10 competitive advantages of synergy between pricing and planning
Many fuel and convenience retailers still operate under the belief that the only way to battle pricing competition is to lower their prices.
But fuel volumes and margins are decreasing while advancements in the fuel industry continue to increase, and these new developments will require new approaches to retail strategy — and a commitment to change.
Therefore, it’s critical for fuel retailers to consider which aspects of their business can influence a customer’s decision to buy.
From forecourt to in-store, there are multiple points you should be focusing on to drive sales.
But let’s start with the foundations: fuel pricing and retail network planning are two areas of the business that can — and should — work in sync for total site profitability.
Models and best practices used by location planners and fuel pricing analysts already intersect.
The most effective pricing models include location intelligence, and many of the models planners use to test changes in their retail network strategy depend in part on data generated by the pricing analysts’ performance.
Each (pricers and planners) hold down opposite ends of the same strategic spectrum, yet in many organizations, they never meet.
But there’s much value to be gained through acknowledging this intersection between planning and pricing processes and through working to share intelligence across the two perspectives.
For companies who understand this changing industry, the combination of planning and pricing perspective can spur many new advantages.
We’ve identified ten opportunities for convenience store competition by uncovering more value in this uncertain industry through sharing intelligence across two distinct areas that have traditionally been separated by business structures and tools.
1. Define local micro-markets, using simulation capabilities to rank convenience store competition by influence
For big retailers especially, it’s impossible for pricing analysts to visit every site on a regular basis. But it’s still important to understand who the influential players are within your trade areas and micro markets.
Who are the big guys in the market?
On the flip side, who are you wasting your time tracking?
The micro-markets you determine can be optimised using network planning data to ensure you have the holistic view needed for effective pricing. This can also ensure you are surveying the correct competitors, potentially reducing effort and cost surveying unimportant competitors.
By focusing on whoever has the greatest influence over how your retail network performs, you can optimize your trade areas for the best results.
2. Understand your pricing power by understanding the volume magnets that influence footfall/trips
Many retailers think price is the only lever to pull to drive volume. But there are several other elements, from forecourt to in-store, that can influence a customer’s decision to buy from you.
By considering the role of each element in your planning and pricing strategy, you can understand what allows you to be a premium pricer or a budget retailer.
Analyzing elements like facilities, operations or location can help you understand brand and competitor strengths and weaknesses as they relate to your own site.
This ability to benchmark key fuel and retail elements in each trade area will inform your strategy and drive maximum site profitability.
3. Use the expected volumes from location planning solutions as pricing performance benchmarks
One of the biggest challenges for fuel retailers is understanding what volume a site should be outputting. How many litres or gallons per month or per year should you be striving for?
It’s important to understand the volume potential of a site and use that as a performance benchmark. The ability to review volume potential against actual volume performance can inform the target volume in pricing rules.
When you set volume targets for your sites, they’re often set based on a previous performance. Usually, teams will be looking at the previous year with either an uplift or take into consideration certain objectives.
But what happens if something changes in the course of the year that you hadn’t anticipated? For example, what happens when a competitor opens nearby, or a competitor closes, or even if you do some work on that station, the previous volume targets may not be relevant anymore.
What Kalibrate Planning can do is by running simulations, and modeling those changes, provide you with an insight of what that new volume should look like.
That can then help you set appropriate volume targets in your pricing system to make sure that you’re not either chasing volume that doesn’t exist anymore or leaving margin on the table because potentially you’ve got a lot of extra volume that’s coming in.
4. Simulate pricing tactics around historical data before changing the entire operational plan
Although there are many volume magnets which can influence your sites’ potential, it’s still necessary to hone your pricing strategy to maximize value.
To do this, you can run a change in pricing strategy in your network planning tool. If the simulation turns out well, you can test it operationally by pushing the strategy out to 10 percent of your sites, leaving the remainder of sites in business-as-usual mode to avoid risk.
Call that test your challenger strategy.
If that strategy appears to work, you can promote it to your champion strategy, and repeat the process with a new challenger in the future.
5. Feed historical convenience store competition pricing from your operational pricing solution into your planning solution for more accurate volume potentials and to understand demand elasticity by micro-market
One of the biggest challenges with collecting data on fuel and convenience store competition is keeping that data up to date.
In just two or three years, so much can change around pricing strategy. And once you’ve prioritized your micro-markets, you need to be able to understand volume potential’s demand elasticity within those markets.
Input your competitors’ historical operational pricing data into your planning tool to ensure that data is as accurate and timely as possible and plan your strategy accordingly.
6. Understand which of your locations are store-led and which are fuel-led to inform your pricing tactics for each category
It’s never necessarily a one-way street from forecourt to in-store. Gathering the data required to understand which of your stores are store-led and which are fuel-led can be complicated if you don’t have the right tools.
If your fuel market is influencing your stores, which attributes of the store does it influence? Is it tobacco, candy or health food?
With the right planning tool, you can gain insight into these kinds of questions and use those insights to adjust your pricing tactics.
You can read more about the fuel-store link here.
7. See stores’ sale information and pricing attributes in your maps when performing operational pricing
When performing operational pricing, a pricing analyst might have to manage up to 600 sites.
The right pricing tool integrates with mapping tools and will show you the location of all of those competitor sites and the relationships between those sites, including pricing information.
Combining the insight and data from your planning tool with your sales and pricing information allows a holistic view of your network, allowing you to better understand your network and performance.
8. Use market intelligence in your pricing optimization algorithms
In the past, some pricing analysts might have shied away from incorporating anything but their own price vs. competitor prices and own volumes into their pricing optimization algorithms.
But it’s important now to modernize those algorithms to incorporate additional metrics such as traffic, demographics and supply information.
Using these market intelligence tools in your pricing strategy allows you to be proactive when it comes to competitor pressure. If you want to be a market leader, you need to understand how to adjust your price based on any metric, from increased traffic to bad weather.
Our pricing solution tool allows you to trigger these algorithms based on any piece of data.
9. Keep your operational pricing site and product information up to date with regularly updated market intelligence
Effective pricing requires regularly updated market intelligence. Many current operational pricing systems allow you to load in all known sites.
But what happens when a competitor opens up down the road that you don’t know about?
Synchronizing your planning and pricing solutions can provide up-to-date data about things like new sites, changes in brand or new pumps added to a competitor’s forecourt.
It will tell you immediately when these changes occur, so you can plan to adjust your pricing or product offerings to keep up with the changing market.
10. Understand competitor performance and evolutions in market share
One of the biggest pieces of information missing from many operational pricing systems is how competitors are performing. How do they stack up purely in terms of how much they sell?
Using market intelligence from your planning solution gives you the opportunity to understand how competitors are performing and gives you visibility into new, important metrics.
The Bottom Line of Total Site Profitability
Planning and pricing teams often operate in silos.
The change management required to get everyone on board with this necessary synergy can be an intimidating process.
If you’re worried about implementing this approach between these two traditionally disparate groups, don’t fret.
The first step is to simply get these two groups communicating.
In beginning this process of mutual education, planners and pricing analysts will start to understand the many drivers and complexities involved in pricing and operational strategy.
Furthermore, by streamlining the technology used to perform these two process, you can bring these two groups together on common platforms and promote synergy from there.
Planning and pricing tools that use decision science can help you take the flexible stance required in an uncertain world.
Get started today with the right pricing and planning tools to drive total site profitability.
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