KENSINGTON COLLEG OF BUSINESS AND UNIVERSITY OF WALES

BP Market Analysis and

Strategic Marketing

Recommendations In the USA after the Gulf of Mexico Oil spill

Nahid Mohsen Pour

2/28/2011

Contains: 2962 words

Without charts, content, references, tables

In this essay, I am performing Macro environmental analysis of BP business in the USA, after the gulf of

Mexico oil spill, and also try to give Strategic Marketing recommendations to recover from the so called

Marketing disaster in the USA market

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Table of Contents

Introduction ............................................................................................................................................ 4

Approach ............................................................................................................................................. 4

Importance of Marketing ..................................................................................................................... 4

Part I: Macro Environmental Analysis of BP business in the USA after the Gulf of Mexico Oil Spill ............ 5

Political Analysis .............................................................................................................................. 5

Economical Analysis ......................................................................................................................... 5

Social Analysis .................................................................................................................................. 6

Technological Analysis ..................................................................................................................... 6

Legal Analysis................................................................................................................................... 7

Environmental Analysis .................................................................................................................... 7

SWOT Analysis ..................................................................................................................................... 8

Strengths ......................................................................................................................................... 8

Weakness ........................................................................................................................................ 9

OPPORTUNITIES ............................................................................................................................... 9

THREATS .......................................................................................................................................... 9

Part II: Strategic marketing recommendations to BP to recover from Marketing disaster after the Gulf of

Mexico oil spill ....................................................................................................................................... 11

Industry Analysis (Porters Five Forces) .............................................................................................. 11

Industry rivalry............................................................................................................................... 12

Bargaining power of Suppliers ....................................................................................................... 13

Bargaining power of buyers ........................................................................................................... 13

Threats of new Entrants ................................................................................................................. 13

Threat of substitute products......................................................................................................... 14

Porter's Generic Competitive Strategies (ways of competing) ............................................................ 14

Ansoffs Model ...................................................................................................................................... 15

Marketing Mix Mc Carthy 4Ps ......................................................................................................... 16

Product .......................................................................................................................................... 16

Price .............................................................................................................................................. 16

Promotion ..................................................................................................................................... 17

Place .............................................................................................................................................. 17

Conclusion ............................................................................................................................................. 17

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Bibliography .......................................................................................................................................... 18

Table of Figures ..................................................................................................................................... 19

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Introduction In this essay, I am going to have a look at the Gulf of Mexico oil spill and how it affected BP business in

the USA. In order to have an academic approach, I have divided this report into two parts, where in part

I, I will perform business Macro Environmental analysis and in Part II, I will give my recommendations,

based on business and management tools and models.

Approach

My approach to address this problem is to look at the THEORY, give EXAMPLES, and ANALYSE the

issue. In THEORY part, I explain the relevant theory or model I am applying, in the EXAMPLES, I offer

examples from the case study that matches to the theory and finally in ANALYSE, I try to address the

issue and analyze the problem according to the relevant theory and model.

Importance of Marketing

(Kotler P. , 2006) Argues that marketing is the Achilles' heel of many formerly prosperous companies

such ad GM, Kodak, Sears and many other companies. He adds that even giant companies such as

Microsoft, Intel or others, just cant sit and relax. Jack Welch, GEs former CEO, always warned his

company to Change or die." (Kotler P. , 2006)

I think BP, although a huge company in oil industry is not an exception. I can say that, constant revision

of marketing strategies is essential for a firm to live, while in case of BP, after the tragedy of Gulf of

Mexico, which has lead to financial and non-financial losses to BP, it is compulsory to review and update

the marketing strategies.

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Part I: Macro Environmental Analysis of BP business in the USA after the

Gulf of Mexico Oil Spill

According to (Kotler P. , 2006), Macro environmental analysis is find out the external forces that affect a

company to produce and sell, which are consisted of Political, Economical, Social, Technological, Legal

and Environmental factors that affect externally a business.

Political Analysis

THEORY

According to (OxfordUniversity Press, 2007) political factors refer to government policy such as the

degree of intervention in the economy. This might include trading policies, lobbying, inter-countries

relations, and that can affect the business.

