By Anila Siraj, EVP of Research and Applied Data Sciences
Regardless of your market's current phase of pricing maturity and regulation, creating and maintaining an efficient and effective fuels pricing function can often prove to be a challenge.
In markets moving toward deregulation, these challenges are focused around trying to establish your fuels pricing center in unknown territory. Further, these markets function in spaces where the customer base has yet to be educated via experience with deregulation, meaning both territory and consumer preference are somewhat unknown. In mature markets, the challenges are in the volatility arena; not only do you need to survive, but volatility and competition make it so that you must thrive in order to be considered an established, valuable presence long into the future.
Creating a department (meaning, going beyond just a function) within your organization that is exclusively dedicated to pricing fuel can help. Whatever your market's stage of regulation, three key elements of pricing success come into play:
- Pricing (Strategy)
Of course, when you exist within a regulated market, such a department is unlikely to be in demand. Your price is set based on the price (and fixed margin) that is provided to you, and a fuels pricing strategy is less of a concern. Still, considering your overall brand positioning strategy and how it would manifest itself is valuable at any stage of maturity because you will need to grow and change with your market. If you can get out ahead, why not?
Let's dig into each of the components of crafting a fuels pricing center of excellence.
Involve the Right People
No matter the size of your organization, folding the right people into your pricing center is a key component of success. The functions required include a strategist, a tactic executor and an analyst. If you have one part of the business setting a strategy, another part performing the associated tactics, and another working on reporting, the cohesive nature of an actual strategy — and the continuous performance cycle fueled by ongoing analysis and iteration — will be lost. Centralization of your pricing function is paramount. But specialization is, as well.
Additionally, each of the described roles needs certain capabilities in order to disseminate the strategy and control its use and growth. The individual in the pricing strategist role must have the autonomy, control and authority to encourage action on said strategy. They should be empowered to incorporate art, science and experience into their efforts and decisions. The executor and the analyst role must have the right data and tools to report effectively.
As you craft your team, consider:
• Who is the champion?
• Who makes the final decisions?
• What skill sets are required for each function?
• Do your team members have executive buy-in for their roles' existence and capability?
Answer the Why
To craft a fuels pricing center of excellence, you must find your reason. No pricing strategy is sound without a reason to exist. That's because your organization requires a direction — a motivator. What are you moving toward? Where should your brand be in three years? In ten years?
Once you've answered this, you can begin to design (or hire someone to design) your pricing strategy.
Develop the Strategy
Strategy is not simple. It's not something you can spin up overnight. It must take into account your position as a brand, today and into the future. How does that position and the tactics associated with your strategy align with your greater organization goals, your current pricing power, and so much more.
The pricing process (which we'll address in the next section) cannot be an effective one without an effective strategy underlying it. In practice, developing a strategy involves understanding your reasoning and goals, and then moving into defining tactics associated with those goals. Be strict about not mixing your strategy and tactics. For example, "We will provide value to our customers through our price position" is not the same as "We will adjust our pricing based on competitor pricing only because we are in direct competition with a nearby location and our customers are price sensitive." The former is strategic and the latter is tactical.
Strategy should also include KPIs, such that you are able to later understand where, exactly, you have seen success.
Create the Process
Once you've determined your strategy and involved the right people, it's time to execute. This is the meat of the process. However, the process truly works top to bottom: When you execute tactics based on your strategy, your analyst must report back on the success of said tactics, allowing you to adjust your strategy according to this new input.
At this stage of technology development, no fuels pricing process should remain manual. Instead, manage by exception. In other words, your pricing changes and data gathering must be automated in order for you to perform and track that performance — but human input and decision making must come into play when required.
As you develop this process, ensure you have governance in place, integration with your other systems available, and the right toolkit for analysis — or opportunities to continuously improve will be lost. Right from the start, your process must let you grow as your market matures.
The largest and most valuable requirement for creating a fuels pricing center of excellence for your business is holism. Just as you cannot act based on experience or emotion alone, without incorporating science, you cannot price using a process alone. You also need the right people and the right strategy — along with the right capabilities from a technological standpoint. Finding the balance between people, process and strategy is critical.
Last, but not least, remember to value and encourage transparency at all turns. Without it, you cannot gain buy-in, and your process cannot function effectively.
For more on how to price based on a clear strategy, read our E-Book: Understanding How to Achieve Fuel Pricing Mastery.