How it Works

If a fuel company reduces prices to new customers, all its existing customers will demand a price cut. So while it makes an extra 15p per litre on sales to new customers, it will then lose the 2p discount on all its previous customers. So to break even on the deal, it has to gain at least 12.5% in new customers.

It can only work for an oil company, as they make profits at both the wholesale and retail stage. A supermarket could not do it - they would lose 2p on all existing sales and gain only 4p on new sales.

The biggest oil companies could not do this. To increase their sales by 12.5% means that almost 1,000,000 drivers would have to move to them. A switch this big would be virtually impossible.

It is much better to target a smaller company, and the two smallest suppliers with national coverage are Texaco and Total. Texaco have more sites across the UK than Total, and operate via dealers, so Texaco is the one we have selected.

Last year Texaco supplied c3 billion litres of fuel. To make the scheme work they need at least 350,000 new customers. At that number, the discount is self financing – the additional profits on new customers equal the discounts given to existing customers.

Once Texaco reduce their prices, the other fuel companies can react in two ways

• They can ignore the loss of sales, which as it will be spread over all of them, will not cost any individual one of them too much.

• Or they can match the price cut. Which is a result for all drivers.

But it will take time to persuade drivers to move their custom and while the numbers are building up, Texaco will make profits on new customers.

So what’s in that for us?

We think they should donate the extra to charities chosen by our members.