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Fuels South Africa final 2 Essay

Words: 2578, Paragraphs: 90, Pages: 9

Paper type: Essay

The Research

Fuel Industry in South Africa

Petrol and diesel are the major liquid fuels that are used in South Africa. 

The Government regulates wholesale margins and controls the retail price of petrol.

The domestic price is influenced by supply and demand for petroleum products in international markets, combined with the rand/dollar exchange rate which plays an important role in our fuel prices.

The major role players in the South African liquid fuels market are government and their associated institutions, as well as SAPIA members. Through institutions like the CEF and NERSA, the government plays a significant role in the South African liquid fuels market.

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South Africa is the biggest consumer of fuel in Africa, with more than 20% of the market share. 

There are approximately 4 600 service stations in South Africa – company and dealer owned.

BP, Engen, Sasol, Caltex, Shell and Total are the dominant suppliers in the South African Fuel Industry.

Statistics of the top service stations visited around the country in 2017/2018:

The researcher found that since there are no statistics available on sales per brand in South Africa that sales can be based on fuel stations visited over a period of time.

Sasol service stations attract the highest volume of feet to their forecourts, despite the fact that they do not have the highest number of service stations in South Africa.

They had the highest visit ratio of 4,221 visits to each of its 294 service stations over a period of three months. This could be due to their superior site locations.

Shell came second, with 3,505 visits at 528 of their fuel stations.

BP also had the most popular service station, with 69,949 visits to the group’s Ultra City sites on the N1 between Johannesburg and Pretoria.

Engen has the largest service station network in South Africa, at 861 sites, but a conversion rate of only 5.3%.

Considering the number of customers stopping at service stations, compared with those opting to drive by a service station – called the conversion ratio – it appears Sasol is the most successful in ensuring drivers pull in at their forecourts.

Sasol’s conversion ratio was the most successful, at 6.2%.

Engen has however been identified at the most popular service station in 2018, followed by Shell.

Sasol at 6.2%

Shell at 5.8%

Engen at 5.3%

BP at 4.9%

Statistics proofed that Food retailers and brands have a big impact on conversion ratios.

BP service stations aligned with Pick n Pay saw a conversion ratio of 8.95 versus the 4.9% average – while Eigen’s alliance with Woolworths had a conversion ratio of 8% versus the 5.3% average.

Fast food had an even bigger impact, with Steers sites’ conversion ratio at 10.4%, while sites with Wimpy restaurants attained 14.9% conversion.

This success can also be attributed to most of Engen Wimpy being located on freeway sites on route to holiday destinations.

Fuel is however still the main factor in this industry. The comparison ratio between money coming from a convenience store and fuel is about R1.20 to R1.40 per litre sold at the fuel station. 

Alliances.

With the constant rise of our fuel prices, every cent counts for South African consumers.

Motorists are increasingly taking advantage of rewards programmes offered by major banks and retailers along with their fuel station partners.

Rewards in the form of points, miles, or cash back range from the equivalent of 10c per litre of fuel to up to 50% of total fuel spend back, depending on the programme.

FNB was the first of the banks to introduce rewards based on fuel purchases as part of its eBucks rewards programme in 2010.

Absa and Standard Bank followed with their Absa Rewards and uCount programmes.

Clicks began offering its Club Card members points for filling up at Shell in 2016. Shell has its own Shell Select stores, but the Spar group also partnered with this fuel company in 2013.

Dis-Chem copied this in late 2017 as did Edcon’s (Edgars) Thank U loyalty programme, partnering with Total and Engen recently.

FNB’S eBucks programme offers the most value for fuel rewards depending on your banks reward level. Customers can earn up to R4 per litre back on their spend at any Engen fuel station. Steers Holdings was named a preferred supplier at Engen service stations.

Standard Bank’s uCount programme offers between 20 and 50c per litre when swiping their cards at Caltex. Fruit & Veg City‚ the owners of Food Lover’s Market and Fresh stop forecourt stores‚ partnered with Caltex.

With Absa the earn rate is a percentage, depending on your rewards tier and card used (the rate on debit cards ranges from 1% to 7.5%, while on credit cards it is between 1% and 15%).

Discovery partnered with BP and Shell. 1 Discovery Mile for every R15 spent is a more a less the equivalent of a litre of fuel. Your earnings can rise to 10 times more depending on your tier status. Pick n Pay Express started their partnership with BP in 2008.The Wild Bean Caf? is also attached to BP connect fuel stations.

Diners Club members get 1 Club Mile for every R30 spent on fuel at Total, while SAA Voyager members get one mile per litre.