EXAMPLES

The US President Barack Obama has established the National Commission on the BP Deepwater Horizon

Oil Spill and Offshore Drilling On May 22, 2010, this can shows the very high intervention of politicians in

the business. (Oil Spill Comission)

Evidence in our case is the increase of royalty rate to fund stronger government oversight of the

offshore drilling, proposed by Barack Obama. (A.Dlouhy, 2011)

Due to the importance of the oil spill, Mr Obama toured the oil-hit areas several times and assured he would triple the manpower to contain and clean up the spill. (BBC,2010)

ANALYSE

I can argue in here that in major businesses such as oil, which has a very high financial turn over, or

there are many health and safety measures or environmental precautions, the political intervention will

be higher.

Economical Analysis

THEORY

Economical factors that might affect a business can be world economy or national economy of the

environment where the business is running.

EXAMPLES

Some experts believe that this incident could be the trigger of the American economic collapse.

Economy is supported fundamentally by its energy industry markets producers (IEA, 2004).Energy

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industry markets will face to increasing demand s about 60 percent, with the higher rate in fossil fuels,

nuclear and replacement energy industry markets having restricted comparative contribution (IEA,

2004). Discovering new substitute energy is growing and is replacing a percentage of total energy

production. From 2 percent in 2002 towards 6 percent in 2030.

ANALYSE

Critically reviewing the economical environment where BP is active in the USA, we can see that the 2008

credit crunch has not affected the oil industry, especially crude oil production at all, the reason is that

the demand in the market is too high. I also can conclude that the crude oil is not only used as a source

of energy but as a raw material for petrochemical industries such as plastic and other products.

Social Analysis

THEORY

Social factor may include the population growth rate, society attitude, average society age and cultural

issues.

EXAMPLES

After the deep water horizon disaster, and due to huge political and legal pressure by the US

government and local authorities especially in Louisiana, BP set up its $20bn Gulf spill claims fund to

compensate those who have been affected, without court intervention, however, many lawyers and

judges in the US, have rolled out that this fund is not acting neutral. (Guardian.co.uk, 2010). This not

only did not recover the bad image of BP, but I believe it made BP image worse.

The amount of environmental damages destroyed BPs brand image, thus maybe the consumers

avoid PB products in the US market. During this decades refer to the statistic shows People's

consuming patterns completely are changed especially in the energy industry market which is notable

to a concern over the sustainability of the future.(bp.com/statistic)

ANALYSE

I can conclude the oil spill had negative impact on BPs reputation in the US, especially in the areas that

peoples lives have been directly and indirectly affected. After the oil spill, many people lost their jobs,

or their business declined including tourism, fishing and other industries.

Technological Analysis

THEORY

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Technology is another environmental and external force that affects a business. In case of BP, as we can

see on many sources of information, such as websites and newspapers, we can find out BP has the

advantage of having advanced technology in deep water exploration of the oil.

EXAMPLES

BP has advanced technology in deep water exploration; they are concentrating on energy efficiency,

investing in low carbon future and production of more efficient energies.

ANALYSE

As BP has advanced technology and is also working to develop its technical know hows, I can argue that

in this regard, BP has competitive advantage over its rivals. Referring to the oil spill in Gulf of Mexico, we

can observe that BP, finally could manage the largest oil disaster in human history.

Legal Analysis

THEORY

Legal factors are those legislations that affect a business, such as employment law, anti trust law and

etc.

EXAMPLES

In our case, the BP oil spill, we can observe the new legislations, forced BP to be more accountable for

health and safety rules and paying compensation to those who have been affected. (Guardian News and

Media Limited, 2010)

Another applicable rule that has affected BP is the so called oil pollution act that Judge Carl Barbier, of

the federal court of Louisiana has used to force BP in fulfilling its legal obligations. (Guardian.co.uk,

2010)

ANALYSE

Gulf of Mexico oil spill has already leaded to many legal limitation of oil industry in the US trying to make

BP accountable for the damages caused to the environment and society. (Guardian.co.uk, 2010) We can

see that the amount of accountability has increased significantly.

Environmental Analysis

THEORY

Environment is very important and environmental activists are playing more important roles in the

business. Sometimes the environmental activist can put pressure to the government and make new

legislations.

EXAMPLES

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Environmental activists warned that the BP spill, which covers an area about the size of Cornwall, could

turn out to be as catastrophic as the impact of the Exxon Valdez tanker spill off Alaska was 21 years ago.

(Guardian.co.uk, 2010)

ANALYSE

The oil spill disaster on the US has caused many environmental activists to oppose exploration of oil

under the sea, which might seriously affect some legislation as its consequences.

New laws USA government, EU Pollution standards, International Environment Organizations, Change in

consumer patterns, consumer behavior, global demands to alternative energy and discovering new

energy sources could be considered as macro environmental forces on BP market.

