The four key concepts for fuel pricing success

3 December, 2019

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When you’ve been in the retail fuel technology business for over 40 years, like us at Kalibrate, you meet and work with some very successful retail fuel pricing teams from around the world. 

These fuel retailers are able to exercise control of their volume-margin-profit trade-offs, move quickly to capitalize on opportunities, understand where they can take volume from competitors, charge premium prices and still maintain strong volumes and leave no money on the table in terms of balancing profit with volume. 

This taught us that fuel pricing success does not come down to just one thing—there are four key concepts for success.

Pricing success requires forward-thinking leadership, a realistic strategy, analysts who are committed to finding volume opportunities in the network, and technology that goes beyond automation.

Of course, to distill the complexities of successful pricing management to just four factors can be an oversimplification; however, when fuel retailers get these four concepts right, our observation is that they are more likely to be the pacesetter in their respective markets. 

Here are the four concepts in more detail:

1. Transparent pricing leadership

Pricing leadership is about clarity of purpose and execution, throughout the organisation, where anyone from head office to individual site understands the goals and their role in driving the business toward those goals. Too often pricing operates in silos and is seen as a mysterious art of deep data analytics, trends, and complex maths. The best pricing teams, however, have clearly stated strategies and are transparent about their pricing decisions, empowering and trusting their team members to make tactical decisions where required.  Better still, they establish very strong relationships with their area and site managers. Communication is an open channel where fast intelligence is passed back and forth.

Transparent pricing decisions allow a business to better understand issues quickly, attribute success, and pivot when pricing strategies or tactics are not having the desired impact.  

They are not bogged down by heavy internal reporting regimes because of open communication channels, transparency, and automated reporting processes supported by technology. They can spend their time focused on profit and margin. 

2. A clear and achievable strategy

Strong fuel retailers have practical, achievable strategies for their market that are communicated up and down the supply chain. These strategies deliver a clear value proposition to consumers. 

The more realistic targets are, the more chance pricing teams have to over-achieve. Unrealistic targets, meanwhile, can undermine a pricing team from the start. It’s critical that targets take into account macro-economic conditions, micro-economic challenges, wholesale fluctuations, and observed competitor behaviours.  

What’s more, it’s important that the whole business understands what your brand represents and what are you trying to convey to your consumers. For example, are you positioning yourselves as a premium brand? Are you prepared to take a hit on volume because you will not compromise your position? What can your customers expect from you—consistency, quality, value for money? All of this is presented back to the audience in the pricing of your products. 

A clear strategy that is marketed to your consumers and informed by people on the ground avoids market confusion.

3. Give analysts the tools to innovate

Often pricing analysts are over-burdened with administrative work, particularly when they lack the tools to automate their analysis and pricing execution. In some cases, analysts can look after hundreds of sites in a territory. They simply lack the time to manage every site, the micro-market trends, competitor intel, let alone look for opportunities to improve their market positions.

Integrated pricing technology, however, frees up analysts to innovate. They then have the space to look for opportunities to improve their sites’ performance and focus on the poor performing sites with high potential. This has a big impact on overall network performance.

There are advanced tools that can further support business performance such as pricing optimization, day-part segmentation to better understand your sites volume behaviours, and sensitivity analysis to understand how your sites’ volumes react to your own or competitor price changes. 

4. Optimize technology to separate from the pack

Price optimization is the mathematical process of determining the most profitable combination of prices for a given volume goal and price constraints. There may be multiple price points available for each of your products. Optimization occurs when your algorithm derives the optimal price for each product. 

Fuel pricing optimization considers your pricing position, your strategy, your competition, and your market constraints to calculate the potential volume across all of your specific sites. It can work out the optimal volume and profit combinations.

Even for the best analyst, calculating the optimal price for their sites manually can take hours or even days. Across volatile global markets, speed of execution is absolutely critical to winning additional volume and margin. Kalibrate’s fuel optimization and pricing platform can calculate the optimal price for every site in your network in minutes. 

Topics: Fuel Pricing

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