SAND DATA

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Academic Research Materials

AN EMPIRICAL STUDY OF THE MARKETING OF PETROLEUM 

PRODUCTS IN NIGERIA

A THESIS FORMAT

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ABSTRACT

BLANK
 CHAPTER ONE
INTRODUCTION

1.1 BACKGROUND TO THE STUDY

Petroleum (crude oil) is the primary source of energy. It is the power that moves the world and

will be for some years to come because of its diversified uses.

The oil industry in the last three decades has played a critical role in the Nigerian economy. On

the average, oil accounts for about 70 percent of government revenue, about 90percent of foreign

exchange earnings and contributes about 22 percent to Gross Domestic Product (GDP). In addition, oil

as an energy resource crucially affects all modes of transportation (air, rail, road and sea), and has

implication of movement of goods and people and consequently inflationary pressures. Developments

in the oil sector also have implications for industrial production. For the above –named reasons, the

price and availability of oil and its derivatives are of continuous interest to the government and the civil

society.

The importance of petroleum to Nigeria can only be fully appreciated when one realises the

dominant role it plays in our economy. Petroleum production and export is the main stay of the

Nigerian economy providing almost 90 per cent of our export earnings. The petroleum marketing sub-

sector is one of the most active in the Nigerian economy. The reasons for this are not far fetched.

One, petroleum products are very strategic to the various sectors of the Nigerian economy such as

aviation, marine, industries and transportation among others. Two, the sub-sector is noted for high rate

of returns on investment both in terms of cash dividends and appreciation in the value of investment.

Thirdly, the quality of management of most of the companies in the sub-sector is quite high because

they are jointly owned by local and foreign investors, who in the main make policies as well as execute

such for the overall interest of all the stakeholders.

The petroleum industry is an important one in view of the leading roles it plays in the economic
and political development of Nigeria. Politically it enhances the international position of the country.

Economically, apart from being the major source of foreign exchange for the country, its backward and

forward integrative implications are reflected in the development of other sectors and industries such as

petrochemicals, agriculture, transportation and even human resources development.

The crude petroleum is refined into various products which include:-

a. Premium Motor Spirit (Gasoline)

b. Automotive Gas Oil (AGO) or Diesel

c. Kerosine

d. Liquefied Petroleum Gas (LPG)

e. Aviation Fuel

f. Lubricating Oils

g. Waxes

h. High/Low Pour Fuel Oils (Fuel Oil)

i. Bitumen/Asphalt

j. Miscellaneous products (e.g Industrial chemicals solvents, insecticides, agro-chemicals etc).

These are utilised by individuals, households companies and industries in varying degrees and

for different purposes. The Nigerian petroleum-marketing sub-sector made up of eight major marketers

who control about 60 percent of the market share and about 400 independent marketers. The major

marketers include Texaco Plc, Total Nigeria Plc, Elf Nigeria Limited now TotalfinaElf, Mobil Oil

Nigeria Plc, National Oil, Chemical Marketing Plc (NOLCHEM), African Petroleum Plc, Unipetrol

Nigeria Plc and Agip (Nigeria) Plc. On the other hand, some of the independent marketers include Rak

Unity Petroleum Plc, Afroil Plc, Tropical Petroleum Products Plc, Union Ventures and Ventures

Petroleum Plc, AVIS Nigeria Limited etc. Between 1990 and 1993, the industry recorded a yearly

increase of eight percent owning to regular supply of products and improved productive capacity.

However, between 1994 and 1998 it started to record decrease as volume dropped from 11.26million
metric tones to 10.06million metric tones and has begun 40 rise again since 1999 following the partial

deregulation of the industry in terms of product souring in late 1998.

This development has encouraged some marketers to import products in a collective in a bid to

solve in part, the perennial fuel scarcity before the rising oil prices in the international oil market and

the failing exchange rate made it unprofitable for them to continue. Also, another noticeable feature of

the petroleum marketing industry is the drop of the share of the major marketers from about 67 percent

to 56 percent while that of the independent firm has increased from 33 per cent to 44 per cent during

1995-1999. Marketing activities are involved in getting these products to the final consumers.

Marketing has been defined by Lazo (1977) as:- “The sum total of all business activities which deal

with movement of goods and services from the producer to ultimate user”.

These involves determining the customers needs and serving them these products and services

as efficiently as and cheaply as possible. These general norms of marketing are also applicable to the

marketing of petroleum products. Shell International Petroleum Company Limited (1966) stated that:

“the only sure way to successful marketing of oil products and chemical is to determine the customer’s

needs as accurately as possible in terms of products and services and to supply them as efficiently and

cheaply as possible”.

Marketing of petroleum products in Nigeria could be traced back to 1907, when Kerosine was

first imported which according to Nigerian National Petroleum Corporation (1985), was when an

agency agreement believed to be the first was concluded by Secony Vacuum Oil Company (now

Mobil) to market its “sunflower” kerosene. Thus, kerosene was the first petroleum product marketed in

Nigeria and Mobil had the privileged of being the pioneer in this business. The agency system

continued to grow. There were two agencies in 1920, four in 1929 and by the 1950’s there were six

agencies marketing petroleum products in Nigeria. Over the years, the business has grown. It is

presently an industry of its own. Nigerians National Petroleum Corporation (1985) observed that:-

“The marketing of petroleum products has been transferred from a modest

 trade in imported kerosene to a full fledged industry distributing large and

increasing quantities most of which are refined locally”.

It went further to state that:- “the nature of trade, the distribution system, the pattern of consumption

and the pricing policy have all changed with political and economic development”. Presently, there are

many organisations involved in the marketing of Petroleum Product in Nigeria. The major ones

include; TOTAL, MOBIL, CONOIL, TEXACO, NATIONAL, OANDO, AFRICAN PETROLEUM

(formerly British Petroleum). There are many other independent petroleum products marketers too.

There are several problems facing marketing of petroleum products in Nigeria. Some of them

include volatile changes in pump prices, distribution problems with the resultant scarcity of the

products supply and their adulteration. There is also political problem of some questionable

interventions of the government in the operation of the petroleum industry through Nigerian National

Petroleum Corporation (NNPC).

In marketing any product, the marketing mix is usually the focal point. This study therefore

looks at the product, pricing, the place (distribution) and the promotional practices in marketing of

petroleum products in Nigeria. The issue of pricing and subsiding major petroleum products have been

politicised and frequently changed which sometimes lead to crises. Petroleum products are similar in

nature and therefore there is hardly any problem of product differentiation. However, there have been

cases of product adulteration leading to loss of lives, damages to engines and pollution of the

environment. The Texaco Plc approach to ameliorating or solving these problems when they come up

has been examined in this study.

The study looks at the various methods employed by Texaco Plc to distribute petroleum

products from the refinery to the final consumers and the types of channels in evolved. This reveals the

extent to which the shortage of petroleum products as well as their adulteration could be traced to the

distribution system. Though the products are similar, and the prices of some of them are fixed by the

government, there is need to attract customers and retain the old ones. Texaco Plc does this by
employing various marketing strategies which relates to the 4Ps (Product, Price, Place and Promotion).

1.2 STATEMENT OF THE RESEARCH PROBLEM

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

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:

i) To explain what is meant by the term marketing of petroleum products.

ii) To describe the evolution of petroleum product marketing in Nigeria.

iii) To examine the application of marketing mix in the petroleum industry.

iv) To ascertain the relevance of marketing concept in the marketing of petroleum products.
v) To assess the role of marketing strategies in the marketing of petroleum products.

vi) To identify the products produced and marketed from petroleum

vii) To highlight and explain the problems encountered in the marketing of petroleum products.

viii) 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 marketing 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 TWO
LITERATURE REVIEW

2.1 DEFINITIONS OF MARKETING

Marketing has been variously defined, but no one will object to describing its main thrust as

satisfying customers’ needs. Commonly, there are three ways in which people use the term

“marketing”.

i) As a description for some part of the company’s organisation or in a person’s

function or job titsle, such as the ‘marketing department’ or the ‘marketing manager’.

ii) To describe certain techniques within a company such activities as advertising,

market research and sometimes sales or product or service development can be conveniently

described by the collective term ‘marketing’ to distinguish them from other activities coming

under the heading of ‘operation’, ‘finance’ and similar main sub-divisions of a company.

iii) To indicate a particular approach to business or a management attitude, in relation to

customers and their needs. This ‘business philosophy’ has become known as the ‘marketing

concept’

It is this third way that the term marketing is mainly used in this research work. Usually, when

we talk about marketing, what always readily comes to mind is the physical product because it is more
tangible and familiar. This is probably due to the fact that marketing as a discipline developed initially

in connection with selling of physical products like cars, soaps, clothes, kitchen utensils etc. The focus

on tangible products makes people overlook the many other types of product entities like services,

ideas and organisation that are also subject to marketing planning, analysis and control.

Marketing embraces all activities of assessing public wants, tailoring and packaging a product

to satisfy those wants, pricing and distributing it and encouraging its purchase by informing potential

buyers of its availability by use of personal selling, advertising, sales promotion and other marketing

communications. The British Institute of Marketing (1999) defines marketing as: “the creature

management function which promotes trade and employment by assessing consumer needs and

initiating research and developed to meet them. It co-ordinates the resources of production and

distribution of goods and services, determines and directs the nature and scale of the total effort

required to sell profitably the maximum production to the ultimate users”.

Marketing is the set of activities that facilitates exchange transactions involving economic

goods and services for the ultimate purpose of satisfying human needs. It embraces activities that

relates to the product itself, pricing, distribution, communication or promotion, post sales matters,

marketing research and sales forecasting. (Kotler, 2000). From the above view, though organisations

seek to satisfy customers wants and desires, it must not do these to the disadvantage of the other goals

of the organisation such as the profit for the investors and staff welfare.