SWOT Analysis

THEORY

SWOT analysis can help managers to understand the organization and its market or environment, by

contrasting its Strengths and Weaknesses with the Opportunities and Threats in the market.

(WILLIAMS, 2009)

EXAMPLES

Strengths

British Petroleum is third largest energy company in the world because of its international markets

activities is considered as a multinational Oil company Headquartered in London and as a largest

producer of oil and gas in the North of America. (BP) The company has huge market impact, which gives

it notable trading performance in the global energy industry. (BP)

One of the other strengths of BP is Good performance in International energy industry by the network of

its subsidiaries and retail brands such as: BP, AMOCO, ARCO, ARAL, CASTROL, BP EXPRESS, BP CONNECT,

BP TRAVEL, AMPM, BURMAH CASTROL. (BP)

ANALYSE

I can argue in here, BP can build its competitive advantage on its strengths which has already proven in

the oil industry.

Having established different brands, and a very wide distribution network, is one of the KSF1s of BP.

Creating a high level loyalty by BP AMOCO as a strong oil brand.

1 - Key Success Factor

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Adding two comments to BP`s statement: No harm to people and No damage to the

environment

A notable increasing profit due to oil and gas energy prices.

A strong marketing performance more than 8o countries such as Europe, the US, Middle East

and China, etc. therefore Bp has a significant geographic marketing activities.

Weakness

Oil spill in deep horizon water in Mexican Gulf, in April 2010, has made a huge financial loss to BP, and

has ruined the companys reputation. I can argue that one of the very important weaknesses of BP is

improper management and safety issues.

I can recommend to BP, trying convert this weakness into strength, by better management practice.

There has been several incidents for BP, including 2005 Texas refinery explosion, causing 100 injuries

and 17 death, 2000 gallons of Methanol ran out in the oil field (Prudhoe Bay), distribution of 270000

Gallons of crude oil In the Alaska tundra and many other similar incidents.

OPPORTUNITIES

When we talk about opportunities, we are in fact considering external environment, that affect a

business, such as (demographic-economic, natural and other macro environmental factors). Being

among the top 5 oils companies in the world, BP has several external opportunities, including by

acquisition in the North Sea area, BPs future profit by acting in the suitable boundaries area in the

Russia region, Implement plan to achieve alternative energy methods insist of Hydrogen, natural gas,

wind and solar by 8b.US$ investment. (BP)

THREATS

Same as opportunities, threats are also external elements, such as environment, legal and political

issues. My research shows that one of the most external threats to BP is the pressure of environmental

activist and legal pressure that will increase the cost of operation for BP.

Unfortunately, there are many external threats that affect BP, many of them is originated from careless

attention of BP, that has caused damages to the environment.

ANALYSE

It is very important to find out BPs Weaknesses (internal analysis) and transform them into Strengths.

On the other hand, we need to find out BPs Threats and try to transform them into opportunities

(External analysis). I can argue in here that one of the threats for BP has been so far, is less attention to

the environment, I can recommend to BP to try to have some sort of emphasis on green products. Also

as BP has been successful in controlling the oil spill, now it can be considered as strength for BP, and

they can have new division for environmental protection.

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Figure 1 SWOT

How to?

Weakness Strengths

Threats Opportuniti

es

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Part II: Strategic marketing recommendations to BP to recover from

Marketing disaster after the Gulf of Mexico oil spill

In this section, I am reviewing the possible ways where BP can develop its market, according to common

business and management frameworks.

Industry Analysis (Porters Five Forces)

THEORY

Porters five forces, is a framework for analysing an industry, as shown on the following diagram.

Figure 2 Porter's Five Forces

The aim of Porters five forces analysis is to find out how a business can compete is a specific sector.

EXAMPLES

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Industry rivalry

Oil industry is very vast, starting from exploration to refining and distribution, and there are many

companies active in oil industry. However, the number of main oil companies who can explore and mine

oil fields is very limited.

As shown on the following diagram, the major oil companies are:

Figure 3Major oil Companies

BP

Chevron

Conoco Philips

Royal Dutch Shell

BP is in third place as a producer of crude oil in compare with Chevron, Shell, Total, Conoco.

It seems Mexican golf disaster had not effective impact on BP to refinery Crude oil.

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Figure 4 Major Gas companies

I can argue in here that unlike many other industries, the rivalry in the oil industry and specifically in the

oil exploration is too low.

