A Study Of The Nigerian Petroleum Retail Market

Project and Seminar Material for Petroleum Engineering

A Study Of The Nigerian Petroleum Retail Market


Abstract


This study was carried out on the Nigerian petroleum retail market. The study essentially examine the application of marketing mix (product, price, place and promotion) in retailing of petroleum products in Nigeria using Texaco Plc as the case study. Texaco Nigeria Plc was incorporated in 1969 as a private limited company and became a publicly quoted company on December 8, 1978. The company is principally engaged in the marketing and distribution of petroleum products, blending of lubricants, and manufacturing of greases and petroleum jelly. This study makes use of secondary data only. The methods adopted to analyse the data gathered includes descriptive, financial ratios (liquidity ratio, solvency ration, profitability ratio) averages, ranking and simple percentages are used for easy understanding. During participant observation, issues that relate to scarcity, price hike and other practices at filling stations were fully discussed and argued. This study gave first hand information on the malpractice by station managers and fuel attendants. It also gave insight on how artificial scarcity of products is perpetuated by these categories of petroleum products workers. This study thereby recommended that loading should be monitored and movement book well kept both at the depots and the expected destinations.


Table of Contents


Chapter One

Introduction

  • 1.1 Background of the Study
  • 1.2 Problem Statement
  • 1.3 Study Objectives
  • 1.4 Significance of the Study
  • 1.5 Study Questions / Hypotheses
  • 1.6 Scope and Limitation of the Study
  • 1.7 Definition of Terms

Chapter Two

Review of Related and Relevant Literature

  • 2.1 Introduction
  • 2.2 Conceptual Clarifications
  • 2.3 Theoretical Studies
  • 2.4 Empirical Studies
  • 2.5 Related Literatures

Chapter Three

Research Methodology

  • 3.1 Research Design
  • 3.2 Study Area
  • 3.3 Sources of Data
  • 3.4 Population of the Study
  • 3.5 Sample Size Determination
  • 3.6 Instrumentation
  • 3.7 Reliability and Validity of Instrument
  • 3.8 Method of Data Analysis

Chapter Four

Data Presentation, Analysis and Interpretation

  • 4.1 Data Presentation
  • 4.2 Data Analysis
  • 4.3 Data Interpretation

Chapter Five

Summary, Conclusion and Recommendation

  • 5.1 Summary
  • 5.2 Conclusion
  • 5.3 Recommendation
  • References
  • Appendix

Chapter One


Introduction

1.1 Background to the Study

There has been a relative slow rate of growth in the Nigerian Petroleum sector for past decades with a far reaching influence of foreign presence. It is a well known fact that the Petroleum sector in any economy requires great amount of technology, capital with seasoned and experienced manpower for national development, however all of these are insufficient in the Oil and Gas Industry and Nigeria as a whole.

As of today 2014, the Oil and Gas industry is the mainstay of the Nation’s Economy with other sectors of the economy relying on it to function. The nation is sustained on revenue from oil and gas and this roughly accounts for about thirty percent (30%) of Nation’s Gross Domestic Product (GDP)and an estimated ninety percent (90%) of Nigeria’s foreign exchange earnings in the early 90s (Davidson, 2003).

Michael (2003) posits that the Nation’s Petroleum Industry generated about $231billion in rents, or $1900 for every man, woman, and child and oil has annually produced over ninety percent (90%) of Nigeria’s export income. In the year 2000, the Nation got over 99.5% of its export income from oil, making it the world’s most oil-dependent country. The role of oil and gas in the Nigerian economy cannot be downplayed as it has consistently maintained its position as the most active, ever changing and thriving sector of the economy and has been the mainstay of the nation’s economy since gaining independence (Egbuna, 2004).

According to Hallowey (1994) in every industry, challenges exist for business and sales of goods and services irrespective of set goals. Challenges may be associated with price fluctuations in the economy, logistics, marketing, product transport and storage etc. The Nigerian oil and gas sector is not totally free from these challenges in the handling and sales of petroleum products. Just like every other sector of the oil and gas business, distribution and marketing of products takes place on a vast global scale. Hundreds of companies and individuals daily buy these products from thousands of retail outlets all over the nation, with number of consumers running into millions.

The Nigerian National Petroleum Corporation (NNPC)markets refined products like:

  1. Premium Motor Spirit (P.M.S.)
  2. Low Power Fuel Oil (L.P.F.O.)
  3. Dual Purpose Kerosene (D.P.K.)
  4. High Power Fuel Oil (H.P.FO.)
  5. Lubricating Oil.
  6. Cooking Gas etc.

