Like a lot of people, my wife and I are angered by the management decisions BP took that led to the ongoing oil spill in the Gulf of Mexico. But does that mean we should stop buying gas and milk at the BP station across the street?
We’ve opted to continue filling the tank and grabbing a gallon of skim at the same station we always have. That’s puzzled some friends who question why we haven’t expressed our anger at BP by switching to some other source. Others ask whether I think participating in such a consumer boycott will actually hurt BP.
The issues are complicated. Just how do people’s values-based opinions about the producer of some product affect their purchases? And what are the practical effects of consumer boycotts?
One key variable is whether the product in question is one with a distinct brand identity or one that’s an undifferentiated commodity that is the same even if made by different producers.
Motor fuels are pretty far toward the undifferentiated end of the scale. If it meets the specifications for No. 2 diesel fuel or 87-octane unleaded gasoline, most people pay little attention to exactly who made the fuel. It is not like the clear distinction between a Ford and a Toyota or an iPhone and a BlackBerry or United and Delta.
Thus, a significant number of people could refuse to buy gasoline at BP stations. But if they bought the same amount elsewhere, total demand for gasoline would not change and the overall market price would not drop.
Yes, BP might sell less at BP-branded stations. But the market for refined fuels is a highly-integrated one. Not all crude from BP wells gets processed in BP refineries. Not all oil funneled through BP refineries comes from BP wells. Not all BP refinery output gets sold at BP stations. And not all gas sold at BP stations comes from BP refineries, and so on.
Thus, if a consumer boycott decreased sales at BP stations per se, crude from the company’s wells and products from its refineries still would find buyers. Corporate profits might suffer marginally, but the effect would probably be small.
It also would be different for an independent chain of gas station-convenience stores without its own refineries and wells. If Holiday or 7-Eleven somehow outraged the public, they would be more vulnerable to consumer action because their business is concentrated at one level of the supply chain rather than the full vertical integration of BP.
It also might be more difficult for a company with a highly branded product. If Steve Jobs offended the public to the extent that people shunned Apple’s products, it would not have the option of selling at the wholesale or intermediate good level that BP has.
That situation, however, also would depend on the degree to which there are good substitutes for specific Apple products. To the extent that customers think that a newer product like an iPhone has features that no competing device can offer, Apple would be less vulnerable to a boycott. But a mature product with very close substitutes would confer greater vulnerability.
Consumers not only are influenced by what they think about a vendor but also by what they think others will think of them if they buy from the vendor. Thus, the distinctiveness or visibility of a specific product can play a factor.
No other driver, neighbor, colleague or relative is likely to know what brand of gasoline you have in your tank, or who knit your underwear for that matter. But they can tell what make of car you are driving and perhaps what brand of sneakers you are wearing. Thus, Nissan and Nike are more vulnerable to broad societal views of their companies than Exxon or Fruit of the Loom.
This still is a factor in traditional U.S. auto manufacturing towns where driving an imported car can expose one to barbed comments if not key scratches on one’s paintwork.
The specific market structure also may shape consumers’ willingness to boycott products made by some specific firm. If RCA offended me for some reason, I could buy other brands without affecting local electronics retailers, since most sell several brands. Similarly, if something motivated me to shun American Airlines, no intermediate company would be affected.
But if I stop buying at the BP station across the street, I will hurt the operator of the station. Ned is a business owner I respect. His family has run gas stations in my neighborhood for decades. I may want to punish the oil company itself, but I am loath to harm an individual I know and like. Thus, the fact that much BP gas is marketed through locally owned stations reduces the number of potential boycotters.
© 2010 Edward Lotterman
Chanarambie Consulting, Inc.