Using intuition, knowledge, and experience in fuel price testing

Kalibrate believes that the most successful fuel pricing teams combine AI, data science, and robust processes with expertise and experience — and price testing is no different.
Using intuition, knowledge, and experience in fuel price testing

In this series of four blogs, we’ll be delving into the logic of price testing to help you understand how to run an effective test that boosts your fuel pricing strategy. Here, we consider intuition, knowledge, and experience, and how you can use yours to aid your future price tests.

It would be easy to presume that intuition and price testing sit on opposite sides of the fence. Intuition and gut feel are no longer reliable sources for decision making, and price testing is required to provide robust data that drives decisions.

But Kalibrate believes that the most successful fuel pricing teams combine AI, data science, and robust processes with expertise and experience — and price testing is no different. You need to have experienced, knowledgeable Pricing Managers or Analysts to initiate and manage a price test.

Initiating a price test needs an experienced, knowledgeable team. After years of fuel price management, you will have an understanding of how your customers and competitors will react to a change in price position. This understanding is not enough to base a blanket change on — but it creates the perfect candidate for a price test. Speak to your team, trust in their experience, and then test to prove or disprove their theories.

What can you test?

In short — you can test any variable in your pricing environment.

What should you test?

That comes down to your judgment. Without testing, you don’t know if a change will help you to meet your targets, but you can rely on your own intuition, knowledge, and experience to identify the elements of your pricing strategy that could have room to flex.

At a very basic level, a price test will adjust up or down in comparison to your current pricing strategy, so you’ll continue to price against a particular competitor or marker, but will change the differential to see what impact it has.

But there are other price tests that could be considered.

If your intuition tells you that you could be pricing against a different competitor — test it out. Instead of pricing to compete with the most competitive oil company, you may want to set your price to consider discounters or hypermarkets, or test the impact of pricing against some of the higher end offerings in your market. This would give you a great understanding of how consumers and competitors react to a different price position, and allow you to re-evaluate which competitors should be factored into your overall pricing strategy.

What about pricing frequency, or the day of the week, or the times of day, on which prices are set? Sometimes pricing teams do things because they’ve always been done in a certain way, but if there’s an inkling feeling that the outcome could be improved, it’s worth running a price test to find out.

It doesn’t have to just be adjusting the price up or down — there are lots of different factors that affect the final pricing decision, and each of these can be tested. If you’re pricing multiple times a day, consider testing a reduction in that frequency (or vice versa).

Looking at your entire pricing environment will identify any rigid aspects — these will be the perfect candidates for a controlled price test. They might just be the factors that are holding you back.

There’s no reason why you have to have the same price test on every site. You could have one test group pricing more frequently and another test group pricing against different competitor groups (as long as the two groups are disconnected and don’t impact each other). You can be creative with your price tests ― the most important thing is that you have clean data and stable test groups that allow you to make reliable comparisons, and you learn from the outcome every time.

Download The logic of price testing” white paper for more details, or contact Kalibrate for advice and assistance in setting up a price test.

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