In February 1999, one local dealer, Fred Fuller Company, sold home heating oil at the “cash price” of $0.599 per gallon, which was lower than Bellemore’s “cash price” of the day. It is not unusual to see a fluctuation from dealer to dealer; generally it is variable around two to three cents per gallon. Yet, Fred Fuller Company’s guaranteed price program was also offered at $0.749 per gallon.
In February 1999, Fred Fuller Company announced it would rebate its guaranteed price program customers $0.15 per gallon as the price of oil had dropped that amount since their guaranteed program’s price was announced. This unusual pricing move made the local newspaper, prompting many oil customers to call their oil dealers to inquire “what will you do since Fred Fuller Company is rebating its customers. Will we get a rebate, too?”
Home heating oil companies throughout southern New Hampshire found themselves very unhappy at the pricing tactics used. The front-page article in the Manchester Union Leader gained Fred Fuller Company very favorable publicity, with that company’s telephone ringing off the hook with customers from other oil companies wanting to switch their allegiance to Fred Fuller Company. This included customers from Bellemore’s.
a. What should the price of a gallon of fuel oil represent to a customer? What do you get for that price?
b. What are the benefits and risks to the customer should they elect to participate in the guaranteed price program? Is it a fair program? Why or why not?
c. What is the ethical requirement for a dealer to rebate some or all of the price difference when the price goes below that which was mutually contracted to by both the dealer and customer?
d. What should Bellemore’s management do relative to matching the rebate? How would you approach this if you were at Bellemore?