Marketing strategies of a successful British company -a case study of British petroleum company

  1. Introduction

British Petroleum (BP) Company is the world’s third largest energy company and Britain’s largest corporation (British Petroleum Company, 2009a). It was started in 1908 as a German firm. It was sold to Anglo-Persian in 1917.In 1935 the name of Persia was changed to Iran. With the Second World War the overall economic conditions in Britain were worsened which deteriorated conditions in BP too. Due to the worsened conditions in Iran and the agreement between Iran and Britain, the company’s name was changed into BP (BP, 2009a).From 1981 to 1990,Sir Peter Walter was BP’s chairman. As a part of the then Prime Minister Margaret Thatcher’s privatization strategy, in 1987 BP got fully privatized. In the late 1990s, because of main mergers with BPs competitors in the energy market Amoco, Arco and Castrol Motor oil, BP got increased momentum. Ever since that BP has grown into world’s third largest energy company and became highly successful in terms of competitive position, the financial performance the brand strength, or the speed of international expansion (British Petroleum Company, 2009b).In this report, the various marketing strategies responsible for the company’s successful performance are critically evaluated.

 

  1. The Performance of BP-An Overview

BP operates across six major continents and its products and services are available in more than 100 nations (BP, 2009c).At present, around 67% of the group’s capital is invested in Organisation for Economic Cooperation and Development (OECD) countries. Around 41% of the group’s fixed assets located in the US and around 20% located in Europe (BP, 2008). BP is its main and global brand. Other than BP, the company has five major brands .They are Aral, Arco, Castrol, ampm and Wild Bean Cafe(BP,2009d). The financial performance results of the company in 2008 shows that the profits before interest and tax have been $37.9 billion with an increase of 37 percent compared with 2007 mainly due to high oil and gas realizations (BP, 2008).

Table1:Financial and Operating Performance

($ million)

2008

2007

2006

Total Revenues

  365,700

288,951

 

270,602

Profits from continuing operations

21,666

21,169

 

22,311

Profit for the year

21,666

21,169

 

22,286

Profit for the year attributable to BP share holders

21,157

20,845

 

22,000

Profit attributable to BP share holders per ordinary share-cents

112.59

108.76

 

109.84

Dividends paid per ordinary share-cents

55.05

42.3

 

38.04

                            Source: BP (2008)

Table 1 shows that the total revenues of BP has been consistently rising from 2006 to 2008.  The profits from continuing operation and profit for the year have also shown increase from 2007 though it is less than that of 2006. The profits attributable to BP shareholders and dividends paid per ordinary share have also shown consistent rise from 2006 to 2008. The main factors responsible for the rise in profits in 2008 compared to that of 2007 have been identified as higher realizations, a higher contribution from the gas marketing and trading business, improved oil supply and trading performance, improved marketing performance and strong cost management (BP, 2008). In spite of these positive effects, reports show that there have been  negative effects like weaker refining margins, particularly in the US, higher production taxes, higher depreciation and adverse foreign exchange impacts(BP,2008).

This section shows that BP Company has been quite successful in terms of competitive position, financial performance, brand strength and the speed of international expansion. The next section critically assesses the marketing environment in BP and the major marketing strategies of the company that have led to its successful performance.

  1. Marketing Environment in BP

According to Collins and Porras (1996), the mission statement of a company gives its important ideology and visionary components. While the mission of a company defines its main purpose, the vision of a company describes what and where the company wants to be. According to Collin’s and Porras(1996) definition of organizational vision, the vision has four components. They are the main values and beliefs of the organization, the purpose of the organization, the brief summary of the organization’s activities and the broad goals of the organization.

BP is the major and global brand of the company. Based on this brand, the people have their impression on this company. Their logo started in 2000 represents things like living organic form of sunflower to sun itself (BP, 2009e).It means BP made of many parts working like one. This symbolises the mergers and acquisitions with other companies mentioned earlier. One of their major advertising slogans is “beyond petroleum” which shows that they are working outside the traditional limits  and  meet the challenges needed period by period .This slogan is a strong representation of their activities which  creates a majestic impression among the customers about their diverse activities. This advertisement is added with live examples also. In addition, the world advertising campaign of BP reflects present reality, which demands investment in traditional and alternative forms of energy (BP, 2009 f) .The main values of BP, are progressive, responsible, innovative and performance driven. In BP’s own words, Progressive means “mutual advantage and build productive relationships with each other, our partners and our customers”. Responsible means “committed to the safety and development of our people and the communities and societies in which we operate. We aim for no accidents, no harm to people and no damage to the environment.”  Innovative means, “push boundaries today and create tomorrow´s breakthroughs through our people and technology” .Performance driven means “deliver on our promises through continuous improvement and safe, reliable operations” (BP, 2009 g).These are the vision principles that guide BP to the future. In addition to these, the code of conduct of BP covers five main areas of the business operations. They are (1)health, safety, security and the environment (2) employees (3) business partners (4) governments and communities and (5) company assets and financial integrity(BP 2009 h).It is needed that all the employees of BP follow their code of conduct. Many examples are also shown in the code to illustrate how these can be applied in specific situations. This detailed and practical approach can be considered as one of the main characteristic feature of the company   that guide their future.  The main activities of BP  are exploration and production, refining and production and alternative energy business .The main  goals  of BP are finding oil and gas, extracting oil and gas, moving oil and gas, making fuels and products, selling fuels and products, generating low carbon intensity and  working responsibly(2009 i).

