The big fish of oil players
BP plc (formerly British Petroleum plc) is a British global energy company that is also the third largest global energy and the 4th largest company in the world. As a multi-national oil company (“oil major”) BP is the UK's largest corporation. The company is among the largest private sector energy corporations in the world, and one of the six “supermajors” (vertically integrated private sector oil exploration, natural gas, and petroleum product marketing companies). (Exhibit 1)
BP is the pioneer of the Middle Eastern oil industry. BP discovered oil in Iran before World War I and eventually became involved in all aspects of the oil industry, from exploration to marketing. By the mid-1990s, it was producing over 1.2 million barrels of oil and 1.5 million cubic feet of natural gas every day. “Downstream” operations - oil refining and marketing - contributed over four-fifths of BP's revenues in the mid-1990s. BP is familiar to most people by virtue of its more than 16,400 service stations around the world, but it also has significant interests in oil exploration (generating 13 percent of revenues) as well as production of chemicals and plastics (about seven percent of sales).
After years of exploration, adventurer William Knox D'Arcy discovered oil in Persia (now Iran) in 1908. This was the first oil discovery in the Middle East. In April 1909, the Anglo-Persian Oil Company was incorporated. This company was the predecessor of BP.
In 1935, after Persia became Iran, the company renamed itself Anglo-Iranian Oil. After World War II, the company became the focus of unhappiness among Iranians, who charged that the dividends they received from oil production were too small. In 1951, under the leadership of Mohammed Mossadeq, Iran nationalized its oil industry. This led to a 1953 coup that resulted in Mossadeq's overthrow. The British government and the U.S. Central Intelligence Agency were implicated in the coup, which some critics charged was undertaken in part to protect Anglo-Iranian Oil's profits in the region. By 1954, Anglo-Iranian Oil was renamed British Petroleum and resumed oil production in Iran. BP continued its Iranian operations until 1979, when the regime of Ayatollah Khomeini confiscated the company's assets in Iran.
The situation in Iran demonstrated to BP leaders the hazards of depending on one country for its oil. During the early 1950s, BP expanded into other parts of the Middle East, as well as Canada, Africa, and Europe. BP became a key player in Alaska after the discovery of oil at Prudhoe Bay. It further expanded its activities in the United States when it acquired marketing and refining capacity from Atlantic Richfield (Arco).
For years, the British government had owned a stake in BP. This changed in the 1980s under the privatization policy of then-Prime Minister Margaret Thatcher. By 1987, the British government had sold its holdings in BP.
Under the leadership of Lord Browne as its chief executive, BP became larger, thanks in part to a series of major acquisitions. In 1998, BP merged with Amoco, creating a new company, BP/Amoco. This new name was short-lived, however, and the company was renamed BP in 2000. That year, BP acquired two other companies: Arco and Burmah Castrol. In July 2000 BP renamed and adopted the tagline “Beyond Petroleum,” which remains in use today.
NATURE OF PROBLEM
BP's rebranding as “green”
Lord John Browne, who had managed BP's Alaska division for many years, became group chief executive in 1995. The following year, to the surprise of many environmentalists and oil industry analysts, BP resigned from the Global Climate Coalition, which ridiculed the science pointing to human induced climate change and sought to undermine the Kyoto treaty negotiations. In one his first speeches as CEO of BP, Browne said “The time to consider the policy dimensions of climate change is not when the link between greenhouse gases and climate change is conclusively proven, but when the possibility cannot be discounted and is taken seriously by the society of which we are part. We in BP have reached that point”. Subsequently the company moved to adopt internal greenhouse gas emission reduction targets.
In late July 2000 BP launched a massive $200 million public relations and advertising campaign, introducing the company with a new slogan - ‘Beyond Petroleum' - and a green and yellow sun as its logo. The campaign was handled by Ogilvy & Mather Worldwide, one of the major advertising companies. Around the world the company took out full-page color advertisements in major magazines. The Company's vice president for marketing told the New York Times that BP is “the company that goes beyond what you expect from an oil company, frank, open, honest and unapologetic.”
The re-branding - undertaken in the wake of major controversies in Europe over Shell's role in Nigeria- was aimed at differentiating BP from its rivals. With raised expectations about corporate behavior - and especially oil companies - BP's move not only sought to distance itself from its European counterparts but also American oil companies - such as Exxon - which was strongly opposing moves to curb greenhouse gas emissions. BP also sought to cultivate ‘moderate' environmental groups in a series of ‘partnerships' with groups like the National Wildlife Federation.The green gloss fades
BP's record of environmental protection has been no better than other oil companies. In 1991 BP was cited as most polluting company in the US based on EPA toxic release data. And in 1992 Greenpeace International named it one of Scotland's two largest polluters. BP has neither become a model company since its apparent environmental conversion in 1997. Between January 1997 and March 1998, BP Amoco was responsible for 104 oil spills in America's Arctic, according to US PIRG research. In 1999 BP admitted illegally dumping hazardous waste at its “environmentally friendly” oil field in Alaska and was fined $500,000 for failing to report it. It also paid $6.5 million more in civil penalties to settle claims associated with the waste's disposal. Also in 1999, it was charged with burning polluted gases at its Ohio refinery and agreed to pay a $1.7 million fine. In July 2000 BP paid a $10 million fine to the EPA and agreed to reduce air pollution coming from its US refineries by tens of thousands of tons.