2.2 THE EVOLUTION OF PETROLUEM PRODUCTS MARKETING IN NIGERIA

In spite of the fact that oil exploration as we know it began in Nigeria over 50years ago. The

NNPC record indicated that less than half of the basinal acreages have been seriously explored.

Acreages unexplored include the Dahomey Basin as well as parts of the Chad Basin.

The NNPC records further show that, the Niger Basinal area of Niger Delta, where exploration

is most intensive, efforts have been skewed in favour of onshore acreages. The record indicated that

less than 50% of the offshore areas within 200 metre water depths are currently under active
exploration while beyond 209 metre water depths, little of any serious explorations is known. Even less

exploration has been recorded over the far sand belt stretching along west coast. These clearly indicated

the extent the investment opportunities which abounds in the oil gas and petrochemical industries in

Nigeria.

According to the records of NNPC, oil exploration began in Nigeria in 1908 by Secony of new

York. The records equally indicated that, the documentation of the occurrence of minerals was reported

some five years earlier in 1903. the exploration efforts punctuated by the two world wars but eventually

yielded result with the discovery of oil in Olobiri in 1956 by Shell-BP.

The NNPC record also indicated that in 1959, production increased from mere 5,000 barrel per

day to 17,000 barrel per day while from 1960 to1966, production leap frogged to 450,000 barrel per

day. This upward trend was however slowed down by the Nigerian Civil War. However, by 1970, daily

production had reached one million barrels. The second quarter of 1979 witnessed a peak production

level of 2.4million barrels per day. Although the record shows that the production has fallen since then

to 1.93million barrels per day from 1997 and now 1.65million barrels per day June 1998. this is mainly

due to adherence to the quota of the organisation of Petroleum Exporting Countries(OPEC), which saw

the need to control production in order to support prices in a globally over supplied market.

The NNPC records clearly indicated that prior to 1973, all Nigeria crude oil was marketed by

the oil producing companies through their integrated system. Government’s direct involvement in the

marketing of oil took place during the last quarter of 1973. This coincided with the “Energy Crisis”

brought about then by the Arab-Israel war. In February, 1974, the records show a remarkable increase

in the number of independent oil buyers. This was a result of oil shortage of 1979, following the Iranian

Crisis.

In 1986, there was a shift back to the oil producing companies due to collapse of the oil market.

Thus the NNPC records traced an average of 60% oil sales to the oil producing companies. While third

party and Government to Government oil sales dropped to28% and 12% respectively. By early 1988,
the third party sales contract was terminated due to unfavourable market conditions. The NNPC records

also clearly indicated that the Government adopted a new sale strategy that guaranteed regular and

secure outlet for crude oil and s steady flow of revenue.

Consequently, Nigeria now has only three channels for disposing its crude oil. The channels are

as follows:

1) Through joint venture with oil producing companies. These companies will continue to dispose off

their share of crude oil produced under existing fiscal terms.

2) By direct sales of crude oil to refineries and their associated marketing outlets in which NNPC is

processing the acquisition of share. In this case the acquisition of equity interest in the refineries will be

concluded with due dispatch. Such companies will apply for crude oil with detailed technical, financial

and economic information to decide the suitability of such companies for joint venture investment.

3) By direct sales to indigenous and foreign exploration companies who are actively exploring for

petroleum in any part of the country.

To qualify for the purchase of crude oil, such companies must have acquired an oil prospecting

license (OPL) and must have completed the minimum seismic data acquisition and exploratory drilling

programmes.

To qualify for the purchase of Nigeria crude oil, such companies must have met the following

requirements:

a) The company must be an oil producing company.

b) The company must have a refinery

c) Such company must have acquired an oil prospecting license (OPL) and must have completed

the minimum seismic data acquisition and exploratory drilling programme specified by the Ministry of

Petroleum Resources.

2.3 THE NATURE OF MARKETING CONCEPT

The marketing concept is a modern philosophy for dynamic business growth. The marketing
concept asserts: ‘find a need and fill,’ Love the customer and not the product’, ‘Have it your way,’

‘You are the boss’, No dissatisfied customer. They key to marketing success lies in locating unsatisfied

customers. These unsatisfied segments should compromise the market targets for customer oriented

firms.

The marketing concept implies that we need to:

1) Determine customer needs,

2) Design a product or service to meet those needs,

3) Select an appropriate target market segment for it,

4) Determine a method of marketing the product or service at a profit.

With the proliferation of banks in the 1990s, customers are being courted by financial

institutions. These organisations have realized that the challenges of national economic liberalisation

and global competitions lie with the recognition of the consumer as king. The ongoing economic

recovery programme has been having profound impact on the Nigerian business sector. As a result

many Nigerian business have been casting doubts on the capability of their existing methods of doing

business under the rapidly changing conditions and have been professing the adoption of the marketing

concept. The nation’s economic problem had invigorated the customer market.

Drucker (1982) posited that the aim of a business is to create customers, that is the purpose is to

provide something for which an independent outsider, who can choose not to buy is willing to

exchange his purchasing power. To him, only customers know what is right, ask him. Peters and

Waterman (1982) from their studies of forty-three high performing companies like Procter and Gamble,

Delta Airline and others found out that all the companies shared a set of basic operating principles like

a respect for the customer, a keen sense of appropriate market and an admirable capacity to motivate

their employees to produce high quality and value for the customer. These findings and others

supported what marketers call the marketing concept.

Kotler and Armstrong (1987) write that “marketing concept may be defined as a management
orientation or outlook that accepts that the key task of the organisation is to determine the needs, wants

and values of a target market and to adapt the organisation to delivering the desired satisfaction more

effectively and efficiently than its competitors”.

In other words, customer needs are considered of paramount importance. Since technology,

markets, the economy, social attitudes, fashions, the law etc are all constantly changing too. The

marketing concept is that changing needs must be identified, and products or services adopted and

developed to satisfy them. Only in this way can a supplier hope to operate successfully and profitably

(that is if the supplier of the good or service is a profit-making organisation).

According to Modern (1991), “marketing concept is the most important managerial task within

the organisation is that of understanding the needs and wants of customers in the market and of

adopting the operations of the organisation to deliver the right goods and services more effectively and

efficiently than its competitors”. This means that management in business enterprise has two main

areas of responsibility:

1) Remaining sensitive to market needs (nature of market demand and changes that occur in it).

The nature of market demand, and the need to supply it effectively yet profitably, should be the driving

force behind the decisions of all of the company’s managers not just its marketing function.

2) Market-oriented operations management:- The whole business should be run so that.

1. marketing objectives may be achieved and

2. The business trades in a competitive and profitable manner.

For instance, the rapid growth in world market share enjoyed by the Japaness car manufacturers shows

the effectiveness of the marketing concept when applied throughout the operations of the business.

Manufacturers like Nissan and Toyota,

 design, build and supply the type of cars people want to buy,

 manufacture the cars to a consistent, high quality,

  produce large volume, so that the cost per unit is reduced,

 price and sell the car so that the business runs at a profit.

FIGURE 2.1 THE MARKETING CONCEPT

New products/service/ideas
or Buyer
Technology Marketing Research, Communication Promotion Behaviour

Company Goods/Services/Credit
Marketing
Payments/Profits/Debits

Market information/Feedback
Competitor information/Feedback
Research and New product/Service Demands
Development

Called from A. R. Morden (1991) Elements of Marketing (London: pp Publication Ltd).

Making sure that the management and operations of any organisation (even non-profit making

ones) are reasonably market sensitive is simple common sense. If the business does not provide the

would be customer with the right information about the product, the right product, accessible and

available to the customer, at the right time, at the right price and with the right guarantees, after sale’s

services etc. Then in a competitive market, the customer will not buy the product. He or she not

surprisingly, will take their customer elsewhere.

Viewed against the backdrop of the preceding conceptualization, the marketing concept may be

conceived of as a belief system which holds that:

3 Marketing is a social instrument concerned with problems associated with exchange of

consumption values in a society.

4 There are four participants in the exchange process. The consumer/customers; the

producers/sellers, the institutional frameworks which exists to facilitate the exchange

between sellers and consumers and the society whose interest must be promoted or
 safeguarded.

5 Business strategy must be consistent with the consumer as well as societal needs perceptions;

6 Profit is the residual that results from efficiently supplying real and socially acceptable

satisfaction in the market; and.

7 Such a belief system as outlined in (a – b) permeates the entire organisation (Kotler, 1993).

The marketing concept expresses the company’s commitment to the time-honoured concept of

economic theory known as consumer sovereignty. Determination of what is to be produced should not

be in the hands of the companies or in the hands of government but in the hands of consumers. The

company should produce what the consumer wants and in this way maximize consumer satisfaction

and earn their profits.

2.4 MARKETING OBJECTIVES

Marketing objectives set the stage and determines the focus for action. The objectives vary

from time in the same company depending on changing situations, not to mention sharp differences in

goals from one organisation to another. It all depends on the purpose to be served and the intent of the

planner.

Inspite of all these, there are certain objectives that privates enterprises have in common and

which are relevant to marketing as well. These include profit, growth and expansion and ensuring the

continued existence of the organisation.

a) Profit:- As mentioned earlier, marketing is a profit making endeavour and one of its goals is to

realize a satisfactory level of profit.

While some marketing institutions strive for profit maximization (unfortunately at all cost in

some instance), others do not mind a lower profit margin.

To increase profit, marketing organisations try to increase their sales volume, diversify into new

lines, engage in cost control and seek new opportunities to explore.

