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Why AI-Pricing of Fuel Will Not be a Hit

Posted by PriceBeam on May 30, 2017


A Danish company has developed a new AI-based pricing system for fuel stations, where prices are raised with demand around peak-times, and adjusted to competitors' reaction. While fuel pricing is already somewhat dynamic, the company claims that prices can be fine-tuned moment-by-moment. However, fuel stations are reluctant to sign up for it, and so far, only 1 in Europe has publicly announced that they will implement this system.

Companies in various industries have been using similar strategies for years, so why this reluctance? Why are Uber and Amazon not as shy? One possible explanation is the fact that Uber and Amazon do not compete solely on price. When a company competes on price, as is the case with fuel stations, customers prefer the price setting to be as "unintelligent" as possible: an intelligent price setting typically means that the company gains more, while the customer gains less, and even though AI pricing may be in his or her favor (read this to see why that is sometimes the case), they expect they will be "gamed". If that is what they expect, and they only care about the price, it is the foolish company that is willing to charge an everyday-low-price with no sophisticated price setting methods that will "win".
However, when companies start changing their focus from price to value, this become decreasingly true. Take Uber, for example. Initially, their key competitive priority was that they were able to offer a lower price than traditional taxi-services. However, as the company progressed and developed their services, they started to provide value through their app. 
Along this journey, Uber's pricing has changed, too. While the surge pricing method employed initially caused quite a stir, as Uber has started to decreasingly compete on price, they are making their pricing algorithm increasingly "sophisticated", increasingly smart, and increasingly favoring Uber themselves. Yet another argument against competing solely on price -- for AI-pricing of fuel to be a hit, the way fuel stations compete first need to be radically changed.

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Written by PriceBeam

PriceBeam posts regular guides, articles and news related to pricing and strategy. Go have a look!