What is it?
Premium Fuel Grade Optimisation is where clients use the real time capability of the Edge product to INCREMENTALLY INCREASE THE DOLLAR/CENT SPREAD between the grades of fuel, without unduly affecting the volume of those premium grades.
What are we trying to achieve?
This strategy is designed to MAXIMISE the margin on retailers least price sensitive customers, whilst avoiding a decrease in premium grade volume. Thereby simultaneously uncovering the elasticity of the fuel grades, maximising those margins, and minimising volume drop off.
How do we Implement?
To begin we have to understand what the spread is between the Grades of fuel. The SPREAD is the difference in the $ amount between the grades e.g REGULAR to MID may be a difference of 30 cents, MID to PREMIUM may be 40 cents etc.
We would then advise retailers to incrementally increase the spread, slowly at first, to the tune of about 5 cents. Using the example above, this would increase the spread to 35 cents and 45 cents respectively.
The key here is to use the real time volume data to monitor those grades for diminishing volumes (The performance indicators are very handy for this!). If the volumes remain consistent, then we can conclude that the MARKET has accepted this price increase, which we can now consider to be the baseline. The onus is then on the retailer as to continue to increase the spread (thereby finding the upper limit of the grades elasticity) until they are satisfied with both the volumes and margin.
How long does it take?
It is always advised to conduct a strategy over a period of weeks to ensure any anomalies are taken into consideration, however the Premium Grade Spread strategy can be especially effective on a week-by-week basis. The benefits being that you can see the success of this strategy in real-time and adapt to what the market will allow. Incremental increases and volume monitoring are the keys, length of time is completely dependant on what the retailer is trying to achieve.