These incidents have put BP in a very bad image. BP has a very huge challenging of redefining itself so that it can be acceptable by the society as a green energy company. While BP's rebranding program may have reassured some of its critics, others remained skeptical.
At its annual general meeting in April 2001, BP was challenged about its interests in projects spanning from Tibet, the Sudan and the Arctic National Wildlife Refuge. A resolution urging BP to disinvest from its shareholding in Beijing-controlled Petro China - which plans an oil pipeline through Tibet - was opposed by the company. BP's business ethics were also challenged when in June 2001 The Sunday Times, revealed that both BP and Shell acknowledged that they hired a private intelligence company with close ties to the British spy agency, MI6, to collect information on campaigns by Greenpeace.
While BP had staked out a public position of being a supporter of the Kyoto protocol to control greenhouse gas emissions - unlike the major American oil companies - Greenpeace New Zealand discovered in May 2002 that it continued to participate in a New Zealand coalition lobbying the government not to ratify the convention. Also in June 2005, The Independent reported that BP has been privately lobbying in Washington to block legislation to introduce a mandatory curb on greenhouse gases in the U.S.
In March 2003, a Californian air quality regulatory agency sued BP for $319 million over what it alleged were thousands of violations of emissions standards at its Carson oil refinery in the port of Los Angeles.
At the 2003 annual general meeting, BP faced criticism over the role in Iraq. While the “Carnival Against Oil Wars” protested against the war in Iraq outside the meeting, the company's CEO stressed that BP would only get involved in Iraq if there was a legitimate government chosen by the Iraqi people.
In 2005, the Texas City explosion was the eighth time this decade a fatal accident had been reported at a BP-owned plant - and the third fatal accident in Texas City alone. Thus, this fatal accident again raises debate over the issue of ‘money versus morality' and questions whether BP acted ethically when addressing safety concerns in negotiations with their workers. This incident happened despite numerous criticisms by the American Occupational Safety and Health Administration (OSHA) of willfully violating safety rules and regulations, several fines and previous incidents which highlighted the plant's safety inadequacies. It was an accident which ultimately cost 15 contract worker's lives.
OilJeffMcIntoshAP476.jpgIn August 2007, BP had received a permit from the state of Indiana to dump more toxic discharges from its Whiting, Ind., refinery into Lake Michigan. This permit allowed BP to dump 54% more ammonia and 35% more suspended solids in the Great Lake. And in late 2007, BP decided to invest in the world's dirtiest oil production in Canada's tar sands. BP's investment in the Alberta tar sands, which are said to be five times more energy-intensive to extract compared to traditional oil, prompted Greenpeace Canada to accuse the company of the biggest environmental crime in history.
Greenwashing is the unjustified appropriation of environmental virtue by a company, an industry, a government, a politician or even a non-government organization to create a pro-environmental image, sell a product or a policy, or to try and rehabilitate their standing with the public and decision makers after being involved in controversy. The term greenwashing is an environmental take on whitewashing - the attempt to cover up or excuse of wrongdoing through false statements or the biased presentation of data. While the term greenwashing first emerged around 1990, the practice itself dates back to the mid-1960s, when corporations were already making an effort to improve their public image in light of the emerging modern environmental movement.
The U.S. based watchdog group CorpWatch defines greenwash as “the phenomena of socially and environmentally destructive corporations, attempting to preserve and expand their markets or power by posing as friends of the environment.” This definition was shaped by the group's focus on corporate behavior and the rise of corporate green advertising at the time. However, governments, political candidates, trade associations and non-government organizations have also been accused of greenwashing.
The 10th edition of the Concise Oxford English Dictionary defined greenwash as “disinformation disseminated by an organization so as to present an environmentally responsible public image”.
The first edition of the Greenwashing report, published in November 2007, identified the seven areas (Sins) that are used by greenwasher corporations. (Exhibit 2)
MARKETING THEORIES AND CONCEPTS
Rebranding is the process by which a service or product that was developed in one brand, or company is marketed in a different brand name or identity. This involves essential changes in the brands name, logo, image, advertising, and marketing strategies. The process of rebranding aims to reposition the brand or the company, or to distinguish itself from the negative opinions about the previous brands or to climb the success ladder by moving the brand still upwards.
