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Fuel Price Management Requires Constant Adjusting In Order To Optimize Retail Fuel Prices

by | Aug 19, 2010 | Fuel Price Management, Fuel Price Management Solutions, Fuel Price Optimization, Fuel Pricing Strategy, Retail Fuel Margins

Article Source: http://www.articlesbase.com/cars-articles/fuel-price-management-requires-constant-adjusting-in-order-to-optimize-retail-fuel-prices-2762156.html

Author: John Keller

It is the job of Fuel Managers to figure out the optimized retail fuel pricing strategy for each of their stores, in each of their markets, in order to maximize their fuel profit contribution to the bottom line. This job has become a daunting task for many, as the retail fuel pricing market has become increasingly complex and is constantly changing.

For example, Fuel Managers who compete against BP dealers report that BP dealers historically have priced their fuel at the high end of the market. The BP strategy has always been to emphasize the quality of their brand name fuel, and even the “green-ness” of their company as they promoted the morphing of their acronym from British Petroleum to Beyond Petroleum.

But in the months following the gulf oil spill in April 2010, BP dealers suddenly experienced fuel sales declines in the range of 10-40%. These dealers had to react quickly. So they reversed their fuel pricing strategy, and began pricing their fuel as the lowest in their markets. A competitor who was once at the high end of the retail fuel price market suddenly became a low price leader.

To further this trend, in June 2010, BP announced they would begin offering fuel rebates of $.01-.02 per gallon to their dealers. Many dealers used these rebates to lower their fuel prices even further, with the hope that price-sensitive customers will be willing to start fueling up at BP stations again when BP has the lowest fuel prices in town.

When competing against BP dealers, Fuel Managers have had to react quickly to this sudden reversal in their competitor’s strategy. They must carefully monitor the daily impact of the BP dealer’s new pricing. Do brands other than BP need to be priced the lowest in town? Are consumers in individual markets willing to pay a few more cents per gallon of fuel in order to avoid the BP brand? If non-BP brands are priced at the same level as BP brands, will consumers opt to buy fuel from non-BP brands in order to avoid BP? Only by carefully monitoring the daily performance of individual store sales, and the relative store pricing in each market, will Fuel Managers be able to answer these questions and find the fuel pricing strategy that works best for each of their stores.

BP and the gulf oil spill is only one example of the dynamic nature of retail fuel markets. The c-store industry as a whole is going through rapid consolidation, where larger c-store chains are gobbling up competitor stores, and expanding to more and more locations. That means the competitive landscape in each market continues to change as store brands come and go. A store next door may be a Shell brand one day, and unbranded the next. A c-store may have three pumps at the beginning of the year, and by the end of the year have 10-12. Small, unassuming manual fuel price signs one day may be replaced by bright electronic LED signs the next. These kinds of market dynamics force Fuel Managers to keep a careful watch on what is happening in each of their markets, and respond quickly with new fuel pricing strategies when the competitive landscape changes.

A third way Fuel Managers may see their markets change overnight is through the adaption of rewards programs. One Fuel Manager recently reported results of a grocery reward program he was piloting with a few of his stores. After only one month of implementing the rewards program at his pilot stores, he was seeing fuel sales volume increases of up to 100% year over year measured by gallons sold. And this was with no changes in his fuel pricing strategy – the relative prices at his stores remained unchanged in those markets. He was almost giddy as he said he knew he was taking market share away from his neighboring competitors, and they didn’t even know what hit them.

These market shifts require Fuel Managers to be diligent in monitoring and measuring the fuel sales performance at each of their stores, looking for sales trends, and quickly adapting to changes in competitive pressures. It may be tempting to some Fuel Managers to blindly follow the guidance of an algorithm that automatically provides optimized fuel prices based on historical data, leaving the human guesswork behind. No doubt, these fuel price optimization equations can be valuable in turning up statistical correlations that may otherwise go unnoticed. But with the reality of how dynamic the competitive pressures are in each market, there is no substitute for the human touch of the Fuel Manager.

Fuel pricing software solutions such as PriceAdvantage from Skyline Products (www.fuelpricingsoftware.com) make it possible to track the constant shifting of the competition in each market. Daily sales data imports from PDI display fuel volume sales trends for each store. And the historical street price trend at each store, along with the price at each competitor, can overlay the fuel volume trend. This view makes it easy to identify a sudden shift in how a specific competitor positions itself relative to others in the market, and whether or not that shift is impacting store fuel sales. Fuel Managers can compare competitor prices reported by Store Managers in the field to the competitor prices reported by OPIS. According to many Fuel Managers, these OPIS reports provide a critical validation check. If Fuel Managers notice a discrepancy between what the field is reporting as the competitor price, and what OPIS reports, they can quickly request a re-survey from the Store manager and get the right information into the system right away.

Without a doubt, the game of fuel price management has grown increasingly complex over the last few years, and increasingly competitive. Annual retail fuel price margins are at an all-time low. But Fuel Managers no longer need to view finding the optimal fuel pricing strategy at each c-store as a daunting task. By using the right kind of fuel pricing software solution, Fuel Managers can have all the information they need in one central command and control location, easy to access, and ready to respond to every competitor’s move.

