Airline Experience Converges on B2B
Building on the session about finding innovations from the convergence of B2B and Airline pricing experiences, hear the real-life perspectives of PROS customer, Prasad Kholkute, Head, Retail Fuel Strategy and Pricing of Ampol Limited. He shares how he’s helping Ampol navigate its pricing strategy transformation using his previous airline experience.
About the Speakers
Hans-Peter Klug Lead Strategic Consultant at PROS
Prasad Kholkute brings over 15 years of global leadership experience in B2B and B2C pricing, revenue management, Energy, Retail, and Airlines. He currently leads a high performing team at Ampol Australia - Australia's largest energy and convenience player- to drive retail fuels strategy, pricing, and promotions. He previously led pricing, revenue management, distribution and ancillary revenue teams at United Airlines (Chicago) and Jet Airways (India). Drove double digit revenue growth in highly competitive marketplaces by deploying dynamic pricing and pricing intelligence tools, establishing pricing processes and forging successful relationships, codeshares and joint ventures. Worked with Tata Consulting Services in India and China where he led multiple engagements for Fortune 10 clients. He holds an MBA from the University of North Carolina at Chapel Hill (USA) and Bachelor of Engineering (Electrical) from VJTI, Mumbai.
Hans-Peter Klug: Hello, everyone, and thanks for joining our interview with Prasad Kholkute, the Head of Retail Fuels Strategy and Pricing for Ampol Australia. Prasad has a unique background since he has global experience in pricing and Revenue Management for both fuels and airlines, and I look forward to discussing his experience. The pandemic and the new normal has significantly accelerated the need for a transformation of retail fuels pricing. We will discuss how airline pricing strategies can be applied to retail fuels and how the PROS Platform can support this. Before we get started, I would like to quickly introduce myself. My name is Hans-Peter Klug and I will be your host today. I'm a lead strategic consultant for PROS. I've had the privilege to work with many of our energy and chemicals customers over my past 10 years here at PROS. Without further ado, let me introduce our guests today, Prasad, maybe you want to introduce yourself....
Prasad Kholkute: Absolutely, so my name is Prasad Kholkute. I am passionate pricing leader. I bring with me years of airline revenue management and pricing experience. I was with United Airlines based out of Chicago for almost 10 years, and when United merged with Continental, I really got to know folks from PROS because Continental used PROS O&D Revenue Management system. And then I moved on to take a leadership role in pricing and revenue management in one of the airlines based out of India. And PROS was our vendor as well at the time. So after over a decade of airline dynamic pricing and revenue management experience and thinking that pricing cannot get more sophisticated than that. When I got an opportunity to head the pricing transformation at one of the top Australian fuel retailer, I was a bit apprehensive about it, but I jumped on the opportunity. And guess what? I came across PROS again, and it has been a phenomenal relationship, working with PROS and driving pricing transformation in this industry as well.
Hans-Peter Klug: That's interesting, so Michael Wu explained in his keynote that there's a lot that both industries can learn from each other since you've been working in the airline industry prior to joining retail fuels. I would be interested if they are things which you have brought to Ampol from your airline experience?
Prasad Kholkute: Yeah, I think, you know, what airline do really good is segmentation and airlines really invented pricing, segmentation and origin and destination pricing optimization. We call that O&D pricing optimization, and I think that's a bit that is universally applicable in any pricing application. And what I'm talking about is application to retail fuels, but it really transcends across all industries and geographies. So, starting with segmentation and when you think about segmentation, what airlines do really good is segmentation by elasticity, segmentation by booking classes, segmentation by seasonality. And those parameters are absolutely universal. So when we came to pricing transformation here at Ampol, which is Australia's one of largest fuel retailer and supplier segmentation was key. So the first thing that we did was we actually quantified elasticity of every service station, for every product, for every day of week. And we then started making pricing decisions based on that. The other aspect we talked about is how airlines do segmentation by seasonality. And we took a page from my previous experience, and we segmented our sites into seasonality there, which are the sites that see high demand during workdays versus weekends versus holiday sites, et cetera. And that really gave us ideas about where we need to compete, where we need to, where we can charge a little bit of a premium. And it's not a static premium and it's not static competitiveness because it varies based on the seasonality. And when you multiply that across the billions of liters of fuel that you sell across hundreds of sites, it's the same. It's the scale that really unlocks millions of value. So that was absolutely the key. I guess the second bit that we took from airlines is trusting the system. Sometimes your pricing optimization system might give you recommendations that might be a bit counterintuitive, and you want to avoid the temptation to override that. You want to observe it a little bit. You want, you want the system to learn from historical observations and latest observations. And when the system really learns and when you fine tune the parameters, you can unlock tremendous value. So, fighting the temptation to override the system was the other page that we took from the airlines.
