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- 01 Feb
Study on pricing strategies applies to Fuel Managers
NACS Online published an interesting article about a pricing study conducted at the University of Miami School of Business Administration, where they found a pricing strategy that resulted in a 200 percent increase in sales and a 55 percent increase in profits. An excerpt is pasted below:
“Researchers have found that retailers can increase sales and profits if they increase the price of a sale item to its original cost in gradual steps. The “Steadily Decreasing Discounting” strategy comes after the initial sale when you progressively increase the price back to its regular level versus in one shot.”
“The researchers found that SDD is more effective for two reasons: first, consumers consider past prices but also forecast future prices. So when consumers see a trend of increasing prices, they forecast higher future prices and are more inclined to make a purchase today. Second, if buyers expect prices to increase, they are more likely to make a purchase to avoid feeling regret. With the incremental pricing of SDD, increases are comparatively less significant, and the consumer is therefore more likely to buy immediately—even after having missed the initial sale.”
This research has direct applicability in the volatile pricing environment of the Fuel Manager. As the Fuel Manager adjusts his pricing upward to accommodate for higher replacement costs, he can be more effective if he steadily increases the price gradually over several days, rather than in one shot. As consumers become aware of repeated street price increases, they are likely to fill up sooner rather than later, with the reasoning that they have to jump in to the buying process now before the price of gas goes even higher.
As the Fuel Manager is monitoring the market response to these price changes, it’s more critical than ever to have access to Fuel Pricing software that can make it clear how price changes are effecting sales volume and competitive pressures at each individual store.
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