Although profit is a desirable goal, yet too much pre-occupation with it at the expenses of
efficiency and the satisfaction of the consuming public is not likely to yield the desired result.

b) Growth and Expansion:- Another common objective of private enterprises is the attainment of

growth in size of the operation so as to gain strength and better bargaining power and to make an

impact on the industry.

Since company with larger resources tend to displace smaller ones, the goal of a growing

organisation is to reinvest in facilities, to modernize its operations, recruit qualified staff and invest in

their training.

c) Reputation:- As an adjunct to growth and expansion, private enterprises aim for good will and

reputation. Hence in all of their activities, they try to protect their image, and desist from anything that

could tarnish it. If necessary and feasible, business organisation should seek the advice of or engage

professional public relation experts.

d) Conflict of Priorities:- At times, some of the objectives conflict. For example, a

company may wish to charge higher prices than its competitors and still regain customer patronage. In

such a situation a balance is necessary and the conflict needs to be resolved and its area narrowed

down. It is also necessary that priorities be well ordered so as to avoid doing last what should have

been done first or leave undone that which is vital to the whole marketing process.

2.5 THE MARKETING PROCESS

Drucker, the world’s leading writer on the whole field of management, says: It is the customer

who determines what a business is. It is the customer alone whose willingness to pay for a good or

service converts economic resources into wealth, things into goods. What the business thinks it

produces is not of first importance especially not to the future of the business and to its success. What

the customer thinks he is buying, what he consider value, is decisive- it determines what a business is,

what is produces and whether it will prosper. And what the customer buys and considers value is never

a product. It is always utility, that is, what a product or service does for him… Because its purpose is

to create a customer, the business enterprise has two and only these two-basic functions: marketing and
innovation. Marketing and innovation produce results, all the rest are ‘costs’.

Therefore we can view marketing as a constant series of actions and reactions between the

customers in the market and the marketing organisations trying to satisfy their needs. The customers

make their needs known, the firms make it their business to receive the information. The firms use

their resources (money, materials, skills, and ingenuity) to develop ways of satisfying the needs. Firms

must then communicate the existence of the ‘solution’ back to the customers, whose needs created the

‘problems’.

FIGURE 2.2 MARKETING PROCESS

COMPANY CUSTOMER
Satisfaction
Resources Needs
Solution Payment Problems

During the process satisfactions are provided by offering the correct marketing mix-the right

product/service, at the right price, available in the right places and promoted in the right way.

Thus we can say that marketing activities are affected by two general kinds of variable, those

relating to the marketing mix and those relating to the marketing environment. Those components

making up the marketing mix can be controlled by the organisation. Whereas the organisation cannot

control the components of the marketing environment which unfortunately affect the marketing mix in

many ways and to varying degrees.

Consequently, the provision of satisfactions by developing the correct marketing mix depends

on the full exploitation of all the possibilities of developing differential advantages through

product/service, pricing policies, placement and promotion.

2.6 MARKETING STRATEGY

Once the company’s objectives and goals have been set, and there are customers for the

company’s products, it is then left for the marketers to develop in details the strategies to adopt to most

economically get the products to the customers. These sets of action programmes constitute the
strategy. Kotler (2000) defined marketing strategy as: “a set of objectives, policies and rules that

guides over time the firms marketing effort – its level, mix and allocation partly independently and

partly in response to changing environmental and competitive conditions”.

Further, Kotler (2000) sees marketing strategies as: “a consistent, appropriate and feasible set of

principles through which a particular company hopes to achieve its long run customer and profit

objectives in a particular competitive environment”.

He stated that when formulating these objectives, the following factors have to be considered:

i. The company’s competitive size and position in the market.

ii. The company’s resources, objectives and policies

iii. The competitors marketing strategies.

iv. The target market buying behaviour

v. The stage of the products life cycle and.

vi. The character of the economy.

There are three major strategies that companies adopt to market their products. Kotler (1980)

exhaustively discuss these strategies. They include (1) the competitive marketing strategy, (2) the

product life cycle strategy and (3) the new product development strategy.

Product innovation is one of the competitive strategies employed to protect the market share. In

this practice, the company tries to lead in new product idea, the company service, means of distribution

and cost cutting discoveries.

Writing on product innovation as a competitive strategy and the durability of the gain from the

innovation. Micheal and Robert (1990) stated that: “the duration and the overall sum of returns to first

movers depend on the effectiveness of competitors effort to imitate”.

They opined that the greater the ability of other competitors to duplicate aspects of innovation

strategy, the faster returns from the products are captured by the competitors. They identified the

components of a product which their non immutability allows the innovating firm to retain and protect
the benefit from its new product.

These components according to Michael and Robert (1990) are:

4 The Product Form:- This is the physical attributes relating to a new products aesthetic design

such as its style, shape and colour.

5 The Product Function:- This is the physical attributes relating to a new product’s instrumental

performance in terms of such things as speed, gas, mileage, memory and ease of use.

6 The Product Intangibles:- These are the non physical attributes such as warrants, service

contracts, credit provision etc.

7 Product Pricing:- This is the pricing of the new product relative to its substitutes and rival

products.

8 Product Promotion:- The activities and practices of advertising, personal selling, sales

promotion and public relation.

9 Distribution:- The distribution channel strategies employed could be such that makes the new

product liable to imitation.

10 Firm Characteristics:- These are the human elements, the capital resources and other strategies

resources available to the company.

11 Product Perception:- This deals with whether the product is considered to be superior inferior

to others. Product perception is function of product form, function design, price etc.

Any of these could be avenue for product imitation or otherwise. They affect the durability of

returns and innovating firm enjoys from his innovation.

These could be shown diagrammatically as below:

FIGURE 2.3 NEW PRODUCT STRATEGY COMPONENTS THAT AFFECTS THE
DURABILITY OF INNOVATION RETURN.

FORM

PRODUCT FUNCTION

INTANGIB

PRODUCT DURABILI
PERCEPTI TY OF

PRICE

PROMOTIO

DISTRIBUTIO

FIRM
CHARACTERIC
Source: Journal of Product Innovation Management Vol. 7, No. 1 March 1990 p.37.

Writing on new product development and environmental consideration Dale (1992:11) argued

that in evaluating new product development, the social and environmental consideration should be

included in the traditional business economic consideration. He opined that changing environmental

consideration requires a more complete evaluation of new product idea. According to him, new

product analysis should include environmental and social factors as well as the traditional economic

factors of profitability, sales volume, and product line compatibility. This call is timelier now than

ever as the entire world is witnessing changing climatic and environmental situation due to depletion of

the ozone layer and the resultant increase in the atmospheric temperature. This issue is also of

relevance to the petroleum industry. This is because most of its products have environmental, social

and economic consequences which range from human death through kerosene explosion to

environmental pollution resulting from oil spillage and consequently the destruction of the petroleum
producing area’s natural resources.

Dale mentioned the advantages of environmental and social consideration in evaluation of new

product to include; that improved products resulting from new product evaluation and the inclusion of

social and environmental factors should result in a company offering a better line products in that the

products are more widely accepted by both users. Social and environmental evaluation of new products

should prove more attractive to potential investors. There is evidence that inadequate social and

environmental evaluation of a product may lead to an unanticipated cost. Equipment for pollution

reduction can be very costly.

New product evaluation using environmental consideration can reduce costs in labour, health,

insurance and plant maintenance by eliminating products whose manufacture contribute to unhealthy

and dangerous working condition.

He however pointed out that the disadvantages of social and environmental evaluation in new

product development is that it is costly and time consuming.

In marketing of petroleum products in Nigerian, various strategies were employed by the major

marketing companies. These according to Nigerian National Petroleum Corporation (1985) are

discussed below: Texaco Plc employed the strategy of investing in a network of filling stations in order

to achieve a reasonable share of the market. It also stressed the strength of its parent company Texaco

Plc Aquitaine of France lubrication by setting for itself the major objective of introducing quality

lubricant product into the Nigerian market.

Texaco Plc has braced for the total liberalization of petroleum product importation as it has

poised to lower its operational cost through innovation and technology as well as seek new business

opportunities that will provide strong returns and increased shareholders value. This it hopes to

enhance through a world class system combining people, process and culture to achieve and sustain

industry leading performance in its key areas of operation.

Mobil engaged the strategy of introducing wide range of products and to be represented all over
the country. It also engaged the strategy of targeting customers by supplying automotive products to

many state governments, provides products and services to major road contractors and fuel and

lubricants to textile industries. Further, it has long time connection with mining and timber industries

as well as with new industries such as cement industry. While marketing all refined products, National

Oil and Chemical (NOLCHEM) is reputed for being particularly strong in chemicals, lubricants,

aviation fuel and bitumen. Nolchem also employed the strategy of good management of which it has

reputation for very high standard of administration and operational efficiency. It also has over 200

outlets.

Unipetrol was wholly owned by the Federal Government essentially to provide some social

services. The government’s purpose of acquiring it was to undertake massive expansion programme of

its retail outlet nationwide. It therefore engaged the strategy that satisfies this policy purpose by

establishing more outlets and it engaged in the marketing and distribution of oil products, chemicals

and motor vehicle accessories.

African petroleum engaged the strategy of market segmentation by directing its products to
three main segments namely: automotive, industry and aviation. It also has strong connections with
power utilities. Texaco is strong in retail and consumer business in lubricants and specialist products.
The consumer business it engage in include direct sales to commercial firms, manufacturing and
agricultural companies. Others are marine and aviation companies.
Agip had initial disadvantage of late entry. It however overcomes this by systematic

penetration and expansion strategy. Firstly it developed the sale of kerosine, followed by diesel and

lubricants. It opened the first service station in 1962. Five years later it has 85 service stations and in

1983 it has over 200 service stations. Total on the other hand employed the strategy of aggressive

marketing and push. It also builds up a formidable management team. Total attributes its

achievements to these strategies and now claims leadership in marketing of conventional petroleum

products.

