by John Keller | Jan 22, 2013 | Fuel Price Management, Fuel Pricing Strategy, Retail Fuel Margins
The latest OPIS report shows that retail fuel margins increased for the second straight week, this time by $0.025 per gallon. The national average retail fuel margin is now $0.171 per gallon.
The average retail fuel margin for 2013 now stands at $0.148 per gallon.
From a fuel price management and fuel pricing strategy perspective, this is welcome relief to the margins we were dealing with at the turn of the new year. Current margins are now settling in to what NACS calls typical fuel margins for an overall one year period.
by John Keller | Dec 19, 2012 | Fuel Pricing Strategy
There is a terrific article published by the MIT Sloan School of Management titled “Is It Time to Rethink Your Pricing Strategy?” found here, and though it is based on research across a broad spectrum of companies, it has direct applicability to the specific business of setting fuel pricing strategies.
The paper explains that effective pricing is achieved not through luck, but through discipline. The MIT research finds that while few companies have functions dedicated to pricing, their research shows “…small variations in price can raise or lower profitability by as much as 20% or 50%.” Nowhere is this more true than in the fuel price management arena, where optimized prices executed quickly to the street can have a dramatic impact on the bottom line, sometimes simply $0.01 at a time.
This MIT paper calls out two components to effective pricing strategies: price orientation and price realization. Price orientation is defined as the methods companies use to determine prices. Price realization is defined as the ability for companies to get the prices they determine.
Price orientation, when applied to fuel pricing strategies, equates to the analysis of store performance, margins, and competitor pricing to determine what prices are best for each commodity at each store. Price realization, when applied to fuel pricing strategies, is the execution of price changes across the enterprise, confirming that every store has implemented the price changes and the proper prices are in place at the POS, sign and pump. Taken together, these two concepts affirm the four stage process of fuel price management: Collect, Analyze, Change, and Confirm.
The MIT researchers define three types of price orientation, also known as price setting,:
- Cost based pricing – in the world of fuel price management, this would be pricing based on margin targets, without paying attention to competitor pricing. This type of pricing is easy to calculate, but does not provide a complete picture of the environment in which the c-store operates, and is likely to be less than optimized.
- Competition based pricing – this would be a fuel pricing strategy based exclusively on the price of the competition. This is another easy calculation, but is less than ideal because it can lead to a price war. We’ve all heard of real world scenarios where c-stores across the corner from one another get into a price drop spiral where each store is in a race to the bottom.
- Customer value based pricing – this would be the fuel pricing ideal because it takes into consideration data based on perceived customer value. As the article states, the question with this pricing strategy is “How can we create additional customer value and increase customer willingness to pay, despite intense competition?” The article continues, “Customer value based pricing approaches are driven by a deep understanding of customer needs, of customer perceptions of value, of price elasticity and of customers’ willingness to pay.” In the world of the c-store, this includes location including traffic patterns, fuel brands, cleanliness of restrooms, food service, and overall customer experience.
The research in this article goes on to say that customer value based pricing is especially relevant to competitive industries where managers believe they are competing in a commodity business, and these managers resign themselves to competing only on price. “…seeing your product as a commodity tends to be a self-fulfilling prophecy” the authors contend.
In the second half of the article, the authors list three key factors to achieving price realization, also known as price getting: pricing rules specifying maximum discounts, the extent to which these rules are followed, and systems with tools to monitor and control pricing. From a fuel price management perspective, these factors speak to the critical price change execution elements of a fuel pricing software system:
- Business rules that propose prices based on competitor movement, with strategies that provide discount guardrails. Guardrails include such conditions as “margins never less than $0.05 above cost”.
- Price execution to the street, including to the POS, sign and pump; removing the store manager from the process, so there is no conflict of interest or bottleneck in the fuel price change process.
- Price change confirmation allowing alerts and notifications when a price change is hung up so the right stakeholders can be notified, and a historical record of when the price change was completed.
The answer to the question posed in the title of this article is clear: if your pricing strategy is based on accounting rules such as cost plus, or if your pricing strategy is solely based on the price of the competition, you’re not optimizing your fuel pricing strategy; it’s worth analyzing a more holistic view of the markets in which you compete including pricing relative to other company stores, and overall price elasticity. There is only one way to effectively gain access to this holistic view: a robust fuel pricing solution that provides quick insight into store and market performance via a series of analysis views, including margin and volume history, competitor pricing relationships, and operational efficiency regarding the price change process.
by John Keller | Dec 14, 2012 | Fuel Pricing Software, Fuel Pricing Strategy
Everyone knows that GasBuddy provides rich content for gas station pricing in cities all across the US. GasBuddy makes it easy to view a list of fuel prices across a city and view the location of each c-store with its fuels prices.
