3 ways to learn about retail fuel pricing sensitivity
Of the many elements that can affect the success of a fuel retailer’s business, retail fuel pricing is one of the most important. Price sensitivities can vary from site to site and region to region, but year over year, price has remained the number one decision factor for consumers. That two-cent difference between your price and a competitor’s price could ultimately be the make-or-break element driving your retail fuel volume.
In order to make strategic decisions about your fuel prices, there are a few key categories of data you need to gather to understand fuel pricing sensitivity in your market.
What data should you look at?
1. Competitor prices
To understand how important price is to your fuel sales, you really need to understand how your competitors are pricing at any given time. Traditionally, this type of research has been done once a day by sending a manager to different sites in the area to survey their prices.
However, market volatility can affect how often you need to check competitor prices, and this site-by-site method makes it difficult to gather accurate statistical sensitivity. For example, if a competitor site changed their price at 9 a.m., but you didn’t conduct your site survey until 4:30 p.m., you’ll think it was the same price all day. To do an accurate statistical analysis on the impact of price on your fuel sales, it helps to get this data feed multiple times a day, closer to when competitors actually changed their price.
And remember, when you’re looking at competitor prices, make sure you’re looking at the right competitors. Maybe you’re only considering one or two stations as direct competitors, but there could be another site further away that’s affecting your volume levels.
2. Volume/performance data
Once you’ve gathered information on competitor prices, it’s helpful to pair that information with data on your own retail fuel volumes. By understanding how much you sold at any given time — as well as your price and your competitors’ prices during that time — you can gain insight into how pricing sensitivity affected your sales.
Like competitor pricing data, volume data is also more helpful if you get it periodically throughout the day. For example, let’s say your price is two cents below a competitor’s price for a four-hour period, and you sold 50 gallons of fuel in that time. If you match their price the next day for the same four-hour period, you can compare the fuel volumes against pricing sensitivity more accurately.
3. Site attributes
This may not be the first thing you think of when diving into pricing sensitivity, but there are many other elements of a fuel retail site that can affect sales. Things like the cleanliness of your bathrooms, unique food offerings, traffic counts on your block and how easy it is to get to your station can all help drive volumes and therefore prices. According to Market Force’s 2018 survey, price mattered to 73% of respondents, but 53% said they cared most about lighting, and an additional 39% valued a good previous experience.
In other words, if you’re offering a better customer experience in relation to other competitors in your market, then customers may not care as much about price. You can raise your price and they’ll still come back because you have the best lighting and the cleanest bathrooms. Based on these other volume magnets, you may find you have more pricing power.
But it’s important to note: pricing higher should be the goal, not to take advantage of your customers, but to do a better job of strategically positioning your site based on all the other investments you’ve made. Ultimately, providing a great customer experience will be the reason you’re one of the higher priced fuel stations in the area.
How do you use this data?
Because there are relatively low margins in fuel sales, there’s generally not much opportunity to drop prices and gain enough volumes to make that price drop profitable. In other words, dropping your price probably won’t be enough to give you larger fuel profitability, but it could drive enough people into the store to increase your overall site profitability, coupled with how increased traffic will increase in-store sales.
On the flip side, if you notice pricing insensitivity in the area, those are sites where you could raise prices and improve margins. This ties back to those other site attributes which are, sometimes, equally or more important as price. If you’re currently pricing low, but offering great food that other sites are missing, you could potentially price higher and not lose any traffic. Your goal, really, should be to come up with a relative pricing sensitivity of your customers based on data from your own site, as well as the information you gathered from competing sites.
It helps to have someone with a statistical background doing this work, but you should also consider bringing someone in with local domain and market knowledge, such as the person pricing fuel or someone from the operations team. These people often have other insights about which variables to look at and how those variables operate in the real world that may not be immediately obvious to a statistician. Of course, these insights could all potentially come from the same person, but the point is that you need to marry both skill sets to help drive your analysis and steer your pricing decisions.
Where do you find this data?
Whether you’re looking at competitor prices, volume data, or site attributes, it’s going to be tough to gather this data manually. It’s impossible to get accurate data by sending one person once a day to each individual site — you won’t have enough data to do a complete statistical analysis of pricing sensitivity.
To complete a statistically significant analysis on the impact of price on your sales, it helps to get the data feed from a service that can collect this information multiple times a day on a larger scale. Some services gather this data through a fleet card used at competitor sites, and others gather this data through market surveys.
No matter how you choose to find this data, it’s essential to gather enough of it to understand fuel pricing sensitivity in your market and make strategic decisions for your site.
Remember: Pricing sensitivity can fluctuate
Everything, from the fuel retail market to customer behavior, is so dynamic. Every day, people are renovating their sites, new competitors are coming into the market and customers are placing more value on different site attributes.
So once you’ve found your competitors, analyzed your volume data and revamped your other site attributes, you still need to survey these things periodically. Prices change regularly, so you can’t just gather this data once and leave it for five years. In order to position yourself properly to meet your long-term goals, this needs to be an ongoing process. Start maximizing profitability today by leveraging Kalibrate pricing.
Found this interesting? Why not share it:
Read more articles about:Fuel pricing
Subscribe and get the latest updates
You may unsubscribe from our mailing list at any time. To understand how and why we process your data, please see our Privacy & Cookies Policy
Can smaller sometimes be better? How Best Buy, Burlington, and Walgreens are shaping brick and mortar retail
As the saying goes, the constant in life is change. In today’s brick and mortar retail environment, the pace of...
The kids are alright – aren’t they? Examining U.S. birth rates
What's happening with birth rates in first-world countries, and what is the impact on different retail concepts? Dave...