Oil Marketing Strategies
(New global and local market, Creation of added value through differentiation and high quality products )
By : Mohammad(Masih)Rezvani_Ph.D
Preface :In recent years, a series of events and changes has profoundly altered the operating environment in the oil sector. amplifying the changing and expanding market place in which improved market orientation, especially from the production sector, is necessary .
In my view , the "Factor or drivers of change" in the oil sector are follows :
First, there has been increased world wide production of oil as a result :(1) an increase in the amount of land used for oil extraction, principally on intensive or super-intensive lands and (2) the improvement in productivity due to technology extension in both the growth and oil processing phases. Second: the remarkable worldwide increase in the demand for oil has been driven primarily based on scientifically established and increasingly widespread knowledge of the positive benefits of its consumption, as consumers search for cheaper , safe and quality products.
Third, there has been increased extra demand for oil.
Fourth,the reduction, elimination and/or reorientation of public subsidies and further liberalization of markets is causing intense, increased competitiveness .
Globalization plays a role in explaining and defining the market situation. oil market protection will be higher due to pressure from developing countries and the strategic interest of multinational companies. the future will bring more open markets, either through bilateral agreements or under the general system of the world trade organization (WTO).
Fifth, there are new business opportunities arising from diversification strategies, such as using oil as a main ingredient in other industries , the development of energy, other ways of using by-products and oil waste and recycles, and the process of obtaining oils.
Finally, increased corporate concentration in commercial distribution and the growth of private label market share are related events which have increased the difficultly for manufacturers distributing their own brands, while giving rise to the emergence of specialized industries in manufacturing labels, called "hidden giant".
in the last years , the global demand for oil has increased much. However the oil sector is suffering a decline in profitability due to lower prices in recent years resulting from oversupply and a strong imbalance of power in the sector, information reflected in the USA & Persian Gulf areas oil sector action plan.
Since the oil production sector dominates production orientation , producers of oils have modernized their facilities incorporation the last technological improvements provided by research.
However producers are too far away from consumers for the market to reward their efforts. Therefore, it is necessary to adopt a philosophy of market orientation and marketing, that is, producers need to be aware that they " can only produce what they can sell "
That is why this article has two objective : (A) To describe the strategies that the oil production sector can use to achieve greater market orientation , and (B) to identify sources of differentiation of oils in order to design and implement a differentiation strategy that makes consumers perceive oils as unique.
Following this introduction, the second section outlines the current challenges confronting the oil sector. Next , a producer for implementing a philosophy of market orientation for oil companies s discussed , as well as new marketing strategies that should be used.
Then sources of oil differentiation that add value to the product are described.
My hypothesis is that the behavior of the oil production sector is critical to the development of the global demand for oil and their own profitability.
It is necessary to translation from the currently dominate production orientation to a market orientation.
The challenges confronting the oil sector
In the scenario described above the challenges confronting the oil sector, in my opinion are :
1_ Constant improvement in the quality and Cheaper extraction , an integrated process that includes respect for the environment. It is not enough that oils are safe and cheaper , the production process must also be safe for environment.
2_ Management improvement on plants and related industries(cost reduction , increased productivity and professional management )
3_Making a sectorial approach compatible with environmental approach.
The oil sector is a major driver in the economy of its production areas. it is essential to emphasize the multifunctionality of oil facilities , it has the ability to unite a territory, create jobs, protect the environment , maintain local population and production system, preserve extraction lands , avoid or reduce destruction, fight climate change and maintain biodiversite.
In short , it is necessary to assert the fundamental importance of the oil sector in its social, culture, and environmental dimension.
4 _ Highlight greater diversification, as mentioned above, by using oil as an ingredient in other sectors , and using it in other products, creating links with the energy market and discovering other forms of using oil .
5_ Create well integrated and adequately sized marketing structures through cooperation agreements, strategic alliances , and mergers within the production sector.
6_Improve the functioning of the oil production chain, promoting stable and sustainable relationships between different players, based on trust and commitment and the development of vertical collaborative strategies .
7_ Investing in R & D and training, Increase the transfer of knowledge and consulting within the production sector, simulate more cooperation between facilities and researchers to accelerate innovation , especially on processed products that bring benefits both terms of time and cost .
8_Use information and communication technology in management .
9_Conduct efficient marketing based on market orientation. Oil companies, especially , the producers have to be convinced that is essential to established an on-going dialogue with consumers to enable them to identify consumers needs desires. Satisfaction of consumer demand must become one of the main objectives of the organization.
Market orientation in the oil sector
Meeting consumer should be primary goal of every business. This is the ideology that underpins marketing management and it is apparent that the term marketing .Therefore the marketing approach advocated in business management implies the need for every organization to identify their markets, know their customers, understand their needs and know to satisfy them .
This the only way an organization can design an offer that will satisfy the needs of current and potential customers better than the competition and therefore make a profit. All marketing plans are based on a broader set of assumption about consumers or buyers.
The better you know why people want a product, how a specific brand is selected and what cases them to buy or not, the better you are able to design an effective marketing strategy.
In sum to operate successfully, market-orientations companies, with a marketing orientation must have a full understanding of what makes consumers buy things. They need to know why they buy, what real needs they try satisfy and what influences affect their product choice, in order to be a position to design marketing strategies that favorably influence consumer decisions .
A market orientation company promotes a company culture of organization, based on the fundamental principle that the members of an organization at every level should be aware of the importance of the consumer to their existence, progress and profitability, because while marketing is a business function above all it is an attitude and management philosophy.
