Home / Industry / Energy /  Oil marketing firms plan to introduce dynamic pricing at all retail outlets this year

Mumbai: Consumers may be able to buy fuel at differential or real-time pricing from the retail outlets of oil marketing companies (OMCs), thanks to a dynamic pricing model that OMCs plan to introduce.

Senior executives at the OMCs—Indian Oil Corp. Ltd (IOC), Bharat Petroleum Corp. Ltd (BPCL) and Hindustan Petroleum Corp. Ltd (HPCL)—said these state-owned companies plan to introduce dynamic pricing to their entire retail network in 2017 and beyond.

So far, these companies have been trying out dynamic pricing at a small number of their retail outlets as a pilot.

BPCL and HPCL have been running the pilot. IOC is studying the pricing model. BPCL and HPCL may extend it to all their retail outlets in the new year, officials said.

“Next year (2017) we may expand dynamic pricing to cover all our retail outlets. We had plans to expand our experiment with dynamic pricing this year (2016), but due to demonetisation, we had to put it on the back burner," said a senior marketing executive at one of the OMCs, requesting anonymity, as he is not authorized to speak to the media.

“We do not want to miss out on the digital transformation that is currently happening. It will help us expand our retail network," the person added.

BPCL and HPCL did not reply to an email questionnaire. IOC, in an emailed response, said, “So far, dynamic pricing has not been implemented anywhere in the country by us, but this principle is being studied in great depth to ascertain its feasibility and impact on Indian markets."

In dynamic pricing, companies test the elasticity of pricing by pushing it up or down by 10 or 15 paise or more to gauge the impact it could have on sales volumes and the market response. 

Dynamic or real-time pricing implies that the cost of a product is kept flexible. The price of a product varies, depending on the location of the outlet and time of the day. At present, retailers charge uniform prices for diesel and petrol across outlets in a particular region. 

Dynamic fuel pricing is a common practice internationally. If introduced in India, it would give OMCs the leeway they need to fight private-sector rivals in the fuel retail segment, the OMC executives said. Reliance Industries Ltd, Essar Oil Ltd and Shell India Pvt. Ltd are existing private-sector retailers.

“We have observed that there is an increase in market share where we have dropped the prices by a few paise and increase in profits where we increased the prices. It has also resulted in strengthening our market presence in locations where implemented. Dynamic pricing will be an important strategy going forward," said the senior marketing official cited above. 

In September, Mint reported that HPCL was evaluating the idea of launching dynamic fuel pricing at its fuel retail outlets. Currently, HPCL has launched dynamic pricing at a few of its retail outlets on a pilot basis which will be extended to other outlets across the country at a later stage. 

 “We began dynamic pricing at a few of our retail outlets and we expect it to become a significant tool in sustaining profitability and market share in the next two-three years," said a senior executive at HPCL said also requesting anonymity. 

BPCL’s then chairman and managing director S. Varadarajan said at the company’s annual general meeting in September that the company had implemented dynamic pricing at 500 of the 13,439 fuel retail outlets in runs.

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