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Kotler (1998) stated that PESTEL analysis is a strategic tool to analyse the present market condition of a business, understanding market growth or decline, potential and direction for operations. According to porter (1985) PESTEL ensures that company's performance is aligned positively with the powerful forces of change that are affecting business environment.
Source:google images 2010
Political factor plays a major role in any organizations business expansion in new markets. The political condition of the country, region or the market has direct effect on the company's outcome there. UK government policy changing from time to time. Recently the UK governments have increased the import tax by 3% (Data monitor 2010) which is affecting the offshore oil industry in UK. For example, the North Sea industry has been facing major challenges. UK government policy changing from time to time. The new conservative government change several policies after post election to the oil and gas industry such as petroleum revenue tax (PRT) at 50% on the top of corporation tax if the business established before 1993.
(Source: http://social.decomworld.com/industry-insight/post-election-outlook-north-sea-oil-and-prt on 17th Dec 2010)
According to Thompson (2002) economic conditions impinge on how easy or difficult it is to be successful and profitable at any time because they affect both capital availability and cost, and demand. Supply of money has adverse effect on UK economy. The economy has recently come out of the recession, so all the banks are trying to avoid funding in higher resources. For instance most of oil industry projects are stopped due to insufficient supply of fund.Higher inflation and recession has major effects on people income. Instead of using own transport, common people will be travelling in public transport which will have effect on oil industry sale.
(Mintzberg et al. 2009)
The social environment demonstrates demand and tastes, which changes with fashion and disposable income which can provide both opportunities and threats for particular companies
According to recent census report the population of the UK will increase in the near future due to high immigrant rates and ageing population. Further investigation analyzed the population structure and energy consumption in UKÂ has gone down nearly 20% due to ageing population which will have a major impact to the oil and gas industry in the UK especially BP because of larger market share.
( Souce :Â http://www.statistics.gov.uk/StatBase/Product.asp?vlnk=6303Â . Article: population trends 140 summer 2010 )
( Source :Â http://www.bbc.co.uk/news/science-environment-11514248Â Â . Â published: 12 October 2010 )
At present time Technology plays a major role in almost every organization to gain sustainable competitive advantage from its competitors. UK oil and gas industry is going through very challenging environment due to innovative technologies to gain maximum resources. The best example is that of North Sea to recover oil from complex resources by utilizing innovative techniques. New technology is the key aspects of innovative resources. The government is spending on alternative energy technologies (AETs) are analysed important factors of new development and organizational categories.
Refining and operation process required large amount of chemicals and finally extraction of gas and petroleum produce air pollution. In addition to these several hazardous products released in oil and gas industry as waste which are associated with environmental risk factors. The UK Environmental Management System (EMS) is associated with different law relate to oil and gas operation in a specific location to control the risk factors.
(Source: http://www.oilandgasuk.co.uk/knowledgecentre/environment.cfm on 18th Dec 2010)
(Source: http://www.oilandgasforum.net/management/regula/ukprof.htm on 18th Dec 2010)
Health and safety is the major concern with the people linked with oil industry. UK health and safety policy is regulated by the government which helps to protect the personal health of the workers in oil exploration, drilling, distribution, consumer disposal and industrial factors. Product safety is another important factor in oil and gas industry, because the leakage of resources from the outlet can create havoc impact on the environment. The legislation is concerned with the raw materials or formulates products. The UK government considers to vital information to find the volatility risk factors concerned with products and materials. Evaluation of risk associated with oil and gas industry are analyzed with special measures in future. Best example BP need to face major consequences during oil spill in the Gulf of Mexico. In addition, BC News 22 August, 2010 Oil and gas industry has to improve safety of workers on offshore because of big rise in injuries and other serious incidents. The average number of injuries for the previous five years was 42.
(Source:http://www.bbc.co.uk/news/uk-scotland-north-east-orkney-shetland-11059986 accessed on 16th Dec 2010)
(Source: http://www.hse.gov.uk/offshore/guidance/entrants.pdf accessed on 16th Dec 2010)
(Source:http://www.bp.com/sectiongenericarticle.do?categoryId=9032686HYPERLINK "http://www.bp.com/sectiongenericarticle.do?categoryId=9032686&contentId=7059968"&HYPERLINK "http://www.bp.com/sectiongenericarticle.do?categoryId=9032686&contentId=7059968"contentId=7059968 accessed on 18th Dec 2010)
BP SWOT ANALYSIS
Globalization is changing the face of the business world at present time. Companies operate in a very difficult environment and face numerous challenges when competing in global markets. Now a days managing global operations requires knowledge about various strategies and intercultural skills and that expand beyond traditional management principles and techniques.