7 Ps of Marketing:

Definition:

Marketing is the management process or function that is responsible for identifying (market research) anticipating trends and satisfying of customers (target market) needs and wants.

The marketing function is responsible for all activities that enable the product/ services, at the right time, place and price to optimize the business market position (competitive advantage).

Without proper marketing, companies are not able to get close to its customers and unable to understand them, their behaviour, needs and wants ,and then matching or exceeding them with sound delivery.(How do you communicate with your customer?

Through marketing we want to increase our market share and market position as well as competitive advantage.

Effective marketing – Retains customers, gains more customers, build your brand – increase sales and profit.

Convenience shopping has become an important concept for the consumer today. People would like to be able to fuel their vehicles and buy their newspaper, bread and milk at one point. Retailers in South Africa do not offer 24 Hour services. Therefore it was good marketing strategy to bring alliances such as Pick n Pay, Woolworths and Spar to the customer through our fuel stations.

Product:

The business must provide a product/service that the customer is able and willing to buy. The product must add value to the customer (brand, warranty, quality, usefulness, design and technology).

Tangible and intangible (services) products – hamburger vs. bank account. Market research and environmental scanning is important to get to know your customers. To customers the packaging is part of the product and sometimes as desirable as the product itself.

Consumers recognise and distinguish a product by its packaging. Influenced by trends e.g. Health conscious food items.

Price charged is influenced by strategy:

Market penetration strategy – low price to attract new customers.

Leader pricing – draw customer into shop with discounted price e.g. Hamburger patties, hoping they will also buy rolls, tomatoes, sauce etc.

Promotional pricing –

Bulk discounts

Prestige pricing (luxury products) – expectation to pay more.

Consumer/essential goods – usually not very brand loyal e.g. Bread/milk – speed and convenience of purchase.

Speciality goods – e.g. Cars – consumers are more careful and brand aware. Marketing more target market focussed.

Select/luxury goods – customer will consider price, quality and brand names.

Vital petroleum products are sold at Fuel like engine oils, CNG, diesel, petrol and unleaded petrol. Additional services are also provided like automotive services and car-wash.

Due to fuel prices being controlled by Government, fuel stations had to innovate on targeting known brand markets where both parties could benefit from and bring more products to the customer.

A good example of this was to partner with known brands such as Woolworths at Engen and PnP at BP Fuel stations. The strength of these Alliances is that both members have brought to the part aspects where the other member currently does not perform. Woolworths and PnP brought their good food and strong brand name linked with market dominance and Engen as well as BP brought their immense outlet network, and prime locations. All parties involved in these ventures benefited financially from this initiative.

Price:

Products/services are only worth what customers are willing to pay for them (opportunity costs).

The price charged by the business could also be their competitive advantage (not only cheapest price, but also best value for money) PRICE needs to provide a business with PROFIT. It is the only element of marketing mix that generates revenue; all the other elements are costs to the business. Price helps position your business in the market. The higher the price, the higher the quality and value is expected by the customer. Price sensitivity – Existing customers are usually fewer prices sensitive as you have already gained your loyalty. New customers need to be convinced of the value of your product before paying a particular price. Essential goods are also fewer prices sensitive. Target market/ Living Standards Measure affordability. Some customers want to pay as little as possible vs. “snob value” – cheap and poor-quality perception.

Psychological pricing – Shell’s flavoured milk combo – any two for R34.90 instead of R35.00.

Superficial discounting – was R10 000 now only R9000 (made up)

Price discrimination – Women customers get discount.

Time e.g. – summer sale

Area – Upmarket – higher price.

Where there is a range of products or services the pricing reflects the benefits of part of the range. For example car washes; a basic wash could be R40.00, a wash and wax R60.00 and the whole package for R80.00. Product line pricing seldom reflects the cost of making the product since it delivers a range of prices that a consumer perceives as being fair incrementally – over the range.

Fuel retailers charge higher margins on many services at their outlets and in few cases they provide free services to maintain their customer’s loyalty thus providing a suitable balance.

In Convenience Marketing, the concept is usually that convenience comes at a premium and that customers are prepared to pay more for this convenience, which includes 24-hour shopping.

Place:

This is where the customer will buy the product – including convenience and effective distribution to this place. The product must be available in the right place, time, quality and quantity while keeping storage, transport and other costs to a minimum. Choosing the correct reliable supplier is crucial to this process and a competitive advantage. Franchising as a mean of distribution gives the customer a sense of quality and reassurance as a brand is known and trusted. Place also include the way your products are displayed to your customer – shop windows, websites, promotions etc. Do you take your product/service to your customer or do the customer come to you? – Wimpy at petrol stations. FFI – convenience. Malls / Petrol stations – where lots of people go. Storage logistics * costs. Close to suppliers – raw material availability. Franchising – popular means of distribution in FFI.

