Thursday, 18 December 2014

Buy a Lego Sports Car set with Shell Petrol

Shell Petrol have a promotion on for the rest of this month, and it got my attention.  It's special promotional Lego - and Lego is one of my favourite pastimes.  The offer is this:  if you spend £30 on their special high-performance petrol, you can purchase one of the special promotional sets for £1.99.  I saw this last week, and it's been percolating in my  brain since then:  based on the price difference between the 'normal' and 'high performance' petrol, how much would you actually have to pay for the Lego?  Lego isn't cheap, and sets of this size and complexity are typically in the £4 - £5 price range, so £1.99 is a considerable saving - in theory. 

Now, in my calculations, I will assume that the mileage performance of the two petrol grades is negligible (despite any marketing messages about how good the premium petrol is).  That's a whole separate question, and one that I'd like to be able to address with an A/B test.

So:  petrol in the UK is priced per litre (the prices per gallon would be too scary to display).  Working from memory, Shell's standard unleaded petrol is approximately 119 pence per litre, while the expensive petrol is around 125 pence per litre.  Based on these assumptions, I'll complete a worked example, then dive into the algebra. 

Now, my plan here is to identify how much standard petrol I could buy with £30, to understand how much more that's going to cost me if I buy premium (as I will be doing) and what the extra cost would be if I bought the same amount of standard petrol.

If I spend £30 = 3000 pence on the standard petrol, how much petrol will I purchase?
3000 pence / 119 pence per litre = 25.21 litres of petrol

How much will it cost me to buy 25.21 litres of premium petrol?
25.21 litres x 125 pence per litre = 3151 pence

So the difference in cost would be 151 pence (£1.51).  Added to the stated cost of the Lego set (£1.99) this means that the actual total cost of the Lego set would be £1.51 + £1.99 = £3.50.  

Another view

Now, the truth is that I won't be spending the extra money on premium petrol - I will be buying £30 of premium petrol and buying less petrol.  But how much less - and what's the hidden cost of buying the premium petrol instead of the standard?

3000 pence of premium petrol at 125 pence per litre will buy me 24 litres exactly.

24 litres of standard grade petrol (at 119 pence per litre) would cost me 2856 pence, so the additional cost I'm paying is £1.44, close to the £1.51 I calculated through the other method.

Actual figures

With actual figures of 118.9 pence per litre for the standard, and 126.9 for the premium, the petrol cost difference is £1.90, and the total cost is close to the £4.00 figure I calculated through the other method.

Looking at this in terms of algebra:

Let E be the price per litre of the Expensive petrol, and C be the price per litre of the Cheap petrol.

 = volume of cheap petrol I would buy with 3000 pence


= difference in cost between cheap and expensive petrol.

 Now, this is all very academic, but it can be put to use with one key question:  if I think the Lego set is worth £4 (or 400 pence) then what's the maximum differential between the cheap and expensive petrol that I can accept?

If I am prepared to spend a total of 400 pence on the Lego set, then (deducting the 199p offer price) this means the maximum price difference for the petrol = 400p - 199p = 201p. 

So, if C = 119 then E = 126.8

When I re-visited the petrol station, I discovered that C = 118.9 and E = 126.9.    It's like they almost worked it out that way:  if E = 126.9 and C = 118.9 then the total cost of the Lego would be almost exactly 400p.
Did I buy the petrol?  And the Lego?

Well, yes.  But I knew I was paying more than the stated £1.99 for it :-)

No comments:

Post a Comment