Market orientation and marketing are two of the great challenges confronting the oil business in order to open new markets and increase sales in existing markets. To achieve these objectives, companies have to first, define their business portfolio, the relevant markets in which to act, and the three-Dimensional business definition , which is an intersection of a base function and technology and group of consumers.
Following this analysis, oil companies can identify different relevant markets in which to operate , the bulk market , the internal market, external markets , etc. The choice of one or more markets is the result of consumer behavior analysis and of course of the strengths and weaknesses of the company.
Once the products-markets in which a company wishes to act are identifies, market oriented companies need to carry out the following tasks in each market: market segmentation target market selection and positioning. market segmentation identifies various group of consumers with similar behaviors within the total market, profiling each of the segments identified.
Once the market segmentation is done, the best segment or segments need to be selected. To do this the potential profit from each of them a function of their size and growth and the structural attractiveness , objectives and resources of the organization need to be assessed.
Subsequently, the organization must persuade selected target markets that their product will meet a consumer's need better than competing products. To do this , companies must develop a special image of their product in the consumers minds relative to competing products, These market segments must feel that the company has a unique way to meet consumer needs.
A market-oriented oil company seeking to operate in any market must analyses consumer behavior toward oils in that market, including the oils consumed, uses association oils and their differential attributes, consumer perception beliefs and images that consumers have about oil etc.
Market orientation also involves designing and implementing new marketing strategies, such as consumer sensory education and the dissemination of and oil consumption culture, in order to close the gap between a sector that puts forth great effort to obtain quality oils and a consumer who generally does not appreciate this quality.
Those measures are necessary in order for the effort in producing extra oils to be rewarded in the market, especially in those markets where consumers have little knowledge about the different types of oil and its distinctive features are poorly understood.
In the same vein it is necessary to change the generic names of oils that are unclear and which prevent consumers from differentiation between oil qualities, and are not useful to facilitate the buyer's purchase decision.
The Confusion in some markets does little to sell oil from the producers because when there is confusion the consumer takes refuge in known brands, even if those oils are not the best available. A strategic marketing principle is necessary to provide consumers with accurate, sufficient and understandable information on the characteristics of oils.
It is also interesting to incorporate varietal information, historical and cultural features related to products, but emerging consumer segments.
moreover there is a need for an urgent ban on re-usable oil barrel that allow immediate and virtually unlimited reuse in markets where it is not prohibited
The strategy of differentiation an added value . Factors or attributes of differentiation in oil
The first step in preparing a development strategy is to specify the nature of a defensible competitive advantage , which will support strategic and tactical later.
Different basic strategies can be adopted depending upon whether or not they are based on productivity gains, and therefore cost is affected or based on a differentiation element and consequently prices is affected.
i try to identify three broad generic strategies , which are internally consistent to create a long-term defensible position and beat competitors in the industrial sector . These three strategies are general leadership , differentiation and a high segmentation approach.
The strategy of product or service differentiation is to create something that a market segment perceives as unique . This idea is the mainstay of position management in market segments. All segmentation is based on the concept of differentiation . The distinction , if achieved , is a viable strategy to earn higher than average returns in an industry m as it creates a defensible position against the competition. Differentiation provides security against competitive rivalry due to brand or products loyalty and lower sensitivity to resulting prices. It also increases profits , which avoids the need for law cost position. Differentiation strengthens the position of a firm relative to its competitors and substitutes and increases the dependence of consumers or buyers.
On the other hand, some risks associated with differentiation include emulation of the distinguishing feature by other companies and secondly a price advantage by a competitor which could induce a significant sector of the market to prefer it , reducing interest in the business differentiator.
How can differentiation from the competition be achieved ? It is useful to draw on the Lancaster’s theory of demand characteristics which is based on the assumption that consumers maximize the utility of features of objects rather than the object themselves.
From this perspective, a product as seen from the buyer's point of view, can be defined as a specific set of attributive that benefit the buyer. These include more than just the baseic service typical of the type pf product, extending to necessary or ancillary services, which are distinctive product elements , and which might influence the preferences of buyers. Consequently , an satisfaction and , as such, is used as a selection criterion .
The literature distinguishes between intrinsic and extrinsic attributes. Intrinsic attributes are those that cannot be changed or experimentally manipulated without modifying the physical characteristics of product itself (Olson and Jacoby , 1972) . Extrinsic attributes are by definition external to the product and are related to it, but are not part of the physical product.
For oil generally and petroleum and petrochemical products , in particular, intrinsic attributes include , quality , color , etc , Some extrinsic attributes are price , packaging , The brand , The logo , the perception of quality , etc.
On the other hand , petroleum and petrochemicals in general and oil particular are increasingly differentiated through social, emotional and epistemological aspects, including, attention to variety of consumption in the production process,
The fight against climate change , contribution to the improvement of local landscapes , environmental care , innovation , the desire for knowledge, and other social and cultural aspects, etc.
Additionally both oil and petroleum are differentiated through services valued in market segments. For example the payment terms , Fast delivery and ...
These service are increasingly appropriate to add value to companies products through differentiation.
The remarkable increase in the demand for oil in last years in the most characteristic feature of the evolution of the world oil market.
However , this development has not translated into increased profitability for producers, who in recent years have seen prices drop to levels below the cost of extraction and processing , as a result of an oversupply and a strong imbalance of power relations within the oil sector.
This problem stems from the producers to be rewarded by the market, they need to adopt the philosophy of market orientation, a strategy that could generate great returns, considering the enormous possibilities that different types of oil have in different markets