According to Nigerian Petroleum News (1985) all the petroleum products marketing companies

were aggressive in their marketing approach and they all engaged diversification strategies. They
ventured into lubrication, oil blending plant, chemical packaging, insecticide manufacturing,

agriculture, gas cylinder manufacturing and real property development.

2.7 MARKETING MIX

This is an important concept in marketing theory – Kotler (1980) defined marketing mix as:

“the set of controllable variables and their levels that the firm uses to influence the target market”

From the foregoing, all variables which the firm can control and manipulate to influence the

levels of customer’s response to its offered product constitute the marketing mix variables. According

to Kotler (1980) McCarthy popularised the four-factor classification called 4Ps. These are product,

place, promotion and price. Each of these four elements has some marketing variables under it as

shown in the table below.

TABLE 2.1 MARKETING MIX VARIABLES

PRODUCT PLACE PROMOTION PRICE
Quality Channels Advertising List price
Features Coverage Personal selling Discount
Options Location Sales promotion Payment period
Style Inventory Publicity Credit
Brand name Transport
Packaging
Sizes
Service
Warrant
Returns
Source: Kotler P. (1980) Marketing Management: Analysis Planning and Control. Englewood Cliffs,
Prentice-Hall Inc. USA) P. 88
Each of the above variables could be controlled to influence the customer’s response to the product.

2.7.1 PRODUCT

Products are the most important elements of the marketing mix. Kotler (2000) defined product

as: “anything that can be offered to a market for attention, acquisition, use or consumption; it includes

physical objects, service, personalities, places, organisations and ideas’.

According to him, product has three senses namely: core product, formal product, and

augmented product. He explained core product to mean the core benefit derivable from the use of a
product. Formal products include the larger “packaging” of the core product which for a physical

product include quality level, features product brand name and packaging. Augmented product is the

totality of benefits that a person receives or experiences in obtaining the formal product. The relative

positions of these senses of a product are shown in the diagram below:

FIGURE 2.4 THREE PRODUCT SENSES

Augmented
Product
Formal product

Core product

Source: Kotler P. (2000) Marketing Analysis Planning and Control. P. 352

Each of the variables under product has great influence on the customers response and the

marketing of a product. Lazo (1977) writing on styling as product variable observed that: “In some

lines, style and style changes become the most important single marketing or selling point. Everyone is

familiar with the importance of style in women’s clothing. But the importance of style in such items as

automobile, electrical appliances, home furnishings, furniture, house building and almost every other

field of consumer goods merchandising cannot be overlooked”.

On the merchandising characteristic of a good product packaging Lazo (1977) noted that: “It is

evident that the package today is far more than mere protection of contents, that the modern package

had merchandising characteristics which give it unique powers in marketing. He went further to

summarise these characteristics as follows:

i) The package serves as a distinct identification for the product.

ii) The package makes it possible to given an entire product line “family identification”.
iii) The package is a means of communicating information and instructions for the house wife for

correct use.

iv) The package makes pulse buying easy, by serving as a reminder, at the point of sale of pre-

selling done through advertising.

v) The package serves as a silent salesman in the retail store where self-service has largely

displaced and supplanted the store clerk.

vi) The package lengthens the life of the contents

Variation of products variables to enhances sales is also applicable to marketing petroleum

products in Nigeria. The quality, features, style, brand names, packaging and service of petroleum

products are being changed from time to time for the purpose of attracting customers. For instance,

Mobil has a range of lubricants which include Mobil D40, Mobil Super, Mobil Super SHP and the new

synthetic lubricant “Mobil 1”. These products might perhaps have only slight differences. This also

applicable to other petroleum products marketers. There is therefore frequent innovation on the

product variable elements to enhance sales.

2.7.2 PLACE

Place has to do with the distribution of products. It is an important element of the marketing

mix and has such variables as channels, coverage, location, inventory and transportation. Lazo (1977)

opined that the entire function of getting goods into the hands of the consumer is often referred to as

distribution. According to him, distribution in the broad sense includes the function of transportation

as well as the middlemen who handle the good and help to transfer title to the goods. The former, he

referred to as physical distribution and it includes transportation and warehousing while the later,

which involve middlemen activities is channel of distribution.

In his own contribution Kotler (1980) noted that: “the work of middle men is designed to create

form, time, place and possession utilities”. According to his several functions or tasks are involved.

The major ones are research, promotion, contact, matching, negotiation, physical distribution, financing

and risk taking.

2.7.2.1 DISTRIBUTION CHANNEL

In modern economy, with the obvious advantages of division of labour, not many manufacturers

would like to engage in actual marketing of their products. There exist therefore several intermediaries

between the manufacturers and the consumers. These intermediaries constitute the channel of

distribution. They include the wholesalers, retailers, brokers, manufacturer’s representative and sales

agents.

Lazo (1977) defined channel of distribution as the means employed by manufacturers and seller

to get their products to the market and into the hands of users and also are the means by which title to

goods is transferred from sellers to buyers.

Similarly Kotler (1980) quoted Bucklin as staking that “a channel of distribution shall be

considered to comprise a set of installations which perform all of the activities (functions) utilised to

move a product and its title from product to consumption”. Channel of distribution therefore is the

totality of the activities of the middlemen involved at every stage of the product movement from the
point of manufacture to that of consumption.

Shell International Petroleum Company Limited (1966), writing on the pattern of distribution of

oil products channel started that:- “the details of a distribution system naturally vary with

circumstances but the general pattern from refinery or chemical plant to installations, form

installations to depots and from depots to the customers or retail outlet may be supplied from refinery,

chemical plant or installations”.

This shows that there are various systems to be adopted depending on the circumstances.

It further to explain that the pattern of distribution depends on the size and the topography of

the market area: larger areas will require more installation and depots, countries rich in waterways will

use more water transports. Further, it stated that the distribution pattern is affected by the special

features of the product or methods of marketing. It pointed out that chemical for example requires

methods of storing, handling and distribution different from those employed for oil products.

2.7.2.2 LEVELS OF CHANNELS OF DISTRIBUTION

Channels of distribution could be classified into levels according to the number of middlemen

involved. Four principal trade levels are known Lazo (1977) said that two characteristics could be used

to differentiate them. According to him, they are designated as long or short channels depending on the

number of separate hands through which the goods pass between manufacturer himself controls and

performs the function which must be performed in the process of moving goods from point of

production to point of consumption. From Lazo’s point of view therefore, a channel could be either

short or long, or direct or indirect.

The four distinguishable levels were termed A, B, C and D by Lazo while Kotler (1980) used

zero-level channel, one-level channel, two-level channel, three-level channel and higher-level channel.

Zero-level channel has no intermediary; one-level channel has one intermediary etc. The higher level

channel has many intermediaries. He however, pointed out that, higher level channels are less

frequently found on channel Brown and Reiten (1978) observed.

 With respect to the petroleum products, almost all the levels are in operation. There are

installations, depots, stations and petty retailers using tanks, drums and jerry cans. For the overall

achievement of an organisation’s goal, there is need that the activities of the middlemen along the

channel of distribution are monitored. This is the whole idea of channel auditing.

Writing on auditing distribution channel, Browne and Reiten (1978) observed that the ‘basic

ingredients of marketing concept is to know your current and potential requirements’. According to

them, the importance of channel audit in meeting the above objectives include: to know about other

buyer down the channel of distribution, to use the information obtained to make some refinements in

marketing programmes; to benefit both the customers and company and it helps develop more complete

understanding of the trends in the channels serving various systems. Others are that it reveals

marketing environment and competition and to obtain clear picture of current activities, frustrations and

trend in the market.

1. MOVEMENT OF PETROLEUM PRODUCTS

Generally, the movement of petroleum products is by water, pipeline, rail and road. In Nigeria,

petroleum products from the three refineries located at Kaduna, Port-Harcourt and Warri are evacuated

either by road, rail, pipeline or tankers. Lagos and other coastal towns are supplied by tankers and

coastal barges.

All these methods have their functions and advantages. For instance Shell International

Petroleum Company Limited (1966) noted that the three basic functions of trunk pipelines are:

i) To transport crude oil from fields to ocean terminals and from ocean terminals to refineries or

where no sea voyage is necessary from oil fields direct to refineries.

ii) To carry refined products from refineries or tanker terminals to consumers or local distribution

depots.

iii) To transport natural gas from the field to local distribution centres or direct to large consumers.

It also observed that the use of pipelines helps to avoid congestion on inland waterways,
railways, road and high ways and that pipelines are unaffected by climatic condition and other natural

disasters such as floods, fog and frost. With respect to the economies of pipelines, it observed that the

large capital (fixed) cost are offset by low operating variable cost, since pipeline operation requires

little labour.

Ocean tankers are considered the cheapest; road transportation has the advantage of hinter land

supply while coastal barges are suitable for creek and coastal areas. In Nigeria, all of the above means

(rail, road, pipelines and waterways) are in use to distribute petroleum products. According to

Petroleum News (1985) the pipeline network came into being in Nigeria after the 1974 and 1975 fuel

shortage. It covers a distance of 3000 kilometres and it is linked to depots in seventeen towns. The

network of roads and rails are used by tankers of various capacities while Lagos and other coastal

towns are supplied by tankers and coastal barges.