Article Source: http://www.articlesbase.com/cars-articles/fuel-price-management-requires-constant-adjusting-in-order-to-optimize-retail-fuel-prices-2762156.html

About the Author: John Keller is the Sr. Product Manager of the PriceAdvantage fuel pricing software division of Skyline Products in Colorado Springs, CO. John is the author of the Fuel Pricing blog at www.fuelpricingsoftware.com.

BP Incentive Details – Fuel Pricing Impact

by | Aug 4, 2010 | Fuel Price Optimization, Industry News, Retail Fuel Margins

On August 4, 2010, CNN.com reported details of the BP fuel price discounts as explained by a representative of OPIS.

Here’s what BP is offering, according to Tom Kloza, chief oil analyst at the Oil Price Information Service:

  • Up to a penny off the wholesale price of a gallon
  • A rebate if distributors keep up their fuel sales
  • A discount in the rate BP charges service stations for customers who use credit cards
  • A “temporary voluntary allowance” worth a penny a gallon

All told, the discounts add up to between three and four cents a gallon, he said.

CNN also reported anecdotally that one BP station in McLean Virginia was selling fuel prices $.03 lower than the competition across the street.

Traditionally BP dealers market fuel prices at the premium end of the fuel pricing spectrum. Clearly fuel pricing strategies are now impacted by the BP incentives. Competing c-stores of BP will need to adjust their market positioning in response to the new fuel price positioning of BP stations.

Fuel Price Increases In East and Midwest Push Up US Averages

by | Jul 29, 2010 | Industry News, Retail Fuel Margins

The US Energy Information Administration weekly report revealed regional fuel price increases in the East Coast and Midwest drove up the national average overall. The U.S. average price for regular gasoline increased about three cents to $2.75 per gallon, $0.25 higher than a year ago. The average on the East Coast moved up two cents to $2.67 per gallon. The largest increase occurred in the Midwest where the average went up nearly four cents to $2.74 per gallon. The Gulf Coast increased less than four cents to $2.59 per gallon. The average in the Rocky Mountains was essentially unchanged at $2.75 per gallon. On the West Coast, the average rose a penny to $3.07 per gallon. Inching up a fraction of a cent, the average in California was virtually unchanged at $3.13 per gallon.

For the first time since the week of June 21, the national average price for diesel fuel increased, moving up two cents to $2.92 per gallon, $0.39 above last year.

Fuel Prices Remain Unchanged For The Week

by | Jul 22, 2010 | Fuel Price Management, Fuel Price Optimization, Industry News, Retail Fuel Margins

According to the US Energy Information Administration report issued July 21, the U.S. average price for regular gasoline fuel was, in essence, unchanged at $2.72 per gallon, $0.26 higher than last year. On a regional basis, price changes were mixed with the East Coast average dropping a penny to $2.65 per gallon. The Gulf Coast fell less than a cent to remain at $2.56 per gallon. The average in the Rocky Mountains moved up about a penny to $2.75 per gallon. Prices in the Midwest and on the West Coast increased about two cents to settle at $2.70 per gallon and $3.06 per gallon, respectively. The average in California went up nearly two cents to $3.13 per gallon.

The national average price for diesel fuel decreased for a fourth consecutive week. However, the price dropped less than half a cent and, consequently, remained essentially unchanged at $2.90 per gallon but was $0.40 above a year ago. Despite increasing by small fractions of a cent, the average prices in the Midwest and on the Gulf Coast were effectively unchanged at $2.87 per gallon and $2.86 per gallon, respectively. Prices on the East Coast and in the Rocky Mountains slipped a penny to $2.91 per gallon and $2.90 per gallon, respectively. The largest decline took place on the West Coast, where the average dipped a penny and a half to $3.04 per gallon. The average in California slipped less than a cent to stay at $3.12 per gallon.

U.S. Average Fuel Prices Continue to Slide

by | Jul 15, 2010 | Fuel Price Optimization, Industry News, Retail Fuel Margins

According to the US Energy Information Administration, the U.S. average price for regular gasoline dropped for the second week in a row. The U.S. average price for regular gasoline slipped a penny to $2.72 per gallon. The national average was $0.19 higher than last year. With the exception of the Midwest, average prices declined in all regions of the country. On the East Coast and Gulf Coast, the averages each dropped more than a penny and a half, to $2.66 per gallon and $2.56 per gallon, respectively. Despite an increase of less than a half cent, the average in the Midwest was essentially unchanged at $2.68 per gallon. The average in the Rocky Mountains slipped over a cent to $2.74 per gallon. The West Coast average fell about a cent to settle at $3.04 per gallon and the California price dipped less than a half cent to $3.11 per gallon.

Gasoline and Diesel Fuel Prices Fall Over 3 Cents

by | Jul 8, 2010 | Fuel Price Management, Fuel Price Optimization, Retail Fuel Margins

According to the US Energy Information Administration report issued July 8, the U.S. average fuel prices dropped for the first time in three weeks. The price for regular gasoline fell three cents to $2.73 per gallon. The national average was $0.11 higher than last year.

Regionally, average fuel pricing slipped in all sections of the country. The averages on the East Coast and on the Gulf Coast dropped about three cents each to $2.67 per gallon and $2.58 per gallon, respectively. The largest drop took place in the Midwest where the average slumped more than a nickel to $2.68 per gallon. The average in the Rocky Mountains declined a penny to $2.76 per gallon. The West Coast price slipped half a cent to settle at $3.05 per gallon and the average in California fell a penny to $3.12 per gallon.