Bargaining power of Suppliers

The suppliers for BP are countries that have oil reservoirs and oil fields. They usually have a bid for their

oil field explorations. I can argue that here the bargaining power of suppliers is too high and they can

choose the contractor.

Bargaining power of buyers

The buyers or the crude oil, usually purchase in the oil markets, and the market price is determined by

the demand.

Threats of new Entrants

As the capital for oil companies is too high, and the level of technical knowledge is too high and

advanced, this has created a very high barrier for the new entrants. Thus I can conclude there is almost

no new entrants threat in oil industry and also for BP.

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Threat of substitute products

Crude oil cant be substituted by any other product, as it is not only the fuel but also the raw material for

petrochemical industries. Other sources of energy are bio fuel, nuclear energy, solar energy and which

at the moment arent cost effective.

Porter's Generic Competitive Strategies (ways of competing)

THEORY

Porters generic Strategies, try to define where the firm can compete. As shown on the following

diagram, a firm can compete on either cost or product differentiation.

Figure 5 Porter's Generic Strategies Source: http://www.socialmediamarketinguk.com/2008/11

I can argue in here that, there is not too much room in to compete on the price in the oil industry in two

senses:

Cost

Differentiation

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Crude oil price is determined in oil markets, and this product cant be differentiated.

Focus

However, I can recommend to BP to try to focus on a specific service in the US. As, BP is the best

company in deep water exploration, I would argue to BP to try to focus on deep water exploration.

Ansoffs Model

Figure 6 Ansoffs Market Development Model

The Ansoff Growth matrix is a tool that helps businesses decides their product and market growth

strategy.

Ansoffs product/market growth matrix suggests that a business attempts to grow depend on whether

it markets new or existing products in new or existing markets.

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The output from the Ansoff product/market matrix is a series of suggested growth strategies that set

the direction for the business strategy. These are described below:

Market penetration

Market penetration means where the business focuses on selling existing products into existing markets.

In our case, it means trying to continue deep water exploration in the US. Based on my analysis on

previous sections, I would recommend to BP to use this as marketing strategy.

Market development

Market development means the business seeks to sell its existing products into new markets. This would

be trying to enter other countries market. This, I can argue can work very well for BP, as its competitive

advantage in deep water exploration.

Product development

Product development means introducing new products into existing markets. This for BP means

introducing bio fuel and other products to the US market.

Diversification

Diversification is the name given to the growth strategy where a business markets new products in new

markets.

This is an inherently more risk strategy because the business is moving into markets in which it has little

or no experience.

For a business to adopt a diversification strategy, therefore, it must have a clear idea about what it

expects to gain from the strategy and an honest assessment of the risks.

(Ansoff, ansoff's product / market matrix)

Marketing Mix Mc Carthy 4Ps

Product

Although oil industry has vast sets of products, but the main product is the crude oil, which cant be

differentiated. In this regard, BP hasnt any choice, except planning to develop substitute products such

as bio fuel. However, if we consider crude oil exploration, I can argue there is no substitute product.

Price

The price of crude oil, as the primary product of BP and the major oil companies, is determined by

international markets and OPEC, and BP cant play with the price.

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Promotion

Having discussed several environmental disasters caused by PB, I can argue the image of BP in the

society has already changed to a company that is not environmental friendly. However, as we can see on

BPs website, recently they are trying to show their support toward environmental awareness.

I would recommend to BP to try to have advertising campaign toward a better support of environment,

and environmental awareness.

Place

I can argue that in terms of place, there are some limitations for oil companies, as the oil fields are

limited around the world. BP, and other oil companies cant determine where to go for exploration, as it

is a natural resource and is only available in limited number of places.

Conclusion

Based on the analysis I gave on Part II, I can formulate the marketing Strategies for BP in the USA, as:

1- Focus of deep waters oil exploration(Focusing Strategy)

2- Try to have green advertising campaign (Promotion)

3- Try to penetrate more into the USA market

4- Try to create better image (Social factor), by better approach to compensate those who have

been affected.

5- Continue lobbying (Political factors), or do it more efficiently.

6- Care for the environment (Environmental factor)

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Table of Figures Figure 1 SWOT ....................................................................................................................................... 10

Figure 2 Porter's Five Forces .................................................................................................................. 11

Figure 3Major oil Companies ................................................................................................................. 12

Figure 4 Major Gas companies ............................................................................................................... 13

Figure 5 Porter's Generic Strategies Source: http://www.socialmediamarketinguk.com/2008/11 .......... 14

Figure 6 Ansoffs Market Development Model ...................................................................................... 15