Intensively distributed – large variety and widely available e.g. Bread and milk.

Selectively distributed – only available at selected shops e.g. Jewellery and perfumes.

Exclusively distributed – Very expensive items e.g. Ferrari.

Fuel stations are highly competitive, As customers do not show any preference for a particular brand of fuel product, infrastructure of outlets are designed and placed in such a manner that it proves convenient for customers to get easy access. Most of the retail outlets have grocery stores and ATMs for customer convenience.

Promotion:

This is the way a business communicates with the customer about what it does and has to offer and includes: branding , advertising. PR corporate identity, personal sales , special offers exhibitions etc. Includes communication with all stakeholders and must be appealing, draw attention, consistent, transparent. Getting the correct level of attention from the target market (LSM). Which medium is used? Tv, Social Media, Radio etc.

Fuel station logos in South Africa is the most familiar commercial symbols with a distinctive and recognizable identity.

Convenience has become a very competitive market; therefore, advertising has increased greatly as well as technological benefits. Technology has been utilised by many petroleum companies to create a competitive advantage.

Its commercials highlighting various products and are broadcast on televisions and internet and are displayed in magazines, newspapers and holdings.

Consumer promotional tools used by Engen include point-of sale displays and in-store everyday fair price promotions. Personal up selling at point-of-sale.

People:

All staff that comes in contact with your customer will have an effect on them and their view and satisfaction with the business. The employee is the face of the business. Training and motivation is important as the brand and reputation of the business rests in the hands of the staff. Consumers do not separate the product/service from the employee who provided it. After sales service adds additional value to the product and could become more important to the customer than price. Uniforms of staff is creating and strengthening a brand.

All fuel stations in South Africa supply their staff with uniforms that display their logos. Engen has a Graduate Development Programme whereas other fuel brands have similar programmes where they give their workers extensive training.

Process:

The process of providing the product/service is crucial to customer satisfaction – e.g. waiting time, information given, helpfulness and that the systems are working. Consumer experience is important and will add to the competitive advantage.

Processes include direct activities and indirect activities. Direct activities add value at the customer interface as the consumer experiences the service.

Paying at the fuel pump for your fuel and not have to leave your car or add oil and have your window cleaned at the same time is good examples of helpfulness and waiting time.

Physical Evidence:

The location and physical appearance of the business premises gives the customer a sense of quality. Banks look formal, restaurants look clean and inviting. Intangible products bought.

The combination of carefully selected offerings and an efficient, attractive layout has made a huge impact on forecourt stores at most of our fuel stations. These shops are also strategically located and offer a 24-hour service.

Customers will support services that free them to do things other than shopping. Convenience stores, with easy access and parking in front of the fuel stations, are usually well lit at night, with movement and activity providing a secure environment within a couple of blocks or so from most of their homes.

Conclusion:

The researcher found that strategic alliances with retailers and loyalty programmes affected the buying habbits of customers visiting fuel stations in South Africa immensely.

The daily consumer has preferred stations where they can earn loyalty awards and conveniently buy their daily essentials at the same time.

Convenience marketing has had a significant impact on the South African Fuel industry.

The 7 Ps pf the marketing mix designates the extent to which product and brand , pricing, place, promotion and repositioning policies enhanced convenience marketing. Hence Fuel companies has successfully entered emerging markets with diverse targeting and positioning , contextual understanding of the target market in terms of cultural, social issues, financial circumstances, values and morals, traditions, tastes and specific needs, preferences and perceptions.

Reflection:

The part I enjoyed most about my research task was interviewing the consumers. I have learnt very interesting facts about their daily routines and preferences.

Most of the people were very friendly and willing to answer my questions.

I also learned a lot of the fuel industry about facts that I was not aware of.

The limitations and struggles I experienced were mostly on my research. I could not find any information about fuel sold per brand and therefore based my figures upon the most visited fuel stations. One would assume that the most stations visited will be the ones selling the highest fuel volume.

Engen management were reluctant to divulge sensitive information , such as statistics and other trade secrets. Limited research has been undertaken on this topic in South Africa.

About the author

This sample is done by Scarlett with a major in Economics at Northwestern University. All the content of this paper reflects her knowledge and her perspective on Fuels South Africa final 2 and should not be considered as the only possible point of view or way of presenting the arguments.

Check out more papers by Scarlett:

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Fuels South Africa final 2. (2019, Dec 11). Retrieved from https://paperap.com/fuels-south-africa-final-2-best-essay/

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