Hans-Peter Klug: That is really great insights. And I believe without a professional pricing solution like the Smart Pricing and Optimization Platform, that PROS is given to you that would not have been possible. Is that correct?
Prasad Kholkute: Well, absolutely. Just the just the size of the data is massive. And if you think about Ampol, right, our team does pricing decisions for over 650 sites nationally. But it is, we sell close to four to five products of fuel at every site. So you can do the math and you're looking at thousands of product times, sites, decisions to be made and pricing is extremely competitive and the price is transparent and visible on the price board of every service station. So we literally make hundreds of thousands of pricing decisions every day, and that is just impossible to do without a sophisticated pricing system. It is not something you do in an Excel file.
Hans-Peter Klug: I fully agree. So what have you learned from your Ampol experience that the airline industry could use?
Prasad Kholkute: Now, I think that's a great question. Probably the first thing that comes to my mind is, you know, for the longest time, airlines have relied on various fare fenses, not having one way fares in your booking classes or having high advance purchase requirements on lower booking classes, maybe a minimum stay requirements and whatnot. And what has happened over the last few years is low cost airlines have come in. And most of them have these one-way fares that happened to be in all booking classes without any fare fences. And that has really challenged the traditional O&D Revenue Management model where the pricing fences have collapsed for airlines. And what it has done is if you don't have pricing fences and if you just completely rely on your Revenue Management system to take care of closing and opening booking classes, you're still not optimizing. You could be leaving money on the table. And what happens in the retail fuel industry is just like airline industry, it's highly competitive. Customer tends to be highly price sensitive. The price is extremely transparent and out there on the price floor. There are lots of apps that tell customers what the price is. So there are lots of similarities here between retail fuel industry and airline industry, and there are no fare fenses like you cannot have a price for petrol and then say that sorry, that booking class is closed. Put a price out there you have to, you have to offer it. And I guess what that really compelled the pricing team at Ampol to do was to really focus on segmentation. And segmentation by geography, segmentation by relative competitiveness, segmentation by product and sight offering versus what competitors offer and segmentation by seasonality, segmentation by day of week, and that segmentation helps us understand what should be our price to begin with. So it almost feels a little counterintuitive because, you know, my airline experience tells me that you should never be doing Revenue Management through pricing. You should have prices and let Revenue Management decide what classes to accept and close. But I guess the one way pricing model by low cost airlines have kind of challenged that model. So that relying on segmentation. I think I would say that it's a page that airlines now need to take from some of the other competitive industries. The other aspect, I would say, is test and learn. We do a lot of tests and this is like deliberate tests. We implement in the market and we have we measure test versus control impact on our volumes and margins and revenue. And I think in my airline experience, what I observed was just the size of the optimization problem, and complexity was so big that the reliance on test and learn was slightly minimized. And the reliance on this is what history has shown us about this flight, about this booking class demand. So relying more on history. Look a bit higher, and I think airlines can take a little bit of page from some of these other industries, they're implementing deliberate testing learns to kind of almost influence that history a little bit to provide your optimization software, but a little bit of a fresh history. And maybe that will help to optimize or make a slightly different decision because in absence of that, if the optimizer has only seen bookings coming in lower classes and it has not seen anything else, it's going to forecast exactly that. So I guess that deliberate test and learn and reducing reliance on how, how to reflect and how to respond to the reduced reliance on fare fences are the two aspects I think airlines would benefit from.
Hans-Peter Klug: This is very interesting. So you mentioned a lot about the segmentation that is implemented at Ampol. Maybe you can expand a little bit on the journey to pricing excellence that Ampol has taken over the past few years. So where did you start? Where are you now? What worked and what didn't?
