CLEVELAND -- Fuel-pricing success requires a variety of contributing factors: pricing power, position (both strategy and tactics) and, of course, people. But what makes a person truly adept at fuel pricing?
All fuel retailers must decide who carries out the day-to-day fuel-price decisions and changes tactics to balance supply and demand, margin and volume. The first consideration and condition is location. Are pricing decisions made centrally, by a team in a head office, or are they made by field staff? I generally recommend the former: a team of specialized pricing experts located centrally.
Typically, when a retailer chooses the latter, it's because the field team member is perceived as closest to the market and therefore more able to understand pricing on a site level, based on competition. It's also tempting to delegate this task to an individual out in the field due to a "two birds with one stone" line of thought—use the field staff that are already employed to price fuel too. But that person should be focusing on the other important things that need to take place to run a successful site.
What if, instead of distracting them, businesses found the right analyst, located them centrally, and then enabled them to work arm in arm with other strategists? That’s how you get the most out of pricing. Too often, fuel retailers see pricing as an entry-level way into an organization—a stepping stone, of sorts. Yet, a pricing team can have a massive impact on profitability. Therefore, the role should be seen as one to achieve, not move past.
The right metric for measurement is another condition for the success of your people. I recommend profitability as the performance indicator for pricing analysts and strategists. Why? Because you should not see price as the cure to ills in other business areas.
Too often, leaders can lob problems over the pricing fence, neglecting the need for overall strategy and blaming volume failures on price alone. That's too easy. The harder thing—and the right thing—is to give the team the best chance of success by investing in the volume magnets (that is, those elements of your site or network that draw volume, such as brand or location) and by measuring on profitability.
However, even a centrally located team measured on the right things can't operate in a silo. The pricing team must work with field staff and visit sites to understand how the market dynamics work and establish why the market fluctuates. (Besides, business acumen and curiosity are required characteristics for an excellent pricing analyst.) Once a person is truly intimate with the market, and not just with pricing, they can begin to drive efficiency by automating processes and managing price by exception.
That's the next condition: Great pricing people have a great pricing process. It's fueled by data and allows for management by exception.
In other words, they must be able to automate. They should be inquisitive, results-focused individuals, who—when free from the drudgery of simple pricing minutiae—can commit to smart experimentation. When the pricing process is dialed in, people don't touch prices when they don't need to. That's great! Everyone should only have to devote attention to the exceptions, not the rules. Having people touch prices when they don’t need to do so is not adding value. Having brilliant analysts who have both the bandwidth and capability to understand events and triggers—and who will step in only when necessary or profitable—is adding value.
So, there you have it. The people that make for great pricing are centrally located and have strong analytical skills. They are measured on overall profitability of fuel, and understand that there is more to success than just price. They are curious and aware, and can manage by exception, due to automation. When the pricing team is on point, the field team is free to focus on other areas of the business—the ones that maximize operational impact.
In my next column, I'll discuss what the day-to-day pricing process looks like.
Ian Thompson is managing director of planning for Kalibrate. For more information, visit kalibrate.com.