Can your premium grades work harder for you?
Many EdgePetrol customers have seen huge success in driving additional profit by testing out their differentials between standard and premium grades. When did you last revisit this differential?
If you aren’t reviewing this regularly, you could be leaving money on the table. Across the Edge customer base, we typically see differentials range between 8ppl and 24ppl. What works best for your station is dependent on the fuel brand and site demographics, which will be the main drivers of premium grade elasticity at your sites.
SETTING OBJECTIVES
You have two options. You can increase your differential to drive margin or lower it to drive volume or ‘upgrades’ to the higher margin grade.
Margin
● Calculate potential returns by multiplying your yearly super grade volume return by 0.01. This gives you visibility of the return for every extra penny of margin on supers.
● The goal, at least initially, is to grow margin in increments of 1ppl without suffering a meaningful loss in volume. Super grade customers are less price sensitive than regular grade customers, but slow and steady wins the race.
● To achieve this, you need to decide on how much volume loss would indicate success and failure to decide at each increment whether you will continue or hold as your super grade differential reaches its optimal price.
Driving Super Volume
● Calculate how much extra volume you need to sell to compensate for the lower margin. If you reduced the differential, how much extra premium grade do you need to sell for each penny you give away?
● Work out the percentage margin decrease. On a 10ppl margin, you’ll need volume to increase by 10% for every penny you sacrifice to make the same profit.
● As with margin, deciding these numbers in advance will tell you when you have found
the optimal price to grow volumes.
TESTING
For the volume play, a significant drop will be more impactful.
For success it is IMPERATIVE to advertise your lower super price.
Some retailers use social media for this, and/or display boards that are visible to customers as they drive onto your forecourt.
Let your test run for a minimum of 2 weeks.
For margin increase, start slowly by increasing the differential 1ppl or 2ppl at a time.
ASSESS
● Use the real-time and performance reporting widget in the App to monitor performance.
○ Compare to the previous period and the same period last year (if your Edge
subscription goes that far back).
○ Monitor overall volume and gross profit v super performance.
● Check these against your objectives. Are you on track? Make sure you hold yourself accountable to what you decided success would look like!
REFINE
Depending on the assessment results, you may want to increase or decrease the differential and continue to monitor.
To increase margin, you may simply want to keep increasing the differential until you start to see super volume or profit level out.
KEEP
Through your testing, you should reach that differential sweet spot even if it’s where you started out in the first place! Make sure you keep continuously monitoring performance. We recommend a review at least once a year.