But what fuel analysts may not know is that GasBuddy also provides a valuable “Trip Cost Calculator” tool on their www.gasbuddy.com website. This tool allows travelers to plan their trips based on a start and end destination, miles per gallon for their auto, and tank size. The tool then provides a Google map view of the optimal route with directions, along with the best location to stop for gas, and the current cost of gas at that location.
From a fuel pricing strategy perspective, this is yet one more motivation to integrate fuel price optimization software to GasBuddy OpenStore so that each time a price change occurs, the latest information is automatically posted to GasBuddy. This insures that your locations always appear on the GasBuddy map, with the most accurate fuels prices.
Mutual PriceAdvantage and OpenStore customers including Valero, Parker’s, Family Express and Rutter’s have already integrated their fuel pricing strategy with GasBuddy OpenStore. These industry leaders have proven they know what it takes to succeed in the fuel price management world, and how to leverage the best technology to win.
by John Keller | Dec 12, 2012 | Fuel Pricing Strategy, Industry News
The Alternative Fuels Data Center of the US Department of Energy tracks the number of public alternative fueling stations, and the location of each, on their site here. The page includes public (not private) stations for propane, biodiesel, ethanol, electric plug-in, hydrogen, compressed natural gas, and liquid petroleum gas. According to the data as of November 25, 2012, here is the current rank order of each alternative fuel type by number of public stations.
- Electric – 5,059
- Propane – 2,421
- Ethanol – 2,264
- Compressed Natural Gas (CNG) – 536
- Biodiesel – 294
- Liquified Natural Gas (LNG) – 30
- Hydrogen – 10
From a fuel pricing strategy perspective, the fuel volume pie continues to shrink as traditional fuel demand decreases and alternative fuel demand increases. It is increasingly important to manage fuel performance at each region down to the market and even the store level. The traditional fuel price management game is not for the faint of heart, and only fuel analysts with the best fuel price optimization software can be successful.
by John Keller | Oct 1, 2012 | Fuel Pricing Strategy, Industry News
Ever since Valero reported in their most recent quarterly earnings that they would like to divest their retail stores, there has been all kinds of speculation around what that divestiture might look like. Recently Reuters released a story that several large c-store chains were lining up as buyers.
But in an interview with the San Antonio Business Journal, Valero spokesman Bill Day explained the company is still reviewing different types of transactions. He explained that the tax bill for a spinoff would be less than the tax bill for selling the stores. “There are certain tax advantages to Valero to do a spinoff to our shareholders rather than a sale to an outside entity. So that tax advantage would have to be surmounted if another company were to come and make an offer.”
The Valero retail division operates 1027 company owned stores, all of which use PriceAdvantage for their fuel price management software. In the latest quarter, the retail division set a new record for their operating income, with retail fuel margins of $0.303 per gallon and increased fuel volumes from the same period last year.
by John Keller | Sep 10, 2012 | Fuel Price Management, Fuel Pricing Strategy
When we build a new feature into our PriceAdvantage fuel pricing software, we always have a use case in mind. The use case includes two aspects: the persona, that is the primary business person who will take advantage of the feature; and the story, which is the way the business user will use the feature and the business problem solved. For each new feature, we write a user story as per the Scrum software development way, and we write it in this format: “As a [persona], I would like to [interact with the software in a specific way] in order to [solve this business problem]”. For example, “As a fuel manager, I would like to see each of my store locations plotted as colored push pins on a map, with color representing how well the store is performing volume compared to target”. This is a real world example of a feature we included in PriceAdvantage 3.8.
What is interesting about releasing a new feature like this, is that despite all the market research we do to come up with the feature definition, once customers see it, they see additional benefit beyond what we expected. When we showed this color coded push pin map feature to a fuel manager customer, the first thing she said was “not only will this feature be great for me when managing fuel pricing strategies, but this will be great for our team who decides where to build new store locations, because it clearly shows the stores who are performing well and where they are located, as well as which stores are struggling.” She came up with a whole other persona and use case we hadn’t even considered. It is this customer insight that allows our software to continue to extend into solving more and more business problems in the fuel price management c-store business.
