Sky-high fuel costs hit some extra hard

By Sara Jean Green

Seattle Times staff reporter

Randy Clark, a house painter from Kenmore, never fills his gas tank in Seattle, Bellevue or Issaquah. He even avoids North Bend, the last stop for eastbound drivers crossing Snoqualmie Pass.

Fueling up is always a few cents cheaper a gallon in places such as Snohomish or Monroe, said Clark, a father of four who knows that when it comes to buying gas, geography matters.

"They set prices for the income of the area — what people are able to pay," he said.

As gas prices continue to climb, no one is feeling the sting more acutely than small-business owners such as Clark who rely on their vehicles to make deliveries or get them to far-flung work sites. Not only are they paying more at the pump, but many are getting socked by rising shipping and wholesale costs.

The struggle between staying competitive and making a profit is forcing many business owners to raise prices, turn down distant jobs or find creative ways to cut gas consumption.

For Jerry Siman, of Redmond, rising gas and material costs led him to institute a $375 minimum price for drywall repairs — something he had not done before. Now, he's more likely to pass on little jobs, especially if his subcontractors have to drive farther.

"It's just adding up ... " he said. "Everything is going up because of the gasoline prices."

Though Washington and Oregon are the only Western states that have succeeded in reducing per capita gas use in recent years, crude-oil prices and a weakened U.S. dollar are among the factors driving up fuel prices.

And while gas is still cheaper here than in many countries, including Canada — gas in Vancouver, B.C., averages a dollar more a gallon than in Seattle — consumers increasingly are feeling pinched, from the grocery aisle to the lumber yard.

"We are relatively better off [than drivers in other countries] but that doesn't mean people aren't feeling real pain at the pump and in their businesses," said state Attorney General Rob McKenna. "People are spending more of their family income on transportation, and businesses and their customers are paying more for products, from bread to plywood."

And there's no question those who need to drive to make a living are "the ones who get hurt the most," said McKenna, who last spring commissioned the first comprehensive study of gas prices across the state since 1991. A final report is expected by early April.

There's no evidence of price fixing or collusion within the gasoline industry to drive up retail prices, McKenna said. Instead, the laws of supply and demand — coupled with the costs of running a service station — are behind the differences in gas prices, even between neighboring cities.

"We have competition on the demand side and constraints on the supply side," McKenna said. "Zone pricing is real. ... You'll pay more for products in Bellevue than in Renton, more on Mercer Island than in Federal Way, because the cost of business is higher and people can pay more."

As of February, Seattle-area gas prices were up 26.9 percent over last year, according to federal inflation data released last week. While national gas prices dipped 2 percent in February, gas prices here rose 2.7 percent last month — continuing a yearlong trend.

Clark and his brother Casey say this is a make-it-or-break-it summer for their house-painting business, CR Painting. Between a higher minimum wage and increased costs for gas and groceries, Randy Clark figures he has no choice but to raise his rates.

"If we're close to three bucks a gallon, I wouldn't do that but once we get up to $3.50 or four bucks, there's nothing we can do but raise them because otherwise, you're not going to make any money," said Clark, who drives a 1996 Ford Windstar minivan to painting jobs.

Shipping costs up, too

Not only are fuel prices rising, but shipping costs are climbing, too, said Kent Shoemaker, who owns an air-compressor and vacuum-pump business in Lynnwood.

Between him and his two employees, Shoemaker figures he spends up to $2,300 a month on diesel fuel, which is now over $4 a gallon. Last April, when fuel prices hit record highs, he raised his hourly labor rate by $5 — but is loath to do that again, even though he estimates he's absorbing a $1,000 to $2,000 cost a month because of rising fuel prices.

At the same time, he's paying 2 percent to 3 percent more for the medical and industrial equipment he sells. He's also getting hit with hefty freight rates. For instance, it used to cost $330 to have a 500-pound piece of equipment shipped from North Carolina. Now, that same piece costs roughly $700 to ship. "The freight rates have gone through the roof," he said. "It's hitting us pretty hard."

Out on the Olympic Peninsula, where gas prices can be even higher than in the Seattle area, Susan Velie struggles to explain to her customers why she has had to raise her prices at Cherry Hill Florists in Port Angeles. Her own costs have gone up 10 percent to 15 percent because it costs just that much more to transport flowers from Ecuador and Canada.

At least a couple times a week, customers cancel their orders when they realize the delivery fee — $15 to $20 outside city limits — makes up half their bill, Velie said.

And while she's currently "eating" $500 a week in gas costs, Velie said, rising prices have forced her to be more conscious about fuel. Instead of making three or four delivery runs throughout the day, Velie said, she now carefully maps her destinations and tries to make deliveries in a single trip.

Rising gas prices are "making everybody think," Velie said. "Sometimes it forces you to do things you otherwise wouldn't think about. So, let's get inventive, let's be smart here."

source from: http://seattletimes.nwsource.com/

Replying to [lovechina]:

The increase in the oil price, causing a domino effect on the prices of everything, including commodities, transportation and basic necessities. For businesses to continue selling their products at the same price is going to experience a lowered profit margin and even to lose money.

One member introduced the Philip Kotler's Framework on Designing Price Strategies and Programs in the Sales and Marketing Forum. According to the Framework, Setting the Price of the product has the following upward and downward pressures. Other factors included that influence the decision making on the price setting are:

Survival - to float into the positive on the balance account with money in the bank.
Maximize Profit - All businesses are here to make money, unless it is a charitable organization. To identify cutting edge niches in the market and take control to command premium price and maximum profit.
Maximize Revenue - the profit margin is stretched to the maximum, where opportunities are, to perk up the emotion for the impulsive buyers..
Maximize Sales - Buy 2 and get one free, to move the product in mass volume, granting quantity discounts and incentives for customers to buy more.
Growth - a percentage of the profit is put away for reinvestment and grow on the capital.
Maximize Market - To dominate market share, reaching to a demographic group where the price is the domineering factor to their choice of product.
Skimming - is like doing break-even pricing to capture market, and knock out the competitors.
Product-quality - improve the quality of the product by investing in the Research and Development of the product, and product innovation.
Leadership - Taking leadership with brand building and customer loyalty.
Other objectives i.e. non-profit, social pricing, cost recovery.

Street Smart