Petroleum products are marketed by indigenous and multinational oil companies like Total Fina Elf, Exxon Mobil, Agip National Oil, African Petroleum, Oandoetc. Notwithstanding government best efforts at improving petroleum products distribution and retail marketing, challenges of insufficient and irregular product distribution among others still besiege petroleum product marketing in the country with the situation getting worse with the recent premium motor spirit (PMS) subsidy removal.

This gave rise to influx of independent marketers into the scene as a way to proffer solutions to the numerous challenges and help stem the tide of inadequate petroleum products availability, distribution and marketing in the country. Independent marketers were given rights to play their part in the sector so as to bridge the gap created by distribution logistics and improve standard of living of Nigerians, this was a welcome development because products distribution in the country had been epileptic and unreliable until the independent marketers’ appearance on the scene.

Shortage of petroleum products experienced in the country in the early 70s was attributable to paucity of distribution network. The government of the day responded to these problems in two ways:

Encouraged well meaning citizens to invest in petroleum products marketing business and build more depots to bridge gaps created by transportation deficit,

Promulgated laws and empowered various security agencies to tackle and control oil theft and pipeline vandalization with the setting up of various task forces to make sure petroleum products reach designated location without being hijacked or diverted.

This research work is concerned mainly with retail marketing of specific petroleum products such as diesel, kerosene, premium motor spirit, gasoline and domestic gas commonly used in domestic and socio-economic settings more than any other product of petroleum (crude oil).


1.2 Statement of the Problem

Participatory and regulatory rates of government to stabilize marketing of petroleum products have yielded good results but its resultant effects to equate demand with supply of these products have been unsuccessful with pattern of distribution constantly in the forefront of continuous discourse and debate, since diesel, kerosene, gasoline are described as one of the bedrocks of the Nigerian economy.

The marketing problems of most products deal with the effective combination of the marketing mix. The problems of marketing of petroleum products in Nigeria therefore centre on the harsh operating business environment, government’s silence on the issue of an increase in margins; pricing of the petroleum products, product range, quality of the product, breakdown of refineries due to lack of spare parts, obsoleteness, arson, mismanagement and poor maintenance culture, increasing importation of petroleum products into Nigeria, smuggling of petroleum products in and out of the country, faulty distribution network and stiff competition and increasing promotional activities embarked upon by the various oil companies all in the bid to keep customers, attract new ones and outwit competitors and make profit.

Another factor not peculiar to the industry but which affected performance was the down-turn in economic activities which had depressed energy consumption, resulting in drops in volume of petroleum products sold and hence turnover and profit of all marketers. The reasons for the poor outing of the oil firms included the obvious and over-emphasized marketers’ margin, product outages (scarcity of petroleum products) and the discriminatory product allocation system. The scenario and its impact on the companies performance would be the major concern of this project. The research problem therefore is to see how the major marketing mix variables of Product, Price, Place and Promotion and applied to profitably market petroleum product in Nigeria.


1.3 Significance of the study

The significance of this study is stems from the fact that the petroleum industry is the bedrock of our economy. Therefore the economic importance of petroleum retail market attracts the attention of government bodies, institutions, general public, international oil companies as well as independent marketers. The information generated by this study would help the government carry out a more purposeful and result oriented planning; evaluation and control of the petroleum industry with the aim of enhancing its contribution in improving the Nigerian economy. Just as the petroleum industry is of great importance to any nation that has the resource, so are petroleum products of great importance to individuals and business organisation because of their diverse uses.

Therefore, any research on petroleum products in any direction is of great significance. The marketing of petroleum product is an important aspect of the entire industry. Shell International Petroleum Company Limited (1966) observed that: “The marketing of the petroleum products earns much of the revenue that finances all other phases of the business and provides fund for further development”.

The above statement shows the importance of petroleum product marketing to the entire petroleum industry. A research on marketing of petroleum product therefore is of great importance. The issue of pricing of petroleum products particularly the major products whose prices are fixed by the government is of crucial significance. The government often undertook the review of their prices even at short intervals. For instance prices were reviewed in 1990, 1991, 1993, 1994 and even 1998, 2000, 2002-2005. These are at very close intervals. This often leads to crises, crippling of economic activities and suffering of the populace. Transportation, a pivotal factor for human and economic activities is also affected. Further, there has been the problem of product adulteration which results in explosions and loss of human lives as well as damages to engines. The enduring shortage of supply of petroleum products has partly been linked to distribution anomalies among others.

A research therefore on petroleum product’s marketing with a view of tracing the sources of adulteration is of great significance. Of significance also is the attempt to address the distribution problems of diversion, hoarding etc as well as examine the promotional activities employed to ensure success in this business. The need to address these issues for the profit and good corporate image of petroleum product marketing companies and the benefits as well as the comfort of the final consumers of petroleum products justify this research.