The above described ones are the mission and vision statements of BP upon which BP is guided .Based on these, how BP has achieved superior performance are critically assessed in the next section.

4. Marketing Strategies of BP-An Assessment

The various external factors influencing the performance of an organization are evaluated through external analysis. Both the positive and negative trends influencing a company’s performance are evaluated through this process. The positive trends are opportunities to a company and the negative trends are the threats faced by the company. This analysis is very relevant for assessing a company’s resent situation so that the company can develop new strategies or change existing strategies by making use of the opportunities and threats to the company (Coulter,2005). This according to Coulter (2005), there are both specific environment, which influence directly the company’s strategic decision and general environment that indirectly affect the company’s strategic decisions. The specific environment includes customers, competitors, suppliers etc. The general environment includes political, economic, social and technological sectors. The general environment analysis for a company is done by PEST analysis and the specific environment analysis is done by Porter’s 5 rival forces.

 PEST analysis means the analysis of Political, Economic, Social and       Technological (PEST) factors that assess the strategic decisions of a company (Oxford University, 1998). The political factors include stable political factors, liberalization of markets, foreign investment etc. The economic factors include economic growth, market credit, profit taxation, interest rates etc. The social factors consist of health condition of the population, endorsement of computers, internet access, lifestyle etc. The technological factors consist of technical communication possibilities, data protection, possibilities of data storage; progressive technologies etc (Pavlicek, 2008)The Porter’s five-factor model for competitive environment includes the analysis of the following factors bargaining power of buyers, bargaining power of suppliers, threat of entry of new competitors, threat of substitutes and competitive rivalry(Pavlicek,2008). Porter’s model is based on the insight that a corporate strategy should meet the opportunities and threats in the organization’s external environment. Especially, competitive strategy should base on an understanding of industry structures and the way they change.

4.2. PEST Analysis Results

The main economic opportunity factor   for the growth of BP is identified as exploration and production. BP is aimed at reinvesting competitively in exploration and production to secure and grow high quality oil and resources (BP, 2008). The social opportunity factor includes keeping   safe and reliable operations as one of the core priorities if BP. BP has implemented many actions to improve safety performance all around the world (BP, 2008). Regarding technological factors, the company concentrates in investing in low carbon energy processes and new energy technology like wind, solar, bio fuels and carbon capture and storage to meet the energy demand as a constant source of growth.

The main threats to BP are identified in the annual report(2008).The political risk factors  include changes in supply and demand due to political developments and the outcome of OPEC meetings. Since oil market is extremely sensitive to demand and supply, this can be a threat to BP. In the company’s own words, further socio political risk factors can be identified as the following “We have operations in countries where political, economic and social transition is taking place. Some countries have experienced political instability, changes to the regulatory environment, expropriation or nationalization of property, civil strife, strikes, acts of war and insurrections. Any of these conditions occurring could disrupt or terminate our operations, causing our development activities to be curtailed or terminated in these areas or our production to decline and could cause us to incur additional costs. In particular, our investments in Russia could be adversely affected by heightened political and economic environment risks” (BP, 2008).The economic risk factors include the current global economic crisis and the uncertain economic environment. The social risk factors for BP include the climate change and carbon pricing which can lead to change in laws and procedures. Compliance with these can affect BPs financial performance. Since one of the main aims of BP is to case no or minimal damage to environment, a failure in overcoming the perceived trade-off between global access to energy and protection of environment will lead to the violation of its aim. The technological risk factor includes any failure in regularly upgrading the technologies .Due to the highly competitive nature of oil market, a failure in this regard will result in the entry of competitors, which have more advances technologies and dominating the market.

4.3.Porter’s 5 factor  Model

4.3.1.Threat of entry

    BP is completely privatized since 1987 and the entry costs are very high (BP, 2009a).Hence the threat of entry is limited.

4.3.2. Threat of Substitution

Due to the high quality of services provided by this company, buyer inclination towards substitutes is limited. One of the main aims of BP is to provide high quality products for a better quality of life (BP 2009c). Hence, BP constantly ensures high quality products and services.

4.3.3. Threat of competitive rivalry

Oil market is highly competitive. However, BP has been constantly expanding its operations and networks all over the world. Its activities now cover six major continents. Further, it is constantly using innovative technologies to meet new and new requirements in energy market.BP participated in three of the 14 major discoveries reported globally in 2008, a leading position among its international oil company competitors. Moreover BP strengthened its position in a number of core growth areas, including the Gulf of Mexico, Egypt and Angola. Reports also show that the competitive performance gap has been reduced in 2008(BP, 2008a).Hence the threat of competition to BP is not very high.

