Petroleum Manufacturing
Integrated Petroleum and Energy companies face a number of advanced pricing
challenges in achieving profitability. Destructive pricing practices
including “cost-plus” and “match the competition,” create
unnecessary discounting, pricing erosion, and quoting below breakeven prices
which result in lost revenue and profit opportunities. Improving pricing is
one of the most powerful ways to improve business and financial performance
for integrated petroleum and energy industry companies. PROS margin optimization
software products drive the highest possible ROI and enable industry leading
manufacturers, distributors, and services companies to achieve Pricing Excellence.
Fuels pricing, for example, is driven based on spot price, a significant attribute
for pricing fuels in a given region, while long-term deals for lubricants require
segmentation or differentiated customer, product, and market strategies with
a high-visibility into contract, product mix, and customer profitability based
on all the cost-to-serve components. It is critical that customer needs
are met across the value chain while remaining profitable on a transaction and
contract basis. Petroleum and energy industry leaders are at a competitive
disadvantage if sales, marketing, finance, operations, and management have limited
visibility into pocket price and pocket margin, lack a uniform pricing strategy,
practice unscientific ad-hoc pricing, and lack relevant and timely data.
Pricing Challenges in the Petroleum / Energy Industry
PROS customers in integrated petroleum and energy industries achieve Pricing Excellence across the value chain by using PROS science-based pricing software to stop destructive pricing practices. The most successful industry-leading petroleum and energy industry companies improve revenues and generate a high ROI by addressing complex pricing problems including:
Lack of visibility into competitor’s pricing strategy: Sales managers need to be able to proactively respond to a significant deviation from historical behavior by a competitor as this impacts price position drastically versus these same competitors the next day.
“One size fits all” pricing: Actionable differences in customer segment purchase behaviors allow pricing based on customer value or product end use creating incremental revenue.
Reactive rather than proactive pricing: The ability to anticipate demand patterns and change prices based on expected demand behavior shows price leadership and prevents potential margin erosion that can be caused by matching the competition on lower prices. Further benefits are found from predicting optimal prices and volume ratability, effective arbitrage, customer compliance tracking, and a number of other proactive pricing strategies.
Lack of visibility into key components of cost-to-serve: Sales Managers need adequate negotiation tools providing critical data including cost to serve, willingness to pay, customer price history and market conditions. Additive costs, transportation and other relevant line items are usually fixed however the relationship between spot price costs should be visible and monitored for any negative impact to margins.
Effective management of rebates, services and discounts: Those evaluating long-term teams must consider the impact on the cost-to-serve and ultimately profitability given additional discounting and services related to selling of products including installation, special parts, or other initial investments in equipment and services for new and existing customers and products.
PROS provides Science-Based Pricing Optimization Software with demonstrated experience in delivering Pricing Excellence in Oil & Gas across the value chain including:
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Petroleum companies have focused on unlocking value in the up-stream and mid-stream business. A truly integrated down-stream pricing solution ensures that industry leaders capture the most value in go to market pricing strategies. Integrated oil and energy companies are shifting focus to include pricing analytics, pricing optimization, pricing execution (deal management and contract management), and related science-based pricing software as a way of achieving sustainable returns.
Petroleum / Energy Industry - Pricing High Value Business Case
Challenge: Sales Managers may have insight into competitive prices, however is this case managers are unable to systematically use this data in B2B daily spot unbranded fuels pricing. No predictive visibility was available to measure against after pricing decisions are made and no key real-time market data was available to optimize prices. Without PROS pricing optimization software, forecast accuracy is diminished and pricing managers have no time to use key marketing data, resulting in profit leaks and lost revenue opportunities.
Solution:
PROS Pricing Software provides increased visibility into competitive prices and other elements of cost-to-serve and gives predictive visibility and demand consequences of pricing decisions. In addition, PROS’ high performance real-time architecture generates optimized pricing advice based on all the required data points at the time the deal is made. PROS high performance science-based pricing software products prevent profit leaks by allowing companies to:
- Forecast competitor price postings for the next day
- Forecast next days demand (volume) at relative price points on the rack
- Provide automated pricing recommendations for each terminal
Additional benefits include the ability to:
- Derive unique data including pocket price, pocket margin, cost to serve, and other metrics not available in any other system to help create a composite deal score
- Utilize what-if analysis to model the impact of price changes under consideration
- Show relevant market and competitive data at the time of the quote, including the average selling price, market indices, and segment optimized willingness-to-pay
- Evaluate the overall deal attractiveness to facilitate more profitable contract price quotes.
Value: Significant increase in profit margin and decrease in volume volatility is possible. In addition, pricing manager productivity is increased.