1.4 Aim and Objectives of the Study

The aim of this study is to carry out an in-depth investigation of marketing of petroleum products in Nigeria. The objectives of this study will include:

  1. To explain what is meant by the term marketing of petroleum products.
  2. To describe the evolution of petroleum product marketing in Nigeria.
  3. To examine the application of marketing mix in the petroleum industry.
  4. To ascertain the relevance of marketing concept in the marketing of petroleum products.
  5. To assess the role of marketing strategies in the marketing of petroleum products.
  6. To identify the products produced and marketed from petroleum
  7. To highlight and explain the problems encountered in the marketing of petroleum products.
  8. To make recommendation how petroleum products can be effectively and efficiently marketed thus contributing to the overall progress of the company and invariably Nigeria’s economic development.

1.5 Research questions

The major focus of this research is on the application of marketing mix in marketing of petroleum products in Nigeria.

The research questions therefore include:

  1. What are various components of petroleum products
  2. What product strategies are employed to enhance sales?
  3. What pricing approach does the company employ?
  4. What transportation means is employed?
  5. What channel levels are involved in product distribution?
  6. Which promotion tools are used by the company and
  7. What measures are in place to limit product adulteration, imitation, diversion and unwholesome practices of service station operators?

1.6 Scope of the Study

The study essentially examine the application of marketing mix (product, price, place and promotion) in retailing of petroleum products in Nigeria using Texaco Plc as the case study. Thus the scope covers the product range, innovation, marketing strategies and marketing objectives. It covers the pricing of the products as well as the examination of the means of moving the products and the levels of channels of distribution involved so as to highlight the deficiencies which gives room for product adulteration and which equally lead to the scarcity of petroleum products.

The promotion activities of the organisation aimed at increasing sales, making profit and being in business are covered by the study. All these are looked into using Texaco Plc.


1.7 Limitations of the Study

The limitation of this study is that the study is limited to one petroleum products marketing company (Texaco Plc) out of eight major products marketers. It is however hoped that the application of marketing mix variables as practiced by Texaco Plc will not be far from what obtains in other companies.

Another limitation is on the issue of data collection. The Texaco Plc, NNPC and its subsidiaries visited were reluctant to freely give data. It took repeated visits and persuasion before some information was given on anonymity.


1.8 Study Plan

This project is made up to five chapters.

  • Chapter one is introduction which is made up of background, research problem, significance, objectives, research questions, scope, limitations and study plan.
  • Chapter two is the literature review which consists of definition and nature of marketing, evolution, marketing strategies, marketing concept, marketing mix (product, pricing, place and promotion) marketing process, marketing objectives etc.
  • Chapter three is research methodology.
  • Chapter four is data presentation and analysis.
  • Chapter five is summary, conclusion and recommendations.

Chapter Five


Summary, Conclusion and Recommendations

5.1 Summary

Petroleum products are very essential to individuals, industries and therefore to the economy generally. Marketing of petroleum products is an important part of the entire petroleum industry operations. As observed earlier, the Shell International Petroleum Company Limited (1966) noted that marketing of petroleum products earns much of revenue that finances all others phases of the business and provides fund for further development. This study examined the experience of Texaco Plc in marketing petroleum products in Nigeria. It particularly looked at the application of the marketing mix whereby issues that relate to the product, the price, the place and the promotion practices in the organisation are examined. To effectively carry out this, various data collection techniques were used. These include administration of questionnaire, oral interview and observed. The questionnaire contains several questions on the marketing mix tools and the problems in marketing petroleum products.

During participant observation, issues that relate to scarcity, price hike and other practices at filling stations were fully discussed and argued. This gave the researcher first hand information on the malpractice by station managers and fuel attendants. It also gave insight on how artificial scarcity of products is perpetuated by these categories of petroleum products workers. The exercise was laden with problems particularly at the information gathering stage which involved repeated visits to Texaco Plc head offices and other NNPC subsidiary offices in Lagos.


5.2 Conclusion

This study has examined the experience of Texaco Plc in marketing of petroleum products in Nigeria with particular reference to application of marketing mix the company has indeed had a lot of experience in Nigeria of about thirty seven years having been established in 1969. It has effectively employed the marketing mix tools in doing so. It markets the major petroleum products which include petrol, diesel, kerosene lubricants and a host of other products including insecticide. It has employed product differentiation, consumer specification and package improvement as strategies for marketing. Others are product line extension, consumer deals and network improvement.

