Opinion: Marrying Fuel Pricing Strategy and Tactics

How do retailers leverage the power of their volume magnets?

CLEVELAND -- What is your fuel-pricing strategy? It’s a line of inquiry that sounds simple, but the conversation is actually quite nuanced.

The answer is often phrased in a list of site-level tactics: Match prices with the site across the street; price somewhere between competitors A and B; or match the lowest price in the micromarket, plus a penny, for example. It’s important to define these tactics eventually, but they should be designed to meet an overall strategy and should fit within your positioning.

Strategy is the output of your pricing power and needs to be reinforced by your offering. If your defined strategy doesn’t both emerge out of and receive backing from the six volume magnets—market, location, facilities, operations, merchandise and brand—it will be of little importance. In other words, unless you operate in a vacuum, your overall retail network pricing strategy must be supported by how your sites operate, including how they treat these volume magnets. You should have a sense of consistency across your network in each of them. If not, your strategy—and ultimately your positioning—will be confusing, to say the least.

So where do you begin? Treat strategy as if it is both a goal and a truth. Understand the current state of each of your volume magnets, and therefore the current state of your pricing power. Let’s first assume that you have consistency. Then you can develop your position. It might be something as holistic as: We are (and want to remain) the premier convenience retailer in our region and our price will reflect that. Define this position with clarity and communicate it to your internal teams with strength. These are the first steps in leveraging the pricing power you have earned.

The position should then become manifest in tactics executed at the site level. You don’t always have to use the same tactics from site A to site B; in fact, you shouldn’t. There are few guarantees in the fuel-retail industry, but I can guarantee that if you aren’t pricing each site as its own unique entity with its own unique volume elements, you’re leaving money on the table. Operationally, a broad-brush approach might be simpler. But financially, individual tactics are paramount. Still, it’s important to always price with your position at the forefront of your perspective. If the tactic cannot track to your goal and truth, it is not likely to be a successful tactic.

Defining your tactics is a matter of careful testing, while maintaining allegiance to your established position. These days, conspicuous consumption happens less often in the fuel industry; therefore, people tend to be much less price-sensitive. So, your tactics should be built around demographics, site strengths, etc. Carry out tests accordingly. Price higher to see how much volume you lose. See how your market reacts to lower pricing. And always be aware that you shouldn’t neglect your pricing power just to compete with the single-site owner, who often hasn’t built the same pricing power that your network, brand and sites have built.

To put it another way, don’t create competition for yourself where it does not exist. While some fuel stations have only one lever to pull to increase volume (price), you have many more. As a retailer who has a defined position and gives attention to the six volume magnets, you can leverage your pricing power through testing and review.

And finally, don’t forget that your goal shouldn’t always be to retain your current price position. You may find, upon reassessment, that your strategy demands adaptation as the market evolves. You may even evolve as a retailer, and decide to become something you weren’t before. As you evolve, your ability to price will change, and your price position will require another look.

But who will do the looking? In my next column, I'll examine the best practices of the most successful fuel pricers.

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