2.7.3 PRICING

Pricing is another marketing mix element of great importance both to profit and non-profit

making organisations. Lazo (1977) defined pricing as “the exchange value of a good or service in

terms of money”. To bring out the importance of price, Kotler (1980) argued that “pricing is the only

element in the marketing mix that creates sales revenue. Its importance is further portrayed by this

assertion of Lazo (1977) that: “the subject of price and its relation to demand is extremely complex.

Marketers, economists and other researchers have devoted considerable effort to the explanation of the

subject and the literature is replete with theoretical treaties on understanding the phenomenon and more

practical discussions on the application of findings”.

On the role and objective of price he noted that: “price is an important element in meeting

consumer needs. Price and pricing policies are among the most important problems that confront

management …… price is always an important consideration to buyer and to the seller. Price can often

spell success or disaster”.

Writing on pricing decision Ekwunife (1994) said that price decision must be connected to the
market forces and the availability of raw material input from foreign and local markets. According to

him; the cost of labour and material input, overhead charges and others are some of the critical

determinants of the prices of the outputs to the market.

PRICING PETROLEUM PRODUCTS IN NIGERIA

With regard to pricing petroleum products in Nigeria, Nigerian National Petroleum Corporation

(NNPC) is in charge. Like most products, the cost is an important factor to be considered before the

price could be fixed. According to Uduebo (1994) two types of cost structures are examined for the

purpose of petroleum product pricing. These are:-

1) Cost of production plus NNPC operational cost (cost plus basis): This according to him, include

the cost of crude oil production or “well head cost”, NNPC operational cost, NNPC profit

margin and marketers margin.

2) Opportunity cost of Crude Oil plus NNPC operational cost: In this approach he explained that

the opportunity cost of crude oil is used instead of the well-head cost, then all other costs

(NNPC operational cost, NNPC profit margin and marketer’s margin) are similar to the first

approach.

The government fixes the prices of the major petroleum products which include petrol, diesel,

fuel oil and kerosene. These prices are least stable, as they have been review upward in 1986, 1987,

1988, 1989, 1993 etc and even in 1999. The 1999 price review puts the price of PMS at N20.00per

liter, AGO at N19.00per liter, and HHK at N17.00per liter.

Various reasons were given for the upward reviews. For instance Forum (1994) states that the

1993 review was for the following reasons:-

i) The need to reduce the subsidy by the government on petroleum products.

ii) The need to raise additional revenue for the government.

iii) The need to improve the margin for NNPC and the marketers of petroleum products and:

iv) Government desire to reduce waste in domestic consumption and to curtail smuggling.
 The prices of major petroleum products are subsidised. Uduebo (1994) quoted NNPC as saying

that prior to January 1986, pricing of petroleum products were computed on a cost plus basis at a time

when the Naira value was at par with US dollar. According to him, then the crude oil refined for

domestic consumption was 80% the prevailing international market price while the balance of 20% was

the subsidy allowed by the Nigerian government. Because crude oil was produced locally the resultant

product prices were consistent with import parity level [the price that would have been paid if all

products were imported].

The introduction of SFEM [Second Tier Foreign Exchange Market in September 1986 changed

the relation between the value of Naira and Dollar. Uduebo (1994) explained that this change in the

relationship between Naira and Dollar undermined the original intention of the government to maintain

20% price subsidy. He pointed that the review of prices in 1986, 1987, 1989, 1991, 1993 and 1994

were to reflect the new Naira value and still maintain the 20% subsidy.

The guiding policy for pricing petroleum products in Nigerian before the commissioning of

Port-Harcourt refinery was that prices were based on the ruling prices in the Caribbean where the

imported products were deemed to be refined. To the Caribbean price were added freight and other

costs and expenses to obtain an “import parity” price which became the base price at the Nigerian

Port of importation. Then to obtain the prices at various locations in the country, handling and other

charges plus profit margin were added. Consequently, prices vary across the country and become

higher the further the location from the coast. Oil companies maintain the same level of prices at the

same location.

According to the policy, when the Port-Harcourt refinery was commissioned, it was arranged

that the prices of product ex-refinery should not exceed the import parity price. This arrangement

continued until October 1973 when government introduced uniform prices throughout the country. To

compensate for any loss that may be suffered by marketing companies as a result of operating this new

uniform price structure, a system of price equalisation was devised. This was backed by the Petroleum
Equalisation Fund Decree No. 9 of 1975 to give effect to the arrangement.

2.7.4 PROMOTION

In a broad sense promotion is the communication aspect of marketing mix. On a micro basis it

includes personal selling, advertising, sales promotion and publicity. These, put together, make up the

promotion mix (promo-mix). Promotion is an important element of the marketing mix. In the opinion

of Cundiff and Still (1971) promotion is a key element in marketing strategy. They express that:

“Successful promotion is the third essential ingredient in marketing strategy. Prospective buyers must

know, learn about both the products distinctive want-satisfying characteristics and its availability.

Establishing and maintaining communication with target market segments are the main tasks assigned

to promotion”.

2.7.4.1 ADVERTISING

Lazo (1972) defined advertising as “a presentation of ideas, goods or services paid for by an

identifiable sponsor”. According to him, it is a non personal mass communication means of mass

education and mass selling which in recent time, has been assigned a growing share of the total selling

effort.

In line with the above, Kotler (1980) see advertising as “any paid form of non-personal

presentation and promotion of ideas, goods or services by an identifiable sponsor. The purpose of

advertising is basically to give information. In doing this, several media means are employed. They

include; newspapers, magazines, billboards, catalogues, booklets, radio, television calendar,

matchboxes, store sign etc. The role of advertising in marketing has been controversial. According to

Richert (1977) “it is both praised and demand. Proponents say it is the spark plug of our economy in

that it reduces the unit cost of a product by creating mass demand. Furthermore, housewives have been

heard saying that the adverts in a magazine are more interesting than the editorial content”.

Lazo pointed out too that detractors of advertising say it is wasteful, that consumers pay more

for a product that is advertised than they would if it were not. According to him, critics deplore the
number of commercials on television and the plethora of signs along a highway. The above criticisms

not withstanding advertising role in marketing still stand out. Cundiff and Still (1971) see advertising

as playing effectively the important role of acquainting prospects with the products of its strength so

that they will be more favourably disposed to decide in buying situation. They further consider

advertising to be appropriate for developing initial product awareness or acceptance due to the low cost

per message.
2.7.4.2 PERSONAL SELLING
Personal selling involves contact between an organisation’s sale’s staff and the prospective
customers. Kotler (1980) defined personal selling as “the oral presentation in a conversation with one
or more prospective purchasers for the purpose of making sales” Lazo (1977) opined that the process of
personal selling performs variety of sub activities of the fundamental salesmanship/selling issues of
getting attention, securing interest, arousing desire and obtaining action.
In line with the above stated functions of personal selling Kotler (1980) said that personal

selling can be used for many purposes such as creating product awareness, arousing interest,

developing product preferences, negotiating prices and other terms, closing sale and providing post

transactional reinforcement.

Personal selling involves people working in group for the organisation. This is known as sales

organisation which Lazo (1977) defined as: “group of people in established relation to each other and

joined together for the purpose of attaining certain sales goals”. According to him, the importance of

personal selling to the attainment of the marketing objective of an organisation calls for adequate

training of the salesman.

Cundiff and Still (1971) consider personal selling as the most common and often the most

critical element in the promotion mix which other marketing mix elements can hardly do with out as

sales is hardly made without a sales man to clinch the deal. They however, expressed regrets that

inspite of the role of these unsung hero” of marketing many companies find it difficult to recruit

qualified young people for training as salesmen.

2.7.4.3 SALES PROMOTION

Sales promotion according to Kotler (1980) comprises a wide variety of tactical promotional

tools of short-term incentives designed to stimulate earlier and/or stronger market response. The

popular ones according to him include: coupons, premiums, contests, buying allowance, free goods,

discounts, special bonuses, gift etc. Manufacturers, middlemen as well as non profit making

organisation such as churches, hospitals and museums employ promo-tools.

 On the selection decision of the tool, Kotler (1980) opined that account must be taken of “the

type of market, sales promotion objectives, competitive conditions and cost and effect of each tool”.

He pointed out for instance that the tool used by manufacturers for distributors will be different from

the one used by salesmen for their customers. He observed that sales promotion has become important

and attributes this to some factors which he grouped into internal and external factors.

The internal factor include:-

 Promotion has become more acceptable to top management as an effective means to stimulate sales

 More product managers are qualified to use sales promotion tools.

 Product managers are under greater pressure to obtain quick sales response.

The external factor include:-

 Brands have increased in numbers

 Competitors have become more promotion minded.

 Inflation and recession have made consumers more deal oriented.

 Trade pressure for more manufactures’ deal has grown.

 There is belief that advertising efficiency has declined because of cost, media clutter and

government control.

2.7.4.4 PUBLIC RELATIONS

This is another marketing communication tool. Kotler (1980) quoted George Black (1953) to

have defined public relations as: “the activity of securing editorial space as divorced from paid space in

all read, viewed or heard by a company’s customers or prospects for specific purpose of assisting in the

meeting of sales goals”.

Public relations are applicable to almost every organisation – both profit and non profit making

organisations and has indeed contributed immensely to awareness creation. According to Kotler (2000)

its uses include “to promote various brands, products, persons, places ideas, activities, organisations
and even nations”. Other include to lunch new products, rein force interest in matured goods and

highlight a nation’s potentials and problems with a view to attracting tourists, foreign investors and

international attention.

Cotton and Emerson (1978) after studying the consumer responses to promotional deals cam up

with the following conclusions:-

1) Promotional deals results in substantial increases in the level of purchase, especially during the

period when the deal is effective. Carrying-over effect on later periods are relatively much

lower.

