Fuel Pricing Strategies Made Simple
A Pricing Analyst recently told me, “our number one form of advertising is our pole sign.” Whilst I can’t say I agree completely (especially if you have a good flag and/or spend time advertising your site in the new social media age), it resonated with me.
Whether you are a CEO pricing for your family-owned business or a Pricing Manager at an oil company, your daily decisions are really tough. There is a balance you have to strike between keeping the customer happy and making sure margins are keeping you in business (and in most cases these days, allowing the business to grow).
You also have to consider your non-fuel offerings, your shops, your cash position, the fuel underground, your targets and so on.
No wonder experience plays such a huge part in determining pole sign prices!
However, from speaking to retailers over the last few years we have identified some easy ways to make building and assessing fuel pricing strategies simple.
Pick strategies monthly or even quarterly
Ok, so year-on-year numbers are pretty meaningless in a depressed- volume world, but you’ll know what your business needs most over the next month or two.
New-to-market site? Got to push those volumes with low prices. Business low on cash? Keep the margins high and the fuel turnover low. Looking to buy more sites? Then you probably need EBITDA, so pay attention to the detail; weekend/off-peak pricing, premium grade variation and cash/credit spread adjustments, to name a few.
It’s not about what strategy you pick, but about sticking to a strategy for a set time period, proving that it works for the business need at that time and pulling it back out again as a proven concept when you need it next.
What a winning strategy looks like
A winning strategy is simply one that helps you achieve the goal, so it is important to determine success criteria. How much margin and profit are you willing to sacrifice to be the cheapest in the market to sweep up the volume? How much volume increase makes up for the lost margin?
By determining the success factors, you are able to either tick the box or not and use the strategy again. This is the difference between being data-inspired (for example “I know I shouldn’t be the cheapest and the data proves it”) versus data-driven (“I think this, and if I achieve X I will do Y”).
Pick the data points that matter to you when they matter to you
This is a big one. With all the data and insight available now (trust me there is a lot), it is easy to get lost in it. Pick the data points that matter and that best tell your story.
We had one customer that implemented weekend pricing and saw a 35% increase in volume. What they noticed was during the week their average fills decreased and the number of transactions increased! This means they had won new customers who were coming to the site and putting in smaller fill-ups to keep them going until the cheaper weekend pricing.
The only data they needed in this situation was volume, average fill up and transaction count. Sometimes you have to push margin and profit aside to learn something new about your stations to solve future problems.
And in conclusion: change something!
Einstein said “The definition of insanity is doing the same thing over and over again, but expecting different results.”
If you have one strategy per site that you use all the time, only external factors can improve your position. In a reduced volume market with aggressive competitors (who are getting bigger through market consolidation), those external factors are unlikely to be working in your favor.
Start small and think big. There is opportunity there, you just have to go and grab it.
For more information,
contact Mark Truman
or +44 (0) 7793845155