White Paper: 10 Fuel Pricing Best Practices
Focus on Automation, Centralization, Accuracy, and Speed
Continue reading and:
> Discover why automated and centralized fuel pricing systems allow for rapid updates from headquarters to the street.
> Learn how to streamline operations involved in fuel price optimization.
> Understand how to achieve maximum profitability following best practices in fuel price management.
Centralize Your Pricing
A fuel pricing strategy is defined very differently in every company. Each company has a set of core beliefs about:
a. Margins – minimums/maximums
b. Defining competitors – by brand, location, distance to store
c. Volume targets – fuel budget and goals
d. Pricing rules – by location
e. Cost management – replacement cost/weighted average cost
Decentralized pricing results in every store location being priced differently. For instance, one store manager may be very analytical and have a printed report every morning with the past 7 days gallon sales compared to the same 7 days last year. Volume, Volume, Volume is keenly important to the overall success at this store. He believes that he must be one penny below the lowest competitor or he will sacrifice his gallons.
The next store manager you talk with is very focused on maintaining fuel margins. She used to work for the competitor across the street and she feels a deep conviction that her location can command fuel margins that come from customer loyalty, and volumes without margin leave money on the table.
Some store managers have less honest intentions. They might reduce the price for a “friends and family” discount, or refuse to raise the price as directed to benefit inside sales.
By employing centralized fuel pricing strategies, all fuel pricing decisions are handled by a designated expert with input and intelligence coming from the store and field management teams. Throughout the industry, regardless of the size of an operation, centralized pricing is the agreed upon best practice.
Why Spinx Uses PriceAdvantage
Invest in a Competitive Data Stream
Accurate and timely competitive data is essential to making informed pricing decisions.
Understanding where that data comes from, how it’s collected, and how often it’s refreshed is critical. The best practice in fuel pricing is to evaluate each method of data collection as choose the provider, or combination of providers, that best fit your operational goal.
Validate Data Source with Regular Surveys
Regardless of the technological data streams available in the modern fuel pricing landscape, there is still often a need for regular employee surveys to verify competitive price movements. Regularly reviewing data using competitive surveys and maintaining visibility into its accuracy is a key part of any successful pricing program.
There are a number of methods for doing this but most companies rely upon their store management team to acquire this competitive intelligence. A common area for improvement is that many store managers only observe competitor prices on their way into work at 4 am. The downfall of this early hour of reconnaissance is that most price changes occur during the morning rush. The result is many competitor price movements go undetected until later in the day, causing hours of profitability exposure while your store is priced out of strategy.
In addition to relying upon the store manager to provide this information, it is critical to also include Territory or District managers into this competitive intelligence gathering process. These employees are constantly traveling between locations and observing market movement outside of defined windows of time.
Give authorized staff easy access to a mobile version of a fuel pricing application to empower the pricing decision makers in real time.
To keep pace with the most aggressive competitors, perform multiple surveys each day. Many companies choose to survey only their major competitors during late day surveys. This helps limit the time spent and focuses on the primary competitors of concern.
Example survey structure:
#1 Survey observed and reported x Mon-Sunday (7 am to 9 am)
#2 Survey observed and reported x Mon-Sunday (1 pm to 3 pm)
#3 Survey observed and reported x Mon-Sunday (5 pm to 7 pm)
Stop Waiting for Accounting Reports to See if You Made Money
Some companies wait to receive their accounting reports until:
o End of the week
o End of the month
o End of the quarter
Retailers who operate this way are at a significant disadvantage. They are unable to determine their performance for gallon sales, margins, and resulting profit until it is too late to make course corrections.
As in any dynamic pricing industry, the importance of influencing the market as challenges and opportunities occur has a strong correlation to a company’s overall profitability.
It is important for the retail petroleum market to have the highest level of insight in real-time. For most petroleum retailers, close-of-day reports are particularly valuable for adjusting pricing strategy.
Useful data points include:
– Total gallon sales by site
– Sales commodity type
– Average selling price
– Cost information
– Replacement cost from wholesale suppliers
– In ground fuel cost
– Actual weighted average
– Total loaded cost and resulting margin
It is imperative for fuel analysts to have their pulse on every state, market, district, and store every day. Without this performance reporting, the fuel team will not be able to address problems or capitalize on opportunities as they come available.
Accept That Volume Does Not Lie
Some operators who claim high margins, never share how many gallons they sell. Here is a simple equation to demonstrate how the balance between margin per gallon and volumes sold affect gross profit.
Gallons x Cost Per Gallon = Gross Profit
Margin focused strategy: 100 gallons x $.22 per gallon = $22 Gross Profit
Volume focused strategy: 1000 gallons x $.02 per gallon = $20 Gross Profit
Balanced strategy: 550 gallons x $.14 per gallon = $77 Gross Profit
The perfect harmony of volume and margin focused strategies is the goal. Every company has a different belief on how this is goal can be achieved at the enterprise or site level.
Determine The Right Price Based on The Right Information
For many years, the market had been influenced towards thinking that the way to optimize overall profitability of fuel was to have an algorithm determine the price for you.
We have witnessed time and time again that the best overall approach to profit optimization is to determine the right price, based on the right information, delivered to every site in real-time through connected technologies.
To break that truth down:
a. Determine the right price
Utilize easy-to-use, sophisticated analysis tools, business rules, and optimization for best price determination.
b. Based on the right information
Import relevant data sources into one system from back-office accounting systems to competitor pricing data.
c. Delivered to every site in real time through connected technologies
Change prices remotely from any device: tablet, smartphone, computer or a web browser.
In turn, a price change can be performed from thousands of miles away and confirmed in a matter of minutes.
Control Every Pricing Related Device From Headquarters
As technology become more prevalent and advanced in every area of the convenience store industry, it is ever more important to invest in a fully connected fuel pricing system.
As a result, every pricing related device can be controlled from headquarters: Point-of-Sale, pump dispensers, and electronic price signs. This infrastructure improvement becomes a game changer.
Manage 24×7 with Mobile Devices
Smart phones, iPads, and tablets are key to the success of the fuel team. The fuel price decision makers have a 24 x 7 job that is unique to most everyone in the organization. The market is changing in real-time and tools need to be issued to empower your team to make real-time course corrections.
The best operators have concluded that the investment of providing their fuel team with the necessary tools yields an exponentially greater return on a minimal investment.
Remove The Store Manager From The Process
Store managers are almost always relieved when they are removed from the responsibility of changing prices. A store manager’s priority should be on overall customer experience, clean restrooms, and leadership instead of changing gasoline prices.
Obviously, the only way this can be accomplished is to automate the process through technology. The best operators have chosen to make the investment in process and technology.
Accept That The Market Has Changed Forever
Many veterans of the industry remember when retail gasoline prices changed one time per month. In addition, when the price did change the moves were single pennies at a time. The complexities of pricing as well as price volatility were minimal.
The market has changed forever. Now, it appears that the market is addicted to volatility. Prices often change or two and three times each day with price swings as high as twenty cents.