2) The response to a promotional deal is much greater than an equivalent reduction in price.

3) The response to a promotional deal is lower for more familiar products and higher for less

familiar products.

4) Install special (one of the deals they analysed) is less effective than others (coupons, multiple

item discount, and free gifts).

5) The response to promotional deals by new entrants had a greater impact on overall sales. Sales

increase than did the response of households already in the market.

In marketing petroleum product in Nigeria, all promo-tools of advertising, personal selling,

sales promotion and publicity are in use to achieve the purposes of awareness creation, increase sales

and profit.

For instance Nigerian Tribune (1998) March highlighted the Mobil promotion tagged

“Automatic Oil Boom”. In this promotion a customer gets a gallon of Mobil’s highest quality XHP

engine oil for every two Dunlop tyres he purchases. On why Mobil is involved in this Dunlop

promotion, an official of Mobil was quoted to have stated the “it is to create awareness”. In the same

vein Sunday Champion (1998) March 29, 18 while reporting on the re-launch of AP Super V, Visco

2000 quoted the company representative as saying that the re-launch was born out to “sustain

customers loyalty, profitability based on efficiency and delivery of superior value. According to him,
the act is in line with the company’s corporate philosophy of “analysing trends, predicting their

consequences and taking pro-active measures that offers customers value for their money.

All aspects of marketing philosophy are relevant to marketing petroleum products in Nigeria.

Even the modern trend of customer oriented marketing is not left out. Products are continuously being

improved and their packaging as well to satisfy the customer’s desired performance and convenience.
 48

CHAPTER THREE

RESEARCH METHODOLOGY

3.1 HISTORICAL PROFILE OF TEXACO NIGERIA PLC

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. The

company has an approved and registered agreement with Texaco overseas. Holding

Inc. aimed at ensuring transfer to latest technical know-how to enhance operations,

production process and introduce newly developed product lines in the Nigerian

market. Under this agreement, Texaco overseas Holding Inc. provides assistance to

the company in the following areas: Texaco Nigeria Plc is owned 60pecent by

Texaco Holding Incorporated, Liberia, Chevron Texaco Incorporated in the United

States of America shareholders own the remaining 40percent.

As a major petroleum marketing company in the country, the company is

poised to benefit from the expected gains of deregulation which will unleash a

vibrant sector and thus impact positively on profitability. With a 10-man board of

directors, the company may do well to abide by the code of corporate governance by

splitting the position of chairman and managing director which is currently bestowed

on one individual.
 48

Access to the results of Texaco’s worldwide research and development, in

respect of fuels, lubricant, greases and petroleum jelly; provision on secondment of

suitable expatriate personnel at the request of the company;

Provision of marketing sales support; Personnel training-local and

international; provision of technical assistance in Aviation and Marine Services; and

3-25 July 2005 ports to more than 40,000 barrels per day of liquefied petroleum gas

and condensate. Escravos gas –to –liquids project; Adjacent to the EGP, the

proposed 33,000- barrel- perday plant expects to use Johannesburg- based sasol

Ltd.’s proven synfuels conversion technology. The plant will produce premium-

quality, ultra –low sulfur diesel fuel and naptha to be sold in Europe and the United

States. Engineering and technical feasibility studies have been completed for the

project, which is also a key element in CNL’s initiative to reduce flaring of natural

gas. The project start-up is expected in 2007.

West African Gas Pipeline (WAGP); Chevron Texaco leads a consortium,

which includes the governments of Ghana, Togo, Benin and Nigeria, to develop a

planned $500 million, 600-kilometer pipeline linking Niger Delta natural gas

supplies to power generators and industrial customers in Benin, Togo and Ghana.

Subject to government approval, the line could become operational in 2006.

In addition, Chevron Nigeria Limited operates a terminal and storage facility

at Escravos, and Texaco Nigeria Plc operates a terminal and storage facility at
 48

Apapa, near Lagos. The company also owns and operates more than 300 Texaco-

branded retail services stations and supplies Texaco motor fuels to 100 third-party –

owned outlets. A leading marketer of lubrication oils, greases, petroleum jelly and

plastic containers, the company also owns several manufacturing facilities, including

a lubricating blending plant at Apapa, capable of producing 186,000 barrels per year.

In positioning for the challenges of a deregulated industry, Texaco Nig. Plc is

focused on the following:

1) Supply chain management –the company is focused on establishing a sustainable

economic platform in West Africa by assessing the long term opportunities and

threats arising from all supply windows in West Africa and Nigeria in particular.

2) Global supply collaboration – leveraging on its membership of the Chevron

Texaco global family to supply quality products at best possible prices.

3) Prices management –the company will liaise with its fuel pricing center to adopt

pricing policies that will enhance its competitive advantages.

4) Partnering –the company’s growth model includes extensive franchising. This

includes aggressively attracting independents to fly the Texaco flag in critical

mass areas.

5) Investment –this entails focusing on the pump replacement, installation of double

walled tanks, general rehabilitation, addressing the supply chain, storage and

distribution facilities, information technology

 48

6) Reorientation –of retail outlet service personnel the company had earlier

embarked on a transformation programme an offshoot of the global downstream

transformation of Chevron Texaco Corporation expected to have been concluded

in the first half of 2004. The program is aimed at standardizing global

downstream operations of Chevron Texaco Corporation to improve efficiency.

Key deliverables at the conclusion of this exercise include

Low cost fit for purpose organisation;

Leveraging on latest technology to provide efficient customer services; alignment

with global structure and maximization of corporation’s international expertise for

optimal growth; improved shareholder value by reduction of operational costs; and

elimination of operational bottlenecks to gain competitive advantage in the market

place.

3.2 METHODS OF DATA COLLECTION

This study makes use of secondary data only.

3.3 METHOD OF DATA ANALYSIS

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.

 48

CHAPTER FOUR

DATA PRESENTATION AND ANALYSIS

4.1 DATA PRESENTATION

TABLE 4.1 PRICES OF SELECTED PRODUCTS OF SOME MARKETING

COMPANIES

LUBRICANS 4 GREASE (4KG) INSECTICIDES

LITRES
AFRICAN N760.00 N250.00 N80.00
PETROLEUM
MOBIL 680.00 220.00 110.00
ELF 760.00 130.00 150.00
AGIP 760.00 170.00 95.00
TOTAL 760.00 250.00 75.00
TEXACO 795.00 135.00 90.00
TOTAL N4,515.00 N1,155.00 N600.00
AVERAGE PRICE N752.5 N192.5 N100.0
Source: Field Survey

Table 4.1 shows that the prices of some petroleum products as priced by

some petroleum product marketing companies. It shows that Texaco Plc prices its

products in line with other companies.

 48

TABLE 4.2 PETROLEUM PRODUCTS DISTRIBUTION BY MARKETING

COMPANIES 1997 (‘000 LITRES)

Product African Agip Elf Mobil National Texaco Total Unipetro Independent Total
petroleum l market’s
lifting
LPG 6,220 3,589 247,798 5,020 - 1,480 6,342 5,723 - 276,172
Aviation 2,172 172 - 3,657 - 9,494 25,327 - - 40,822
Gasoline
Super 600,498 271,681 169,720 423,583 440,416 423,879 628,962 407,869 2,544,678 5,911,286
Gasoline
Household 173,927 88,339 65,939 103,010 107 97,102 135,875 101,487 6,672,210 1,540,220
Kerosine
Jet Fuel 3,199 2,495 - 57,152 34,934 30,101 22,514 38,745 - 189,140
Auto. Gas Oil 295,885 137,900 64,718 162,574 193,349 156,508 248,087 153,266 1,074,082 2,486,369
HPFO - - - - 18,990 - - 11,437 - 30,427
LPFO 87,284 12,805 20,066 24,769 91,392 25,933 36,670 29,089 - 328,005
Lubricating 8,757 6,067 630 12,735 23,450 5,312 11,593 8,434 - 76,978
Oils
Greases 41 398 411 188 504 1,107 - 605 - 3,255
Pet. 128,305 - - 3,002 - 909 - - - 132,216
Jelly/Waxes
Bitumen & 3,855 - - 10,427 19,044 - 42,829 - - 76,155
Asphalt
Base Oils 3 - - - 5,624 - - - - 5,627
Additives
Brake Fluids - - 254 2,646 - - - - - 2,899
Special 66 - - - - - - - - 66
Products
Chemicals - - 177 13,861 13,436 - - 100 - 27,574
Total 1,310,212 523,446 569,713 822,623 948,471 751,825 1,158,199 756,752 4,285,970 11,127,211
Source: NNPC (!997) Annual Statistical Bulletin p. 39 Published by Corporate Planning and
Development Division.
Table 4.2 shows all the companies engaged in the distribution of petroleum

products including independent markets lumped together. Texaco Plc distributes

nine out of the thirteen products. It does not distribute Aviation Gasoline, Jet Fuel,

HPFO, Petroleum Jelly/Waxes, Bitumen & Asphalt, Base Oils additives and special

products. LPG is the largest of the products distributed.

 48

TABLE 4.3 TOTAL QUANTITIES OF PETROLEUM PRODUCTS

DISTRIBUTED BY COMPANIES

COMPANIES TOTAL PERCENTAGE (%) RANKING

DISTRIBUTION (‘000) (POSITION)
LITRES
AFRICAN 1,310,212 11.8 2
PETROLEUM
Agip 523,446 4.7 9
Elf 569,713 5.1 8
Mobil 822,623 7.4 5
National 948,471 8.5 4
Texaco 751,825 6.8 7
Total 1,158,199 10.4 3
Unipetrol 756,752 6.8 6
Independent 4,285,970 38.5 1
Marketers - - -
TOTAL 11,127,211 100 -
AVERAGE 1,236,357
Source: Extracted From Table 4.2.