The company has Business Development Unit which handles new product development. The quality control offices ensure that the standard of their products does not fall. They also see to it that the complains from customers about their products are addressed.

No doubt product adulteration is one of the product related problems facing product marketers. To avoid imitation of its products, the Texaco Plc has its own special mould for plastic containers with tight seal which easily identifies their products. They also have installations at various service stations for detecting fake products. With regard to pricing policy, Texaco Plc practices the going rate pricing. This is appropriate since it has to sell at the government stipulate prices. The pricing approach is also cost oriented. The organisation frowns at the malpractices of dealers and service station operators. It therefore established a task force which goes round their service station to inspect the activities of these station operators. Products are moved by water, road and through pipeline and the organisation enjoys the benefits associated with these means of product movement. It however, does not enjoy rail transportation which should be considered one of the cheapest.

Three channel levels are involved in handling of their products. These are direct sells to end users (zero level), sell to dealers and retailers (one level) and sells to wholesalers who in turn sell to dealers and retailers (two level channels).

Promotion is equally of great significance in product marketing. Texaco Plc utilises the four promo tools of advertising, sales promotion, publicity and personal selling. From the foregoing, it is obvious that the organisation effectively combines the marketing mix elements of product, price, place and promotion to market petroleum products in Nigeria.

Some problems are encountered in the course of carrying out her business. Some of them are stated below:

  1. Lack of fund sometimes to import some of the products it markets. This is due to the limited resources of the company as well as the high exchange rate.
  2. Products are also lost through truck accidents on the road. The nature of the Nigerian roads which are rough and of sharp corners leads to accidents.
  3. Disloyal act of some dealers is also one of the problems the company faces. They include product diversion, hoarding and selling above recommended prices.
  4. Added to the above are the strike action of tanker drivers, depot workers and other specialised units in product marketing business.

Some of the above problems are in line with general causes of product scarcity in Nigeria as highlighted by Ugbamadu (1994). According to him they include that:

  1. Most of the refineries are in bad shape and are shut down.
  2. Refineries are shut down for Turn around Maintenance. iii) Lack of fund which delays work and maintenance.
  3. Communication or cold war between ministry of petroleum resources and NNPC and between NNPC and oil marketing companies.
  4. Nigeria lack actual data on fuel consumed domestically and consequently short supplied.
  5. Distribution problem. Slight disruption in the chain of distribution will take days to be corrected.

Oyebadejo (1999) listed four constraints in the product flow chain.

They include:

  1. Pipeline distributions problems
  2. Draught and unloading problems,
  3. Jetty problems and
  4. Storage and pumping problems.

Some of the above problems affect Texaco Plc as have been stated already.


5.3 Recommendations

Although Texaco Plc seems to be trying as one of the major petroleum product marketers, there is still room for improvement. The organisation needs to diversify to increase the products marketed. This it could do by venturing into agro and industrial chemicals, air freshener, car accessories as well as other petroleum based items. On a general note, Texaco Plc needs to engage in the distribution of other products such as Aviation Gasoline, Jet Fuel, Petroleum Jelly/Waxes, Bitumen and Asphalts. These are all marketable products which if they engage in their marketing will increase their market share and improve their position relative to other marketers.

Since the organisation has limited influence on the pricing of some of the products, it is hereby recommended that the other mix elements (product, distribution and promotion) should be improved on to increase sells and consequently the profit margin. The distribution could be enhancing by increasing the number of filling station therefore penetrating the market. The present number of 129 service stations is grossly inadequate considering the vast area of Nigeria, and compared to Mobil which has as much as 275 retail outlets in 1985. It should embark on vigorous promotion activities such as sponsorship of sports and programmes in the television. This will bring out their products more to the public. It is also necessary that Texaco Plc embarks on aggressive personal selling. This will increase the number of corporate customers as well as retailers. This advice emanates from the experience of an individual with Texaco Plc sales representative. According to her, the sales representative approached her with the proposal to retail kerosene. She obliged and completed the necessary forms. But since then over three years now the sales representative has never shown up. To be result oriented personal selling effort should be aggressive.

To limit the problem of loss of products through truck accidents, the drivers should be encouraged to travel by day, and the organisation should avail itself of the opportunities of the revived rail services. This will also reduce product diversion.

It is hereby further recommended that loading should be monitored and movement book well kept both at the depots and the expected destinations. This is necessary to check product diversion which is one of the causes of petroleum scarcity. It is hoped that when these recommendations which are in one way or the other linked with the marketing mix elements are implemented, the ultimate aim of any business enterprise which is profit will be enhance by Texaco Plc.


A Study Of The Nigerian Petroleum Retail Market


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