4.3.4. Bargaining Power of Suppliers

The company has been able to maintain good relationship with suppliers .Hence the bargaining power of suppliers has been limited.

4.3.5. Bargaining Power of buyers

Due to the high quality products ensured by BP, the buyers were happy to buy the products from BP. This is reflected from the sales figures in 2007.The reports show that sales of crude oil, spot and term contracts increased, because of higher prices, partly offset by lower volumes. The increase in 2007 compared with 2006 was principally due to an increase in marketing, spot and term sales of refined products(BP,2008).Hence the bargaining power of buyers is limited.

Thus, all the five forces operate in  favour of the company.

However, the main criticisms against the Porter’s models are that their main objectives are only profitability and survival. The assumptions of the model are classic   perfect market, simple and static market structures and competitive markets. Due to these assumptions, the model is criticised as not being able to capture the dynamics of markets and cannot consider new business cycle models (Speed, 1989 and Sharp, 1996). In spite of these criticisms, this model is still popular for external analysis.

4.3.6. Internal Analysis

According to Coulter (2005), internal analysis is a process of identifying a company’s assets, capabilities and main competencies. Without identifying a company’s strengths and weaknesses, it is not able to perform well. This analysis mainly looks into the company’s mission, vision, strategic objectives and strategies. The strengths of a company are defined as “resources that the organization possesses and capabilities that the organization has developed, both of which can be exploited and developed into a sustainable competitive advantage” (Coulter, 2005). The weaknesses of a company are defined as “resources and capabilities that are lacking or deficient and that prevent the organization from developing a sustainable competitive advantage” (Coulter, 2005).

One main internal analysis technique is value chain analysis. The concept of value chain was first formalized by Porter (1985) in his book “Competitive Advantage: Creating and Sustaining Superior Performance”. Since then, it has become a major technique for creating more customer value. This is based on the assumption that customers demand some type of value from the goods and services they purchase or obtain. The abilities of the organization to create customer vales through work activities are examined by value chain analysis. The strengths and weaknesses in these activities need to be identified.  Nine activities, among which five primary and four support activities are identified by Porter (1985) .The primary activities identified by him, are service, marketing and sales, outbound logistics, operations and inbound logistics while the support activities are firm infrastructure, human resource management, technology development and procurement

4.3.7. Value Chain Analysis Results

The main products or services by BP are LPG and solar powered energy. The services on the road are gas and fuel cards, gas and petrol stations, motor oil and lubricants, rote and journey planner, gas and petroleum station locator and a nonprofit carbon offsetting initiative. BP has   six major international brands. The world advertising campaigns include both online and print campaigns. The main message of the campaign includes energy investment in both traditional and alternative forms of energy. BP undertakes innovative technologies to meet energy demands efficiently and products that are more efficient by investing in a low carbon future. Regarding BP group’s internal control the following statement gives its position “The group’s system of internal control is designed to meet the expectations of internal control of the Combined Code in the UK and of COSO (committee of the sponsoring organizations for the Treadway Commission) in the US. The system of internal control is the complete set of management systems, organizational structures, processes, standards and behaviours that are employed to conduct the business of BP and deliver returns to shareholders. The design of the system of internal control addresses risks and how to respond to them. Each component of the system is in itself a device to respond to a particular type or collection of risks” (BP, 2008).

4.3.8. Generic and Grand Strategies

According to Porter (1985), three main generic strategic options are permitted to the organization to achieve a sustainable competitive advantage. They are cost leadership, differentiation and focus. The grand strategies are a comprehensive approach for directing the activities of a company and obtaining its long-term objectives (David 1997). The generic strategies of BP are  (1)safe, compliant and reliable operations  (2)operational and financial momentum and (3) strategy in progress through upstream growth, downstream turnaround, alternative energy and corporate simplification(BP,2009j). The garand staretgies include  strategic alliance with the other six competitors like Amoco, Arco/ampm, Sohio, Castrol and Aral that gave BP a new momentum. The other generic strategies include innovative technologies to develop new products, high quality products through cost efficiency   and employee satisfaction through performance driven awards  and recognition.(BP ,2008).

5. Conclusion

In this report, the marketing environment of BP which is the world’s third largest oil company and Britain’s largest corporation has been discussed. The report shows that BP has been quite successful in terms of financial performance, competitive position and the speed of international expansion. The main factors behind the success of the company have also been discussed using various models and concepts. The analysis shows that the company has strong beliefs, values and strategies that have been its guiding principles.   The main strategies and tools of BP  include   no damage to environment ,  reliance on safe  and reliable operations , efficient advertising campaigns, customer and employee satisfaction, innovative technologies,  constantly updated technologies,  strong internal control, strategic alliance with different competitors, alternative low carbon energy investment  and cost efficiency  that have been the major sources of its present and future growth. At  the same time there are risk factors also which need to be taken care of for its successful performance.

References

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