The fight for every gallon just got a whole lot more interesting!
Markets in free fall, whole countries self isolating, travel bans, and an oil price war. It’s been a dramatic couple of weeks.
An unprecedented series of events have brought oil prices crashing down, “with no sign of stopping” according to a recent CNN report.
With the OPEC alliance imploding, and varying degrees of travel restrictions imposed worldwide, it’s an uncertain time for fuel retailers, and it looks as though the coming weeks aren’t going to get any easier.
Necessity is the mother of invention though, and it’s possible to find opportunity in what can look like catastrophe. If you’ve not examined your network for a while, it’s critical to do so now — because the fight for volume is about to get a whole lot harder.
Game on, gloves off?
It’s bad practice to compete on price alone, and those that do will find the flaws in their strategy brought into stark relief in the current climate.
While falling oil prices are never reflected as quickly on the forecourt as the press would suggest — or as people would like — supermarkets are already beginning to slash prices. But it’s critical to avoid a race to the bottom, which works in nobody’s best interests, and take a step back to evaluate your network. You’ll see more long-term success by doing this than by sacrificing margin in an attempt to draw volume.
All a price war does is add more chaos, when you want to create stability. Plus, if you have an expensive in-ground product, and sell it cheaply, your source is still expensive. While supermarkets with such frequent deliveries can capitalize on the oil price drop more quickly, there are steps you can take to mitigate a (relatively) slow response.
Data to define the competition
First, you need to understand where your sites perform within their markets, relative to both their own potential and to the performance and potential of the competition. A Performance Potential Quadrant analysis is invaluable here, allowing you to segment your sites, understand the impact of potential changes, and identify where you can be quick to respond.
You need to be able to monitor what the competition is up to during the day and over the weekends, so you can price accordingly. If your strategy is not to lead the market down, you will want to be a fast follower to avoid losing customers. That means assessing raw market data effectively, and deciding how to react quickly. In volatile periods, it pays to be prompt rather than perfect – keeping pace with the market.
You need to be able to relate your prices, and competitor prices, to volume. Employ an elasticity model to strike the balance between not dropping the price too quickly (to sell off any expensive in-ground product without making a loss), and not being seen to lag behind.
Ultimately, you need good data. You need a good gauge at every price change of whether you’re still holding your strategic position in your local market, without being detrimental to your performance.
To monitor and manage this level of data, and respond to such rapid market changes effectively, you need automation and a “manage by exception” approach.
Automating processes can also play an important role in keeping you compliant, and ensuring that any actions you take during such a high stress period adhere to market rules. Your data is key to telling you what’s going on and proving what happened afterwards. Centralized, automated tracking and reporting is crucial. You don’t want to be scrambling around for answers to why specific decisions were made in a week’s or a month’s time. You need real time tracking around decision making and approvals, to ensure choices are consistent with pricing policy and — if any departures were made — why.
Of course, there is strict legislation governing pricing – predatory pricing, pricing below cost and the impact of state of emergency rules all demand attention. The last thing you want is to be accused of malpractice once the storm has settled. If the fines aren’t enough to put your business in trouble, the reputational damage might be.
A methodical, rule-based, automated-where-possible approach to pricing does more than offer comfort to your Pricing Analysts, it offers protection to your business. It creates calm and consistency. It might be the key to keeping you responsive in the midst of the madness, and assured of your decisions in the aftermath.
While everyone focuses first on pricing, there are a number of other elements to consider to create quick wins and spend less capital in a volatile market. These are less tangible operational enhancements, such as extending opening hours, maintaining high levels of cleanliness, keeping shelves well stocked with products your customers want and need, ensuring staff are treating customers well, and instigating training if there’s room for improvement.
These are all factors that play an important role in drawing customers to site. Then consider new promotions and offers to run that will hopefully get them spending more once they arrive.
Pricing is important. It draws people to your site, especially in times like these, where such a focus has been drawn to it. But you should try to reach a place where price is a decision point, rather than just a draw. In this way, you will insulate your network against volatility as much as possible, give yourself more time to react, and ensure any actions you take are in the best interests of long-term success rather than short-term gain.
Kalibrate Pricing helps you to master exactly this kind of market volatility through a combination of AI-powered decision making and human consultancy.
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