Table 4.3 shows that Texaco Plc distributes 75, 182,5000 out of

11,127,211,000 litres of total petroleum products distributed in the year 1997.

Table 4.4 shows what gasoline sells in Nigeria and the neighbouring West

African countries. It shows apparently that gasoline sells for more Naira in the

neighbouring countries. This explains the rational behind smuggling of the product

across the borders.

TABLE 4.8 SOME SERVICE STATIONS OBSERVED
S/NO COMPANY/SERVICE LOCATION/LOCAL GOVT. AREA DATE DURATION CONDITION OBSERVATIONS AND COMMENTS
STATION OBSERVED OBSERVED OBSERVED
1. MOBIL MOLONEY ST. LAGOS (LAGOS 16/11/98 2HOURS ABNORMAL Sells at normal pump prices, long quene crowed but
ISLAND LGA) orderly served. Only the military men were served in
cans and drums the orderliness of this filling station
could be attributed to the nearness of the station to
the Defense headquarters with which it shares
common boundary.
2. ELF (NOW TOTAL) SURA MODERN MARKET 12/4/99 1HOURS NORMAL No much customers, sells at the normal pump prices.
(LAGOS ISLAND LGA) The attendants try to woo customers to their stand by
beckoning on incoming customer.
3. AP ONIPANU BUS STOP IKORODU 16/1198 2HOURS ABNORMAL Sells above the government price (N30/litre). Highly
RD. (SOMOLU LGA) crowded and disorderly. Only one service point was
put to use. The attendants were nonchalant. Touts
sell with small (4litres) jerry cans openly the only
security person could not control the crowd.
 48

4. AGIP FADAYI (SHOMOLU LGA) 14/4/99 1HOUR NORMAL Sells at government approved rates, customers are
served on first come first served basis. A short
queue of about 8 vehicle.
5. TEXACO KINGSWAY RD. IKOYI (ETI-OSA 19/1198 2HOURS ABNORMAL Sell at approved prices. Uses two of the four service
LGA) points. Tries to control entrance into the station
resulting in a very long queue and traffic hold up
around the area. Practice favouritism as some people
were allowed in through the out end. Some uniform
personnel were seen around trying to maintain order.
6. MOBIL AHMADU BELLO WAY (UI). (ETI- 14/4/99 1HOUR NORMAL Sells at normal prices all the service points are put to
OSA LGA) use, no queue.
7. TOTAL OJOTA BUS STOP KOSOFE LGA. 20/11/98 2HOURS ABNORMAL Sells above government price, N25/litre. The
attendants requests for additional N100.00 for every
person served. The Okada operators were seen with
fuel tanks detached buy fuel goes to empty
somewhere and come back to struggle for more.
They had advantage over those with vehicles No
security agent other than the filling stations own
security men. Touts were seen openly soliciting for
customers willing to buy at their own rate. (2500.00
for 50litres can).
8. UNIPETROL ALAPERE ESTATE KOSOFE LGA 16/4/99 1HOUR NORMAL Few vehicle came in within the period of
observation. They were served as they came in. All
the service points were in use. Sells at the
government prices.
9. ELF (NOW TOTAL) OREGUN IND. ESTATE IKEJA 23/11/98 2HOURS ABNORMAL Crowded, disordered environment use only one
LGA service point despite the large crowd sells at
approved price. Though out differentiated from the
crowd, it was rumored that task force member from
Lagos state was around. The station is about 700
meters from the Lagos State secretariats and this
probably explain why it sells at government price.
10. AP BY LOCAL AIRPORT (IKEJA 16/4/99 1HOUR NORMAL This filling station was busy but there were no queue
LGA) as used to be the case. Motorists and Okada
operators were served continuously. All the service
points were put to use and they sell at government
approved prices.

4.2 MAJOR PROBLEMS AFFECTING STORAGE AND DISTRIBUTION

OF PETROLEUM PRODUCTS

The major problems affecting storage and distribution of petroleum products are:

a) pipeline ruptures and vandalisation;

b) old and obsolete equipment;

c) general attitude of staff to work, which is not in line with general commercial

practice;

d) inadequate and ageing vessels;

e) insufficient margins in the cost structure allowed for NNPC, oil marketers

and transporters that hinder investment in asset replacement or expansion;

 48

f) existing delivery tankers are very old and in sorry state of operation;

compounding this problem is also the poor state of the roads and road

network;

g) lack of flexibility in management. There seemed to be a concentration of

authority at NNPC headquarters and government interference also hampers

operations;

h) lack of empowerment and co-ordination in planning, implementation and

operation throughout the system.

Contributing to the deterioration is the lack of a proper maintenance

schedule, as well as the incessant and deliberate acts of vandalisation. Table 4.5

shows the number of line breaks indicating the natural ruptures and willful

vandalisation frequencies.

TABLE 4.5 SUMMARY OF PIPELINES RUPTURE/VANDALISATION FROM JANUARY

1993- JUNE 2000

Jan-Jun

Cases ’93 ‘94 ’95 ’96 ’97 ’98 ’99 2000 Total

Rupture 10 10 9 16 11 24 27 36 143

Vandalisation 7 8 7 33 34 57 497 764 1407

Total 17 18 16 49 45 81 524 800 1550

Source: Pipelines and Products Marketing Company (PPMC)

Areas mostly affected by vandalisation are:

 48

i. Warri-Benin line and Warri Jetty line

ii. Port Harcourt-Enugu (20km up and downstream Aba depot) and Okrika Jetty

PHRC lines.

iii. Enugu-Auchi line

iv. Escravos-Warri line.

v. Atlas Cove-Mosimi line.

vi. Mosimi-Ore line, Satellite line and Ibadan line.

The effect of pipelines breaks and vandalisation are:

1 High cost of distribution through road transportation using trucks and delayed

turn around of vessels.

2 Loss of lives and property and threat to national security.

3 Over-concentration of trucks at primary source depots with attendant social,

ethical and safety problems.

4 Loss of revenue, which for the first half of 2000 is estimated to be over

4billion naira.

5 Environmental pollution.

6 Scarcity of products with its attendant social vice.

7 Loss of system’s flexibility in the distribution chain.

4.3 TEXACO PLC AND INDUSTRY CHALLENGES

Update on Texaco Nig. Plc. Texaco Nig plc has continued to make significant
 48

capital investments to tackle increasing industry challenges and increase productivity

in its core business. Nonetheless, our concerns for shrinking margins within the

petroleum marketing sector despite strong growth in turnover, taken against

Texaco’s poor revenue diversification drive, give us concern with respect to future

margin expansion. Our full year 2005 forecast is for sales to rise to N51.2bln, up

20.83% from 2004 and net profit growth of 28.93% to N1.06bln in 2005; translating

into a forecast profit margin of 2.08%, marginally higher than 1.94% in 2004.

The company currently trades on a PE 36.17x its trailing 12-month EPS,

relative to the sector average of 23.04xa 58% premium to its sector. Keeping prices

constant, we expect compression in forward multiples to 27.17x our 2005 full year

forecast EPS of N4.18 relative to a sector average of 16.68 xs. They are not of the

opinion that its current premium to its sector is justifiable in view of our concerns for

revenue diversification, rising industry competition and little room for margin

expansion. From the foregoing, we recommended underweighting the stock.

Table 4.6 TEXACO PLC FINANCIAL RATIOS (2000-2003)

Ratio 2003 2002 2001 2000 4Year ave.

000 000 000 000
Activity Analysis Short Term
Inventory turnover 23.59 20.69 26.32 29.98 25.15
Ave numbers of days inventory in stock 15.47 17.64 13.87 12.18 14.79
Receivables turnover 15.95 17.17 20.55 22.56 19.06
Ave. days receivable outstanding 22.89 21.26 17.76 16.18 19.52
Payables turnover 7.12 5.97 5.57 5.98 6.16
Ave days payable outstanding 51.27 61.10 65.52 61.06 59.74
Length of operating cycle 38.36 38.90 31.63 28.36 34.31
Length of cash cycle -12.91 -22.20 -33.89 -32.70 -25.43
 48

Long Term
Total assets turnover 2.98 3.12 3.06 3.08 3.06
Fixed assets turnover 12.66 11.50 11.85 13.84 12.46
LIQUIDITY ANALYSIS
Current ratio 0.95 0.87 0.86 0.89 0.89
Quick ratio 0.84 0.68 0.71 0.80 0.76
Cash ratio 0.53 0.39 0.21 0.43 0.39
LT DEBT & SOLVENCY RATIO
Debt to total capital 0.00% 0.00% 0.00% 0.00% 0.00%s
Financial leverage 393.89% 407.54% 431.32% 416.57% 4.12%
Total debt/ total assets 0.00% 0.00% 0.00% 0.00% 0.00%
Debt to equity 0.00% 0.00% 0.00% 0.00% 0.00%
PROFITABILITY RATIOS
Gross margin 12.4% 13.2% 14..1% 15.6% 13.83%
Operating margin 4.2% 5.3% 4.3% 7.4% 5.29%
Margin B/4 interest & taxes 1.4% 5.3% 4.3% 7.4% 4.58%
Pretax margins 2.2% 5.8% 5.4% 9.0% 5.58%
Profit margin 1.4% 3.8% 4.0% 6.0% 3.78%
Return on assets ROA 4.11% 11.74% 12.37% 18.38% 11.65%
Return on total capital ROTC 25.28% 75.6% 82.25% 119.03% 75.54%
Return on Equity ROE 25.28% 75.60% 82.25% 119.03% 75.54%
Sales per share 128.66 106.22 83.17 67.32
Adj. earnings per share 1.77 3.99 3.36 4.02 3.28
Adj. Book value per share 6.13 4.43 3.74 3.00 4.33
Adj. Dividend per share - 2.29 2.68 3.27 2.06
Dividend payout 0% 57.3% 79.72% 81.53% 54.64%
Retention rate 100.00% 42.70% 20.28% 18.47% 45.36%
Source: ARM estimates Company Date
4.4 FINANCIAL PERFORMANCE OF TEXACO PLC

In this report, based on the 13 July 2005 release of Texaco Nig. full year

2004 and first quarter 2005 headline results for the periods ending December 2004

and March 2005 respectively, we are updating our we are updating our outlook on

the averaged CAGR of 25.48% over the period. In 2004, following rising petroleum

product prices, coupled with benefits from earlier capital investments with respect to

pump replacements and a more aggressive marketing strategy., the company

recorded a 29.72% rise in turnover to N42.39bln from N32.68bln in 2003-slightly

 48

above its 4years historical average .

