September 28, 2016

Effects of Deregulation: How to Succeed in a Changing Market

Market Intel, Fuel Prices, Deregulation

For pricing analysts, a market's move toward deregulation (such as the Mexican fuel market's current trajectory), signifies a transition from stability to instability. Over the course of phases which play out through the years, competition-driven pricing will permeate your pricing reality, making the act of pricing even more detailed and the need for holistic visibility into quality data even greater.

In the case of Mexico, government-defined retail fuel price minimums and maximums will remain in effect until Dec. 31, 2017. Competition-driven pricing will then take over, sending analysts on a constant hunt for the right price — and the right data to inform it.

According to Oliver Wyman, a global consulting firm, fuel consumption in Mexico is forecast to grow roughly 3 percent annually. With comparably low convenience store penetration, Mexico is ripe turf for new sites, and Oliver Wyman estimates potential fuel site growth of more than 40 percent by the turn of the decade. Opportunity abounds.

But a deregulated market means pricing analysts will eventually have to price much more frequently and with greater insight, executing changes designed to boost both margin and volume sometimes up to seven times a day. So how can a business that's moving into a market undergoing deregulation proactively address the shift toward flexibility and visibility? What needs to be done to stay on track?

Anticipating the Effects of Deregulation

If your company is entering a newly deregulated or a deregulating market, and you already have the infrastructure to compete — the talent, the technology, the defined workflows — you're in a good position. Government owned companies or those in the midst of a new expansion often don't hold such a position. That means there's a lot to catch up on.

Start by examining market conditions in the parts of the world your company plans to enter. You not only need to understand deregulation itself, at a high level, but also the local culture, the competitive mix and the consumer behaviors in the area. This understanding isn't static, but ever-developing; there's no research session whose completion will result in the ultimate pricing formula for said market, so plan for constant education and flexibility with the receipt of new information or insight.

Think about how the entry of new competitors into your market will impact price ranges and price change frequency. Rather than a standard, relatively stable price, your competitors will influence a range that varies quickly, so you'll need to price more often on a less fair playing field. That means you've got to factor in other aspects of success. To impact fuel, turn your attention to forecourt offerings and the following factors (in addition to pricing, and with reference to each other):

  • Location
  • Brand
  • Market
  • Merchandising
  • Facilities
  • Operations

Perhaps most importantly, your move into a deregulated or deregulating market requires market intelligence and data you can count on — data that's accurate, clean and actionable. Insight about the above factors for success only comes from entrenchment in the market. That's why it's valuable to enlist the support of companies with a firm grasp of the previously regulated fuel environment and how deregulation unfolds over time — companies like Kalibrate, who have been working in global fuel markets for decades and already have a local connection to the language, the culture, and, of course, the fuel pricing needs, in international markets currently in transition.

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