SWOT analysis is a strategic planning tool used to analyze the strengths, weaknesses, Opportunities and threats of an organization. The key to a SWOT analysis is identifying the internal and external factors which are important to achieve the goals of the organization. The internal factors include strengths and weaknesses of the organization and the external factors are the opportunities and threats. SWOT analysis is popular among the managers for its simplicity as a planning tool and its flexibility to adapt in any situation or project. The strengths and weaknesses of a company depend on its internal elements like resources, operational programs, and departments like sales, marketing and distribution. An opportunity is a attractive condition which can be exploited to strengthen a strategic position, such as increasing demand for a new product. A threat is a condition which creates uncertainties which damage an organization's performance and market share.
BP is known as giant in oil industry and spread its business geographically. The organization has huge Market Capitalization worldwide due to this the company has significant bargaining and domination power. But still the organization needs to face some consequences, which can be analyzed on SWOT factors.
Source :( International strategic management 2010)
Leading Market Position and Major capitalization
Vertically incorporated operations
Broad global existence
Disaster in the Gulf of Mexico
Outburst in the Texas plant
Destruction of tax law in turkey
Purchase of Devon Energy's resources in Brazil, US deep water gulf of Mexico and Azerbaijan.
Acquired new project on oil and gas exploration.
Diversifying investment in the alternative energy business and others resources.
Diffusion of assets in North Sea.
Volatility in some oil producing region.
Environmental safety policy
Major risk involved in exploring and production oil and gas activities
Threat of a acquiring by other competitors.
Leading market position
BP is one of the largest Petrol manufacturing companies in the global world and occupied largest market share in term of capitalization. The main clients of BP are Aviations, Military and general airlines sectors and marine industry.
Vertically Incorporated position
BP operational strategy for oil business divided into two segments mainly: refining and marketing; and production and oil services. They are broadly classified into three categories; upper-stream operation deals which includes gas exploration and field development. Lower stream operation consists of refineries and marketing network and the middle-stream operation associated with six factors: processing, management and ownership, natural gas pipelines, export terminals, NGL extraction and transportation to their consumers.Thus, their vertically incorporated position gives competitive advantages in the oil industry.
Broad Global Existence
The organization has very large number of consumer base worldwide. Their existence is in more than 80 countries in geographical market. (Euromonitor 2009)
Disaster occurs in the Gulf of Mexico, Texas plant and Tax law in Turkey:
The disaster occurs in the Gulf of Mexico and Texas plant in 2010 and in 2005 due to drilling and exploration of oil well and careless risk management and planning. The exploration causes huge damage to the US environment. This effect the BP brand image and cost them too much which may affect the BP's profit margin. (Datamonitor 2010)
Acquiring New Assets:
BP acquired several assets around the world. The new asset acquired by BP in 2010 includes Devon Energy's in Brazil, Azerbaijan and US deep water Gulf of Mexico. These provide the organization significant long term growth and also emphasize company operational strengths and key interest around the world.
Acquired new projects on oil and gas exploration:
BP has explored many new projects in the FY 2009. For example Angola and Sonangol announced 'Oberion Oil' discovery, Tiber prospect in deep water Gulf of Mexico discovery 'Tebe oil' projects and many more. The discovery of new projects will enhance the BP production in future.(Mintel 2009)
Diversification of Investment into alternate Business:
BP has diversified some of their investment in alternate business like solar and wind in FY 2009. The intervention of low carbon energy and bio-fuel technology will maximize the company profits and create a brand image in friendlier environment.
Environmental risk and Risk involved in Exploration, Diffusion of North Sea, Volatility in oil region and acquiring business by competitors:
There are many risk associated with BP oil industry. Environment and exploration damages in Gulf of Mexico, Texas and Turkey are some better examples, which may affect the brand image as well as operational cost to the organization.
To summarize the SWOT analysis provides the basic framework to appraise an organization's internal and external position in its environment including their potential impact on performance.
Porter's 5 forces analysis deals with the factors happening in the external environment which have direct link with the internal environment of an organization. Porter's competitive forces model consists of five forces which has a direct impact on an organization's performance in the business market.
Source:google images 2010
Threat of entry
The threat of new entrants is usually based on the market entry barriers. In the renewable energy market the threat of new player entering the market is low comparable to other sectors. Also the favorable government policies for existing competitors
Creates barriers for a new comer in the market
Threat of substitutes
The threat of substitution depend on the switching costs i.e., the costs in the areas such as redevelopment costs which takes place when a customer changes preferences or get interested in other similar products. It's difficult to predict the end of fossil fuel domination. So as for now only fossil fuels pose as a significant replacement to renewable energy.
Rivalry among existing competitors
Basically all the major oil firms know the fact that fossil fuels will be destroyed sooner or later following which the alternative energy will become the way of the future. So all the companies invest their capital in developing alternative energy to position themselves early in new markets and also strengthen their position in existing markets.
Bargaining power of the customers
Buyer power is a very important horizontal force which influences the misuse of the value created by a trade. The volume and the application of customers are the two most important determinants of buyer power.
Â Supplier Power
Supplier power is a direct reflection of the buyer power. By utilizing its vast capital and technological knowhow BP has developed its own internals supply network in every country it operates.