Rebranding can be defined as “a process of giving a product or an organization a new image, in order to make it more attractive and successful”. This is done to increase consumer loyalty, improve member professionalism, enter a new market trend, create a stronger voice in the industry, increase share holder value or to reenergize a company.
Generally many companies consider rebranding as a ‘Cosmetic Work out'. When companies fail to establish one brand, or companies whose brand had been through any kind of scandal, may go for a rebranding process. Here, the intention is to erase the previous brand image and establish a fresh one. Some others have positive reasons; like mergers, or a company that is expanding its product line.
Rebranding as green
In a society that's increasingly aware of its own negative impact on the natural world, it's no surprise corporations compete for consumer approval by promoting themselves as environmentally friendly or green. Such promotions might be as simple as sprinkling product packaging with leafy logos or as involved as publicizing investments in emerging technologies. Organizations spend billions of dollars each year in an attempt to convince consumers that their operations have a minimal impact on the environment.
According to a recent study by the AARP, there are 40 million “green boomers” in the United States today. These environmentally conscious consumers make up more than half of the country's 79 million baby boomers (people born between 1946 and 1964). Combined with the younger generation of green-minded consumers out there, this makes for a very attractive consumer group. Exhibit 3 shows a wide range of reasons that organizations get involved in rebranding as green.
A marketing message or USP (unique selling proposition) is a reason that a particular company is preferred over the other alternatives. It is the single most crucial element of defining who you are and what you do. A good message can ensure the success of a company. Some companies have been more successful than other it making a particular message stay in the memory of potential customers. A good example is the GEICO Insurance Company. Likewise, BP has been successful in feeding off of people's concern about climate change, resource depletion and the environment. BP portrays itself as an environmentally friendly company. BP has been running more commercials and print ads about its green energy initiatives than about its oil production.
In order to achieve the level of success that BP has achieved, BP has been very good in marketing itself.
BP's marketing strategy follows 4 Ps:
- Product: Although it is difficult to offer customer a point of difference with fuels, BP sell fuel better for the environment.
- Price: With common products, prices with competitors are easily matched.
- Place: Network of service stations. Research shows that customer choose fuel retailers based on their locations.
- Promotion: BP has a lot of reward programs and customer loyalty programs.
Although BP has a lot of other competitors (Mobil, Shell, etc), BP's advantage lies in the location and value-added services and programmer e.g. Reward program and superior fuels, network of service stations. Independently owned BP stations are also required to meet BP's standard for product and service.
Another essential marketing strategy involves knowing what the customer wants. According to various studies, it has been found that customers want a favorable location, loyalty programs and services. Promotion cost little out of the total revenue of the oil company. So, it is not sensible to stop the promotional activities in an effort to make the oil product cheaper. Promotion plays a role in generating business. BP has shops at its service stations as part of an integrated marketing strategy. This provides to customers more convenient retailing.
BP is made up of the following primary businesses:
- Refining and Marketing
- Natural Gas
- Power and Renewable
- Exploration and Production
- Other businesses
In recent years, BP has taken advantage of the consciousness of the society to climate changes. This consciousness has afforded BP the opportunity of diversifying into the renewable energy market. Due to the huge assets available to BP and multiple acquisitions, BP easily became one of the largest manufacturers of solar panels. The international photovoltaic industry provides solar cells which convert light into electricity. With concerns about global warming increasing and technological advances driving prices down, the market is growing by about 25% each year.
Investment in green energy initiatives
BP Solar is a leading producer of solar panels since its purchase of Lucas Energy Systems in 1980 and Solarex (as part of its acquisition of Amoco) in 2000. BP Solar had a 20% world market share in photovoltaic panels in 2004 when it had a capacity to produce 90 MW/year of panels. It has over 30 years experience operating in over 160 countries with manufacturing facilities in the U.S., Spain, India and Australia and has more than 2000 employees worldwide. The BP Alternative Energy division has made major investments in solar, wind and hydrogen power. Through a series of acquisitions in the solar power industry BP Solar became the third largest producer of solar panels in the world. It was recently announced that BP has obtained a contract for a pilot project to provide on-site solar power to Wal-Mart stores. In the 2006 annual report Lord Browne noted that BP now has a total wind generation capacity of nearly 15,000 megawatts. Based on calculations of consumption rates by the average American household, 15,000 megawatts would be sufficient to provide power to 2.5 billion households. Note that household relative to industry is a small measure of electric consumption and therefore 15,000 megawatts is only a small portion of the world's electricity needs. However, this does represent a real commitment to wind power generation and actually makes BP one of the largest generators of wind power in the world.