Between 2000 and 2003, turnover has risen at a compound annual average

rate of 24.08%, relative to the slightly trends, gross margins have been under

pressure over the past few years following the inflationary environment, and the

depreciation of the profits took a steep fall, declining to n450.39mln; this 55.55%

drop was due to an exceptional negative charge of about N934mln representing the

accrual for severance payout required to settle about 135 employees deselected as a

result of the global transformation process. For the fiscal year ending December

2004, full year profits came in at N824mln, up 82.79% from 2003 levels, translating

into a 2004 profit margin of 1.94%, which was slightly higher than the 2003 profit

margin of 1.4%. Cumulatively, between 2000 and 2004, Texaco Nig plc profits have

declined at a compound annual average rate of 5.18%.

Working capital accounts provide information regarding the operational

efficiency of the company. The company’s working capital, which measures how

much in liquid assets the company has available to fund short term obligations such

as accounts payable, and to buy inventory, has been consistently negative over the

period under review; largely reflecting Texaco’s increased use of trade financing.

Inventory turnover has improved consistently over the period under review

from 15.84 times in 1999 to 23.59 times in 2003. Thus, Texaco’s inventory spends

about 15.5 days in stock (see table 1). On the other hand, the receivables turnover
 48

ratio, depicting the effectiveness of the company’s credit policy / payment terms, and

success in collection of debts, deteriorated from 18.15times in 1999 to 15.95times in

2003. Consequently, the company as at 2003 extended on average, 23 days of credit

to its customers, slightly higher than 20 days in 1999. Payables turnover in days,

which measures the average length of time between purchase of goods and payment

for them, has declined over the years from 77days to 51 days as at 2003; implying

that credit terms enjoyed by Texaco Nig have become less favourable over the ears.

This development partially reflects much shorter days of credit from NNPC to major

fuel marketers. The cash conversion cycle represents the number of days it takes a

company to purchase raw materials, convert them into finished goods, sell the

finished product to a customer and receive payment from the customer/account

debtor for the product. Less favourable credit terms from its suppliers, coupled with

more favourable credit terms to customers has resulted in a longer cash cycle over

the years (see table 1).

Solvency ratios provide more insight into debt obligations that must be met

regardless of cash flow, and the company’s ability to avoid financial distress in the

long run. Texaco Nigeria, having maintained virtually nil exposure to debt over the

years, has a very strong balance sheet with extremely low financial risk and high

liquidity (see table 1). Between 1999 and 2002, the company has on average paid out

715 of its earnings as dividends. In 2003 however, the company did not declare any
 48

dividend as a result of significant pressure on its cash flows driven by increased cash

requirements following shorter credit from NNPC for the payment of fuel supplies;

in creased import of petroleum products, which taken against high international

crude oil prices and high cost of funds, made importation very expensive; and the

commitment of over N1bln for severance packages for deselected workers. The

company declared a final dividend of N3 for the 2004 fiscal year, implying dividend

payout of over 90% on earnings per share of approximately N3.25k.

Outlook

At its 2003 AGM, the company had stated that its 2004 performance will be driven

by aggressive market share acquisition and ambitious cost reduction initiatives. In

the absence of a detailed breakdown of the company’s financial performance, we

have, as yet, been unable to appraise how well the company did relative to these

stated targets. As a proxy for determining Texaco Nig’s performance relative to

market share acquisition, we have looked at the performance of major marketers

between 2001 and 2004- a period we believe is most representative of significant

changes within the industry. Over this period, Texaco Nig. has acquired market share

at 5.74% rate –the third highest amongst industry players (see fig 3).

In 2004, in sharp contrast to its stated objective of aggressive market share

acquisition, our proxy measure, based on actual 2004 turnover for Mobil, Total,

Oando and Texaco, and our 2004 turnover forecast for Conoil, shows that its market
 48

share actually declined from 13.39% in 2003 to 11.77% in 2004- a15.15% rate.

Looking at table 2, despite on going deregulation and increased innovativeness

within the industry as a whole over the industry as a whole over the past few years,

Texaco Nig. has not made significant progress in diversifying its revenue streams.

This, we believe, may hinder strong top line growth over coming periods,

particularly in an environment of declining volume sales and rising competition. On

the 13th of July 2005, in addition to its long delayed full year 2004 results, Texaco

Nig. Plc also released its 2005 first quarter result. For the period ending March 2005,

its unaudited results show that turnover declined 16.18% to N10.2bln from N12.6bln

in March 2004 turnover forecast for Texaco Nig. plc, we have taken cognizance of a

number of factors, key amongst which are our concern regarding its inability to

diversify its revenue streams, and by extension, its likely inability to achieve strong

growth in turnover ;and our suspicion of the possibility of peculiar operational issues

within the company driven by the observed deviation of its 2004 sales performance

from its long term trend. Historically, the second half of the year on average,

accounts for 55% of total sales (see table 3). In 2004 however, in spite of a

September hike in fuel prices, the second half represented only 47%. The unusual

decline in its Q1’05 turnover growth over year-ago levels. Based on these, our full

year 2005 forecast is for turnover of N51.2bln, up 20.83% from 2004.

In the same vein, its first quarter profit after tax declined 6.09% to N308mln
 48

from N324mln in March 2004, resulting in a profit margin of 2.91% (see table 4).

The company has continued to make significant capital investments to tackle

increasing and increase productivity in its core business. Nonetheless, our concerns

for shrinking margins within the petroleum marketing sector despite strong growth in

turnover, taken against Texaco’s poor revenue diversification drive, give us concern

with respect to future margin expansion. We forecast full year net profit growth of

28.93% to N1.06bln in 2005; translating into a forecast profit margin of 2.08%,

marginally higher than 1.94% in 2004. the company currently trades on a PE of

36.17x its trailing 12-month EPS, relative to the sector average of 23.04xa 58%

premium to its sector. Keeping prices constant, we expect compression in forward

multiples to 27.17x our 2005 full year forecast EPS of N4.18 relative to a sector

average of 16.68x. We are not of the opinion that its current premium to its sector is

justifiable in view of our concerns for revenue diversification, rising industry

competition and little room for margin expansion. From the foregoing, we

recommend underweighting the stock.

Table 4.7: Product Contribution To Turnover

2003 2002 2001 2000
Fuels 92.26% 88.98% 90.99% 86.85%
Lubricants and greases 5.20% 5.55% 5.96% 5.22%
Others 2.54% 5.48% 3.05% 7.93%
Source: Company Date

Table 4.8: Business Cycle Analysis

Q1 Q2 Q3 Q4
 48

1999 24.84% 22.02% 22.02% 30.18%

2000 19.30% 25.07% 26.13% 29.51%
2001 24.14% 18.40% 28.30% 29.16%
2002 23.35% 24.47% 24.84% 27.35%
2003 21.10% 21.46% 26.60 30.84%
2004 29.83% 22.79% NA 47.37%
Ave. 23.76% 22.52% 25.58% 29.41%
Source: ARM estimates, company data
NA: Interim Results not reported for these periods.

Table4.9: Margin Progression

Q1 Q2 Q3 Q4 Full year
1999 7.98% 5.11% 7.26% 6.91% 6.84%
2000 8.03% 6.69% 5.14% 4.73% 5.96%
2001 5.74% 2.81% 2.89% 4.53% 4.04%
2002 2.84% 2.94% 3.15% 5.81% 3.76%
2003 4.76% 3.31% 4.10% -4.62% 1.38%
2004 2.59% 2.68% 1.18% 1.94%
2005 2.91%
Ave. 4.79% 3.68% 3.82% 2.33% 3.42%
Source: ARM estimates, company data
NA: Interim Results reported for these periods
 48

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

 48

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
 48

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:

 Lack of fund sometimes to import some of the products it markets. This is due to
 48

the limited resources of the company as well as the high exchange rate.

 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.

 Disloyal act of some dealers is also one of the problems the company faces.

They include product diversion, hoarding and selling above recommended prices.

 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:

i) Most of the refineries are in bad shape and are shut down.

ii) Refineries are shut down for Turn around Maintenance.

iii) Lack of fund which delays work and maintenance.

iv) Communication or cold war between ministry of petroleum resources and

NNPC and between NNPC and oil marketing companies.

v) Nigeria lack actual data on fuel consumed domestically and consequently

short supplied.

vi) 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
 48

include: (a) pipeline distributions problems (b) draught and unloading problems, (c)

jetty problems and (d) 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
 48

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.

 48

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