February 25, 2000 1:20 PM PST

Name your price for a gallon of gas

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Priceline.com customers will soon be able to buy gasoline online, but it remains to be seen whether they will jump at the chance to name their price at the pump.

The service announced today by Priceline WebHouse Club, the Stamford, Conn.-based affiliate of Priceline that recently launched a name-your-price grocery service, will allow customers to specify a price for up to 50 gallons of gas per month. This represents the latest--and perhaps most daring--use of Priceline's business model.

"Until recently, the Internet has been primarily about convenience when shopping online for books, software and music," Jay Walker, founder of Priceline and Priceline WebHouse Club, said in a statement. "Priceline WebHouse Club is about saving money on the everyday items for tens of millions of consumers, beginning with groceries and now, gasoline.''

Priceline's gas service may pique the interest of consumers who have seen the rise of oil and gas prices in recent months. Prices for crude oil, for instance, recently topped $30 a barrel, the highest prices since the Persian Gulf War. Nationally, the price for a gallon of unleaded gas is about $1.35, up 8 cents from January, according to a survey by the Federal Department of Energy. The American Automobile Association reports the national price at $1.37 a gallon.

Through Priceline's service, customers will be able to specify the number of gallons they want to buy and how much per gallon they are willing to pay for them. If a gas station accepts a customer's price, Priceline will automatically charge the customer for the total amount.

Priceline will then issue gas cards to customers who sign up for the service. The card will work like a debit card at the gas station; instead of swiping a credit card to fill up a tank of gas, customers will insert their gas card and the amount will be deducted from the total already purchased, active for up to a month.

If customers do not use all of the credit on their Priceline gas card, the company will refund the difference at the end of the month. If customers run out of credits while filling up their tanks, they will be able to charge up to two more gallons on their Priceline card at the agreed upon price, Priceline said.

Although prices at the pump have been steadily rising, it remains to be seen whether consumers will adopt Priceline's new service. Unlike the markets for airline tickets or even groceries online, which Priceline entered long after competitors had entered and established the market, the company will be blazing a new trail by selling gasoline over the Web.

Another concern is Priceline's ability to sign on big-name gas stations to the service, which could prevent widespread adoption by consumers. The company declined to name any of its partners, but says it plans to offer gas at name-brand gas stations across the country when it launches May 20.

Priceline estimates that customers will save 10 to 20 cents per gallon of gas by using the service. That would save consumers somewhere between $1.50 and $3.00 on a 15-gallon tank of gas.

Although the service will ask consumers to select up to four gas stations in their area where they might want to fill up their tanks, their discount will be good at only one of those gas stations. That inconvenience might exclude the service from travelers and could dissuade others who don't want to get stuck buying at the same gas outlet.

But WebHouse Club spokesman Robert Padgett said there will still be a large market for the service.

"Consumers are going to be flexible," he said. "They will go to the station that gives them the lowest price."

But some Internet analysts wonder whether Priceline's gas service would take off. Gomez Advisors analyst Martin DeBono estimated that the service would only save consumers about $5 to $10 over the course of 5 to 10 weeks.

"I don't think people will find it convenient enough or convincing enough to adopt it on a wide basis," DeBono said. "The savings just isn't there."

By themselves, gas stations have little room to discount gas because of razor-thin profit margins, but Priceline says that the discounts will be subsidized both by advertising on its site and through promotions offered by stations and oil companies.

Priceline already uses promotions by credit card issuers and other companies to discount its airline tickets and hotel reservations, but the advertising related to Priceline's gas service will be a first on the site.

News.com's Stefanie Olsen contributed to this report.

 

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