Six pricing strategies to maximize margins and increase traffic

By Cederick Johnson, Director, Industry Marketing & Communications, PDI

Whether you run a single site or multi-store chain, today’s convenience retail operation is more complex than ever before. According to a recent study by JSO Valuation Group, the average convenience store has roughly 2,500 items, and that’s just the merchandise on the shelf. Pricing is the heart of these sophisticated organizations, driving every customer interaction and revenue target.

An effective pricing strategy is powered by a centralized pricebook that automates and streamlines the pricing process and is typically part of a larger, sophisticated ERP solution. Pricing prowess, however, doesn’t end at maintaining accurate shelf labels or ensuring high scan rates at the register. Great pricing is tailored to deliver specific outcomes at every part of your site-level operation. From the forecourt to the backcourt, here are a few merchandise pricing and fuel pricing strategies to help you maximize margin, traffic and volume.

Target Margin Pricing

Target margin pricing is a well-known, straightforward industry pricing strategy used by convenience retailers large and small. It triggers automatic price changes in response to merchandise cost increases, enabling retailers to guard their margin. For example, if your candy costs €1.00 and has a target margin of 20 percent, the retail price on the shelf should be €1.25. If the cost changes, your retail price at the store should automatically adjust based on the price rule you’ve set up, ensuring your margin never dips below the desired level.

Specified Pricing

Specified pricing, also known as hard or fixed pricing, doesn’t adjust the retail price, even if the item cost changes. It is often used as a competitive pricing strategy. For example, if the convenience store down the street sets a retail price of €1.39 and €1.99 for their Coke and Pepsi beverages respectively, you can drive traffic to your store by implementing a lower specific retail price that doesn’t change with the fluctuating cost of goods. Specified pricing has the added benefit of saving time because it can be used to price large groups of products and sites the same way, reducing or eliminating the need to manually manage retail pricing.

Promotional Pricing

Promotional pricing uses pricing rules that have a start and end date. Retailers often apply promotional pricing to tobacco or beverage categories to match competitor pricing or capitalize on vendor discounts, both of which drive traffic. In our first example, we set the candy to 20 percent retail target margin. If, for instance, you ran a promotion for your candy category, the promotional price rules would overrule the target margin price rules, allowing you to temporarily adjust your pricing strategy for cost changes or competitive categories.

Promotional pricing becomes even more powerful when applied to mix-and-match promotions. Mix-and-match promotions allow consumers to take advantage of multi-product promotions-like buy a Coke beverage and a bag of Frito Lay chips for €5.00. A retailer could end up with several combinations at the register. The back office pricebook works in tandem with the point-of-sale device to trigger the mix-and-match promotional pricing after every item is scanned. Consequently, in addition to increasing in-store transactions, mix-and-match promotions can also improve inventory accuracy and tracking.

But merchandise pricing strategies aren’t the only way retailers can maximize margins and increase traffic. As a primary destination for drivers to gas up and go, convenience retailers are increasingly challenged to intelligently navigate the complexities of fuel pricing to remain competitive in high- and low-demand environments.

Time-of-Day Pricing

Capitalizing on time-of-day fuel pricing can be a bit tricky, but getting the right result for your business is certainly achievable. Whether you’re looking to maximize margins during peak commuter traffic times, boost your in-store sales by attracting the lunch crowd with low, competitive fuel prices, or implement popular happy hour fuel pricing programs like retailers in some Asian countries, data is the key to successfully executing a time-of-day strategy. To that end, implementing pilot programs to test and refine your fuel pricing methodology will provide the data and insight you need to make informed decisions about the best go-forward approach to help you reach your goals.

Seasonal Pricing

Seasonal pricing has long been a staple of successful fuel pricing strategies. Historical data has shown, people tend to travel more in the summer, which leads to increased demand at the pump. The opposite is true during the winter months, though there are demand spikes surrounding some holidays. Consequently, site operators need to closely monitor fuel prices and respond to improve margins both during slowdowns in the winter months and high-volume times during the summer months. If you’re looking to optimize your seasonal fuel pricing strategy, leverage insights like historical data, trends in consumer fuel purchasing behavior and current competitive data to maximize your margins while attracting more drivers.

Event-based Pricing

During predictable events like concerts or sporting events, fuel pricing can be manageable and proactive in nature. However, events don’t always come in neatly wrapped packages. You also need the ability to handle unexpected events, especially natural disasters like the earthquake and subsequent tsunami that hit Japan last year. In either situation, it’s important to have software that can quickly and automatically adjust your fuel pricing strategy to accommodate changes in demand.

From the shelf to the pump, pricing drives the success of your retail operation. Whether you have five or 5,000 stores, having the right people and technology in place to implement smart, data-based pricing strategies will help you meet your margin and volume goals now and in the future.