The Convenience Premium

If you’re westbound on I-70 in Colorado and you get off the freeway for gas at Exit 205, you’ll find yourself in the attractive Rocky Mountain town of Silverthorne. You also find yourself face-to-face with an explicit lesson in marketing called the “convenience premium.” The first, most convenient stop for gas is a Shell station just 100 feet or so down the road (click on photo above to enlarge). You’ll notice the price of regular is $3.59/gallon.

Immediately across the road, but separated by a small median strip, is a Conoco station (photo on left) where the price of gas is $3.29/gallon—30 cents a gallon less! And the third photo is another Citgo gas station across the road and down another couple hundred feet. There again, the price is $3.29/gallon.

I frequent this town often, and this isn’t a quirk. It’s been like this for years. The Shell station always gets a substantial convenience premium for its location, and there are always motorists there filling up their vehicles’ tanks. On a larger SUV, that difference at 30 cents per gallon could amount to almost $10 per fill.

I have no problem with the Shell station charging 30 cents more. We do live in a free market economy, and apparently the owner of the station knows the price people are willing to pay to go the easy route—even if going a few hundred more feet down the road and hanging a U-turn saves some big bucks.

It makes me wonder how many other businesses have left money on the table because they were afraid to see what their convenience premium was worth, or to create a convenience premium in the first place.