Prasad Kholkute: Yeah, absolutely. I guess the hypothesis at the time was again, we literally sell billions of liters of fuel every year. And if they are able to improve our margin a little bit by a fraction of a cent or if they are able to grow our volume by competing harder, where we can compete harder without losing margin, then that when you multiply that by the scale, you unlock tremendous value. So that was the starting point. And the system we had before we implemented PROS was fairly basic that did not even allow site level product level pricing. We had to do pricing at a site group level, so sites in the same vicinity had to be priced in the same way. We could not change the pricing differential between base grade petrol and higher octane petrol, et cetera. So we, we implemented rules about four years, five years ago and, you know, bit by bit. We've added more modules into that, and we've started to explore advanced functionalities and sophisticated pricing optimization within the system to really unlock that value. I think it all started from changing the mindset, and that's the first step. And that mindset changing and gaining sponsorship from senior leadership is absolutely important. The mindset prior to driving pricing transformation was to be always competitive with the cheapest player out there. And if you just do that every day, you will be leaving money on the table. So you know it changing the mindset and our ops team also came on the journey. Getting our operations team on the journey was absolutely important. We really helped educate that where we need inputs from the ops teams is not to call the pricing desk and to say that my nearest competitor is having this price, which is lower and I want you to match it. That's not the type of insight and intelligence we want from the ops team. What we want from the ops team is there is a new competitive side coming half a kilometer from us, and I believe that their opening is three weeks from now, because that is the quality inside that need or there used to be a competitor site and they used to be branded as an independent service station, but now it is branded as one of the well-known brands, and that really changes our perception on and that really changes the consumer's perception about that site, which compels us to think about how we think about pricing of our site in reflection of this newly rebranded site. So it took us a lot of workshops to help change that mindset. But over the last four to five years, we've really successfully transformed into the mindset change and past that, you know, it's really about trusting the system, but it is also about keeping your data refreshed. It's a highly competitive industry. It's a highly dynamic industry. You cannot rely on your segmentation that was put in place two years ago. You cannot rely on your elasticity numbers. Those are too stale. It's always keeping it refreshed is also a challenge.
Hans-Peter Klug: You know, these are interesting insights, so based on your experience, what would be recommendations that you could give to other companies which are about to embark on the same pricing journey?
Prasad Kholkute: Yeah, I think it goes back to the point I just made earlier, which is it starts with the mindset change. Getting buy-in from senior leadership is absolutely important. The second thing you want to do is you want to recruit a talented pricing team. You know, there are lots of types of pricing teams with different capabilities. Some pricing teams tend to just be data entry teams, whereas the highest capability pricing teams are extremely commercially minded. They're really good at negotiations. They're really good at influencing and they're good at analytics. So you want to make sure that you have a strong pricing team that is capable. So once you have your people problems resolved, then you need to start thinking about what is the right pricing solution for you. And along that journey, you want to focus on segmentation. You want to focus on consumer behavior. I guess one of the things that in addition to all this we did here at Ampol is we are fortunate to have really strong customer level data through loyalty program. And we absolutely rely on our loyalty program to understand the consumer behavior, and we send targeted offers to the consumer behaviors that we want to change for those bespoke customers. So you, if you can, you can overlay this off board pricing strategies in addition to your pump price pricing strategy. So there are lots of things you can do to drive the pricing transformation. And look, I'm very fortunate we have an extremely strong pricing team here at Ampol, and I guess the last thing I would say is you want to break the problem into its components. You're not going to be able to drive all the transformation in one go. So you have to break that into parts and trust the system.
Hans-Peter Klug: OK, that makes perfect sense to me. Maybe one last question the switch to sustainable energy is currently a big topic in the energy industry. How is this affecting Ampol and how do you go about it?
Prasad Kholkute: Oh, we are excited about the future. We released our decarbonization and future energy strategy recently, and it has been received by our employees and by our shareholders and by the market extremely positively. There are many facets to the energy transition, and I think what we will see is different types of customers will be driving different levels of energy transition and what future energy they choose to use will also be dependent on the customer's needs. So we believe that energy transition will be led by our customer and we want to absolutely leverage Ampol’s privileged assets, our capabilities and our presence in the market to help our customers drive the energy transition.
Hans-Peter Klug: OK, good luck on that transition, and I'm sure with the your strategy and and pricing transformation, you're spot on the right track. These are really interesting insights. This concludes today's session. Before we finish, I would like to thank you Prasad for the beneficial insight that you've provided to others within the industry who are in the various stages of their pricing journey. Thanks to everyone who tuned in and have a great rest of your day.
Prasad Kholkute: Thank you, Hans.