Source: http://www.seattlesynergy.com/documents/BeyondPetroleum.pdf accessed on 20th Dec 2010
Source: http://university-essays.tripod.com/porters_5_forces_analysis.html,accessed on 20th Dec 2010
McCarthy developed the idea of marketing mix 40 years ago. Marketing mix can be defined as the levels and relationship of the fundamentals of a product's or service's marketing efforts, including product features, pricing, packaging, advertising, merchandising, distribution, and marketing budget which directly affects the sales results. It consists of four components- product, price, place, promotion.
Source:google images 2010
Pricing is a very complex area. Generally consumers give more priority on higher priced products, so it's best to test various pricing levels of the products over time to find the right pricing combination that maximizes the profits. The examples of price decisions generally consists of Pricing strategy ,optional retail price, amount discounts and extensive pricing, Cash or early payment discounts, cyclic pricing, Price plasticity, Price unfairness etc.
Another dimension of marketing mix is place. Its also known as channel, distribution, or intermediary. It's a process by which the goods or services are moved from the manufacturer to the consumer .the types of distribution decisions mainly include supply channels, Market coverage, particular channel members , stock management, Warehousing ,allocation centers , categorize processing , Transportation , Reverse logistics.
A product is a tangible physical identity by which both buying and selling can be done. The examples of product may include Brand visibility, Functionality, Styling, superiority, security, wrapping, maintenance and sustain, Warranty, trimmings and services
Levels of a Product.
The Product Life Cycle (PLC)
Source:google images 2010
The Customer Life Cycle which put emphasis on the delivery of lifetime value to the customer to retain them for the business.
Last of the 4 p s is promotion. It represents various aspects of marketing communication, i.e., the information about the product to generate a positive customer response. Marketing communication mainly includes promotional strategies like push and pull , promotions ,Personal selling, Sales advertisements , Public relations, Marketing budget
Source:http://marketingteacher.com/lesson-store/lesson-marketing-mix.html, accessed on 20th Dec 2010
Source:http://www.netmba.com/marketing/mix/,accessed on 20th Dec 2010
Objective of NPD: The objective should run through a various process, while time launching is the crucial part than promotion pathways.. According to Ulrich and Eppinger, objective for budgets and finance have strong role to launch a new product in the market. (Ulrich T and Eppinger D 2004)
Marketing concept and frame work process:
Idea Generation: Every successful product need comprehensive ideas, so idea generation is the first and most important part of any new product launch in the market also known as Fuzzy front end. The company needs to analyze the SWOT to find its potential market and possible threats. Sometimes the idea of a new product generate with the opportunity analysis. (Koen et al. 2001)
Idea Screening: is a concept which eliminates unsound objects. Companies need to find the existing market size and target market where they can get a picture about the product whether it could be profitable or not. Some questions should be asked in this process like as, is there any target market lies which could benefit from the product? (Keller P, 2008)
Concept Development and Testing: is the framework where a product can be developing in the marketing and engineering details. Customer feedback is the most valuable part of a company where they assure about the future of the product which is going to be launch soon. (Koen et all, 2001)
Business Analysis: A complete and flawless business strategy lies in various important implementations of marketing theories. For successful business strategy, need to estimate the selling price, which could base upon competition and consumer feedback, estimate the sales volume of the market size and it can be based on Fourt-Woodtlock equation tool and calculate the break-even point.( Smith G and Reinertsen G 1998)Â
Market Testing: After successful business planning, market testing is required to check the sustainability of the product. So build up a prototype of the proposed product, need to test the product packaging and checking the necessary adjustment where needed(Cooper G 1988)
Technical Implementation: Few of the necessary steps should taken in this process likes as, set up a new program imitation, finalize the system of quality management, publish the estimate, need to produce the technical communication such as data sheets, draw the logistic plan and supplier collaboration, review the whole program and monitoring, keep an eye about the department scheduling. ( Koen et all, 2001)
Promotion after new product development: A new or existing product launching process is going on through various promotional campaigns to reach the target customers. In that time, the product must launch in the market while need to fill the distribution pipeline with their recently launch product and promote their new product through advertisement. ( Prahalad & Hammel, 2007)
New Product Pricing: The last part of this framework is product pricing where the product can set up its launch on market. The financial team analyzes the internal and external value while they justify the impact and customer demand on the new product portfolio. (Aniston et all, 2001)
British Petroleum developed several oil fields and constructed refineries in different countries all over the world, including major interests in Alaska's Prudhoe Bay and in the north sea near United Kingdom, BP ,its subsidiaries and associated companies combine together to engage in the investigation, manufacture, refinement, shipping, and delivery of oil and natural gas and in the manufacture of chemicals, plastics, and synthetic fibers. It also operates expediency stores and filling stations through other brands like, Aral, ARCO, and am/pm.From the above factors we can analyze BP options are opened widely to overcome the oil spill cost. They can strengthen their financial resources from current drill oil and develop for new forces such as solar energy because for the new trends in the emerging market. Besides this, it will also boost up the company's reputation and reduce the environmental threats and pollution.