ALTERNATIVE COURSES OF ACTION
Here are some of the alternative courses of action that can be taken by BP:
Active collaboration with environmentalists
BP can go ahead to collaborate with environmentalists in carrying out big environmental projects. For instance, BP can support and fund reforestation efforts in places with destroyed animal and plant population that was lost as a result of human destruction. BP can also support research on greenhouse gas effects on the planet. In addition, BP can get involved in the organization of big environmental conferences such as the Copenhagen Climate Conference of 2009. These efforts will further show that BP is very serious about participating in every environmental effort to save the planet.
Research and development in fuel efficient cars
BP can fund R&D efforts towards the development of more fuel efficient cars such as hybrid cars, cars fueled with battery power or hydrogen cell. This would reflect that BP is actually looking “beyond petroleum.”
Research and development in environmentally gas
BP can look into producing fuels that have lower carbon contents. BP is actually doing something similar to this by adding Invigorate to the gas fuel. Invigorate is a substance that gives a gas fuel an enhanced cleaning power. This is the result of BP research efforts. Other oil companies such as Shell are promoting their gas fuels using similar slogan.
Investment in geo-engineering
It used to be considered the stuff of science fiction, but a growing number of experts are voicing qualified support for a radical solution to climate change. It's called geo-engineering, and it involves purposefully attempting to cool the climate through planetary-scale actions like blocking sunlight by stationing mirrors in space. Other fixes include seeding the seas with iron to help plankton absorb more greenhouse gases, and injecting sulfur into the upper atmosphere to create sunlight-deflecting clouds. BP can help development if the new science with its investment in R&D.
Helping to stop deforestation
Forests, especially on the tropics, are virtual carbon banks - and when they're cut down, that carbon is released into the atmosphere. At least 80,000 acres of forest disappear from the Earth each day, and deforestation is estimated to be responsible for about 20% of global carbon emissions. One way BP can help to slow deforestation might be to help World Bank and UN to help poorer nations for taking care of their tropical trees. (In June 2009 the World Bank began raising $250 million for a pilot fund for avoided deforestation projects).
If BP wants to be recognized as a great organization, competitively successful and a force for future progress, we will recommend following strategies:
BP performance should be sustainable - in other words everything BP does should contribute in some way to the long-term health of BP and that of the environment and society. BP should measure performance accordingly, not only with financial metrics but also with the data on safety, the environment and employees.
Commitments on climate change
BP should continue to strive for energy efficiency in their operations and continue investing in low-carbon energy as well as engaging with governments and regulators to shape legislation that will facilitate progress towards a low-carbon economy and make it commercially viable.
Increase investment in alternative energy
In 2008 BP had only around 5% of its capital investment in alternative energy. The vast majority of BP returns come from oil and gas and they are likely to continue to do so. BP should find out which technologies will make the greatest contribution to meeting energy demand while providing BP with strong growth businesses. They should prioritize the areas with significant long-term growth potential - wind, solar, befouls and CCS - and direct the majority of their $investment in low-carbon energy.
Research and Development
There are still lots of rooms from advancement in the solar panel technology. Since, BP has the financial muscle to invest in new technologies, BP can spear head the research into improving the efficiency of the renewable energy generation systems. One of the backlashes that BP has had has been as a result of the disparity between BP's investments in oil to BP's investment in green energy. BP currently invests billions of dollars into oil drilling, while it invests only a few million dollars into green energy. So, if BP increases its research funding for green energy, the criticism from environmentalist for not doing enough can be reduced.
Secure and affordable energy
Despite today's uncertain economic conditions and volatile oil prices, global demand for energy is expected to increase in the long term. BP should use their skills, knowledge and innovation to get more from existing fossil fuels resources, to transform technically demanding resources into energy and to make low-carbon technologies economically viable.
Minimize environmental footprint
BP should diversify the supplies of oil and energy to meet future demand for reliable energy. Although, Canadian oil sands will provide a more secure source of oil supply to consumers in North America in next decade but BP should recognize that oil sands projects raise significant environmental challenges, and they should actively seek ways to minimize the environmental footprint.
Improve the safety
Safe and reliable operations should be BP's number one priority. BP should have programs that improve processes to assess risks of major accidents and new standards for control of work and integrity management.
BP should be involved in a diverse range of socio-political and economic conditions. BP should be able to create tangible benefits from their presence and gain the support for local communities. To do this, BP should take action that is relevant to local circumstances, mutually beneficial and designed to create enduring solutions. Support for local enterprise will drive economic growth as well as helping local companies qualify as suppliers. BP should support the development of local suppliers through training and financing program, building skills and sharing BP's internal standards and practices as appropriate.
Investment in education can promote sustainable development as well as providing skilled workers for BP and other companies. BP should be involved in education in diverse and a wide range. BP should help to fund a range of educational programmers, from early years learning to advanced university research, building skills and capability in the local communities.