Saturday, January 3, 2009

Survival tips for volatile retail fuel markets

With crude oil prices at 50% of the summer highs, no let-up in cost volatility and customer demand falling by the day, fuels retailers are having to adapt their business models to survive.

Traditional practices and the use of homegrown tools cannot offer the flexibility and speed of response needed to help oil & gas and retail companies adapt to the changes. Very limited use of analytics and existing data is resulting in these companies making sub-optimal pricing decisions and operating in a highly reactive mode - usually reacting to the actions of competitors.

What's needed is an integrated, more automated business process that comprises near real-time data capture, on-line analytics with exception reporting with an ability to document and apply pricing strategy as rules and tighter integration from head office (where decisions are made) to the stores (where decisions are implemented) to cut response times. With ERP as the data backbone, it is possible to replace in-house pricing systems (often Excel-based) with a more tightly integrated technology infrastructure that supports a far more dynamic business process, able to address the following:

  • responding in minutes, not hours, to competitor price changes, cost moves or shifts in local market demand
  • proactively changing pricing tactics according to quantified changes in customer demand patterns
  • pricing fuel in such a way as to drive main store traffic (for food and big-box retailers)
  • compliance with local state or government regulations on price-gouging, anti-competitive practices, collusion, state of emergency practices etc

Many retailers are hesitant to make a change because they perceive pricing as a business critical and highly emotional process, steeped in "artistry" and often the preserve of individuals who have dedicated many years to it. In practice, there are numerous opportunities to enhance the business process with technology as the enabler. Positioning the technology as such can overcome the reluctance of companies to embrace change, by offering them the chance to combine art and science in a more flexible and efficient business process.

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