What are the Benefits of Managing Fuel Pricing by Exception?

12 June, 2019

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Inefficient pricing models and manual analysis processes can cut into your margins and revenue growth. A strategic pricing plan is in order. The benefits of management by exception — in other words, standardizing your processes, setting clear, predictable goals, and focusing on deviations from the norm — include the reduction of manual analysis and allow your pricing team to focus on making strategic decisions, instead of reactive ones.

How can you get started?

Managing by Exception: The Basics

First, grasp onto the concept of managing by exception. Focusing management efforts on anomalies is only attainable if you can be easily alerted to such anomalies — and that's only attainable if you know your baseline. It's time to define your standard for success.

It may be that your rules are built around your price positioning relative to your competitor. Perhaps, you only want to manage pricing when that position is called into question, or when you see that you are unable to maintain that position. Either way, the position itself is the rule.

You might, instead, be concerned with price performance, as most fuel retailers are. For you, success might mean always reaching a certain margin on your pricing. If that's the case, the standard is said margin, and any price change projected to cause the standard to fall outside of that becomes the exception. The point is: You need to know what you want to achieve and which elements of pricing will move around that in order to begin managing by exception.

This starting point is all about defining what you're comfortable with. What are the bounds of these rules? How much margin can you sacrifice, for instance? Automation is required for management by exception, but defining your parameters is the first key piece.

The Benefits of Management by Exception

The benefits of management by exception are self-evident: not only will your team save time on pricing and adjusting for every movement of the market, but you will also be held to a pricing strategy standard. With a consistent application of this strategy, you can gather better insights about your performance over time (as all decisions are documented, and not ad hoc).

You can also avoid being swept along by market volatility by managing by exception; rules allow for maintenance of a healthy status quo, only challenged when the model shows you it must be. After all, you don't necessarily need to change prices six times a day in order to reach your goals, but if you're still managing price based on manual processes, you could easily believe that to be the case.

So, managing in this fashion doesn't just inform your strategy for the future or save you time — it also helps you contribute, in some ways, to the health of your market. Additionally, pricing by exception gives you the insight to make new pricing decisions based on the state of that market.

How?

By freeing up your analysts.

Opportunities in Freedom

An anomaly doesn't prove that your analyst's strategies or ideas are not working. Indeed, even extreme performance success is an anomaly worth investigating. When you give an analyst the time to dive more deeply into analysis of those anomalies, there's no telling what realities they might uncover.

For instance, it's possible one of your competitors has discovered that you only change prices between certain hours, and has decided to capitalize on volume in those hours where your price changes aren't coming through. Remaining alert to that possibility and discovering it underneath layers of data can't be achieved without the time to analyse those specific patterns.

All of this is to say, simply, that opportunities exist in understanding anomalies, and the benefits of management by exception lie in the freedom of your analysts.

Are you ready to learn more? Start the conversation with a Kalibrate strategist today.

Topics: Fuel Pricing

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