversation. Gas was selling for a comfortable US$1.05 a gallon two weeks earlier, and had recently risen to US$1.35. News reports were rife with information about shortages, high demand, and the importance of national reserves during a time of war–during the Gulf War. Sound familiar? “Americans have been getting a deal and the price of gas will continue to rise, take my word for it. Do you know how much they get for gas in Europe?” Note that he was concerned with “what they get” while I was focused on giving way too much. “We have marketing goals just like any other business–the price of gas will continue to rise until it reaches or surpasses what the rest of the world pays.” Here we are 17 years later, steeped in another war on the other side of the world. Gas prices are skyrocketing, politicians are showboating and cash-strapped citizens wonder helplessly when the price of gas will level off; before or after it reaches the cost of a gallon of milk.

Sometimes only a clichÃ?© can do justice to an unjust situation–those who do not learn from history are destined to repeat it. Yet here we are, a nation of car lovers swallowing the big oil companies’ explanation–hook, line and sinker. Like little fish, we jiggle and wiggle, making the hook sink deeper, sold on the benefits of raising families in the suburbs, the safety advantage of a big car in collisions and the efficiency of high-speed highways that link us to workplaces. Americans believe press statements regarding the high price of oil as if marketing professionals are bound by rules of patriotism. “By the year 2000, a total of 900 billion barrels of oil had been produced. Total world oil production in 2000 was 25 billion barrels. If world oil consumption continues to increase at an average rate of 1.4 percent a year, and no further resources are discovered, the world’s oil supply will not be exhausted until the year 2056,” writes David Deming in “How Much Oil is Left?”

“The estimates above do not include unconventional oil resources. Conventional oil refers to oil that is pumped out of the ground with minimal processing; unconventional oil resources consist largely of tar sands and oil shales that require processing to extract liquid petroleum. Unconventional oil resources are very large. In the future, new technologies that allow extraction of these unconventional resources likely will increase the world’s reserves.” You can read the entire article at the National Center for Policy Analysis by following the link below.

Marketing departments are responsible to the companies they work for and concern themselves with positioning, promotion and price. Their marketing plans don’t consider whether a family bypasses prescribed medication to put gas in the car so Dad can make a living.

What’s the solution in a free-enterprise, market-driven economy? The solution should be simple. Congress should remember our government is for the people, by the people and end the gas-gouging on moral grounds. Instead of acting on behalf of the majority, they’re held back by the lining of their pants pockets, firmly held by a minority–lobbyists for big oil interests. They can get away with this as long as Americans have better things to do than email their congressional representatives. In order for this to be truly a government for the people, by the people; you must participate. If you don’t vote and you don’t make your wishes known to your representatives in Congress; complaints about the high price of commodities fall under idle chit-chat. Complain where it counts and work for change through the democratic process.