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FACULTY OF
ENGINEERING
THE UNIVERSITY OF THE WEST INDIES
ST. AUGUSTINE
A MARKETING PLAN FOR PETROTRIN’S ENTRY INTO THE
NORTH AMERICAN ULTRA LOW SULPHUR DIESEL
MARKET
SEON CHARLES 04707759
APRIL 2011
PRMG6005 – MARKETING MANAGEMENT & BUSINESS
COMMUNICATION
Professor Kit Fai Pun
ii
Executive Summary
Newer and stricter international environmental policies especially as pertinent to
emissions have driven the market to adopt increasingly stringent standards for petroleum
derivative fuels. It is necessary to assess this fact against the background of the
shrinking marketplace and the gradual removal of protected markets for Petrotrin’s
products. This trend has necessitated the importance for the development of an Ultra
Low Sulphur Diesel (ULSD) Plant. The following marketing plan forms the basis of a
strategic plan for the achievement of the company’s goals. Octo-Sulphur Diesel will be
marketed as a unique diesel fuel while striving to reinforce the company’s image as a
high performance energy organization that delivers superior results. The marketing
strategies will enable Petrotrin to supply 40,000 barrels per day of diesel to a market
segment with consumption levels exceeding 800,000 barrels per day. The forecasted
consumption rate of this market is expected to grow by 8.94% over the next year.
Success will be reflected by a sizeable capture of the market shares within this target
market and increased profits while strategically improving the company’s image.
iii
Table of Contents
Executive Summary .......................................................................................................... ii
List of Figures .................................................................................................................. vi
List of Tables .................................................................................................................. vii
1 .0 Company Background ............................................................................................... 8
2 .0 Description of Product ............................................................................................... 9
3 .0 Situation Analysis .................................................................................................... 10
3.1 Industry Analysis .............................................................................................. 10
3.1.1 Consumption ............................................................................................. 10
3.1.2 Trends ....................................................................................................... 11
3.2 Competitor Analysis ......................................................................................... 12
3.2.1 Concentration & Market Share ................................................................. 12
3.2.2 Competitor’s Strengths and Weaknesses .................................................. 12
3.2.3 SWOT Analysis ........................................................................................ 13
3.2.4 Customer Analysis .................................................................................... 13
4 .0 Market Targeting and Profiling ............................................................................... 14
4.1 Evaluating Market Segments ........................................................................... 14
4.2 Description of Target Market ........................................................................... 15
5 .0 Objectives for the Market Target ............................................................................. 16
5.1 Financial Objectives ......................................................................................... 16
5.2 Market Position Objectives .............................................................................. 16
5.3 Customer Satisfaction Targets ......................................................................... 16
5.4 Product Objectives ........................................................................................... 17
5.5 Price Objectives ................................................................................................ 17
5.6 Promotion Objectives ....................................................................................... 17
5.7 Distribution Objectives .................................................................................... 18
6 .0 Marketing Programme Positioning Strategy ............................................................ 19
6.1 Positioning Statement ....................................................................................... 19
6.2 Product Decisions and Strategy ........................................................................ 19
iv
6.2.1 Product Decisions ..................................................................................... 19
6.2.2 Product Strategy ........................................................................................ 20
6.3 Pricing Decisions and Strategy ........................................................................ 21
6.3.1 Pricing Decisions ...................................................................................... 21
6.3.2 Pricing Strategy ......................................................................................... 22
6.4 Promotional Decisions and Strategies .............................................................. 25
6.5 Distribution Decisions and Strategies .............................................................. 25
6.5.1 Distribution Channel ................................................................................. 25
6.5.2 Intensity Distribution Strategies and Market Coverage ............................ 26
6.5.3 Transportation ........................................................................................... 26
6.5.4 Warehousing ............................................................................................. 26
6.5.5 Materials Handling .................................................................................... 26
7 .0 Forecasting and Budgeting ...................................................................................... 28
7.1 Financial Planning ............................................................................................ 28
8 .0 Contingency Plans ................................................................................................... 31
References ....................................................................................................................... 32
Appendix ......................................................................................................................... 33
Appendix A. Diesel Oil Consumption in North American Region ............................ 34
Appendix B. Diesel Vehicle Sales in North American Region – EIA ........................ 35
Appendix C. Timeline for Introduction of ULSD in North American Region – EPA 36
Appendix D. U.S. Diesel Imports (shift to ULSD) ..................................................... 37
Appendix E. North American ULSD Market Share ................................................... 38
Appendix F. Competitor Analysis .............................................................................. 39
Appendix G. SWOT Analysis ..................................................................................... 43
Appendix H. Market Segmentation Analysis ............................................................. 44
Appendix I. Market Segment Profile .......................................................................... 45
Appendix J. ULSD Supply Chain and Market Target Segment ................................. 46
Appendix K. ULSD Consumption in U.S. PADD 1 Region ...................................... 47
Appendix L. Porter’s Five Forces Analysis of Chosen Segment ................................ 48
v
Appendix M. Characteristics of USLD End Users in U.S. PADD 1 Region ............. 49
Appendix N. Indirect Intermediary Strategy .............................................................. 50
Appendix O. Wholesale Prices for ULSD in PADD 1 Region ................................... 51
Appendix P. ULSD Cost Curve Scenarios with 2006 Demand Estimates ................. 52
vi
List of Figures
Figure 6.1: Projected Income Statement for Octo-Sulphur Diesel Regular Sales in
PADD Region 1 .............................................................................................................. 30
Figure A. 1: On-Highway Diesel (Gas Oil) Consumption in North American Region .. 34
Figure B. 1: On Diesel Vehicle Sales in North American Region .................................. 35
Figure D. 1: U.S. Diesel Imports (shift to ULSD) .......................................................... 37
Figure E. 1: North American ULSD Market Share ........................................................ 38
Figure G. 1: SWOT Analysis for Marketing ULSD in North American Region ........... 43
Figure J. 1: ULSD Supply Chain and Market Segment .................................................. 46
Figure K. 1: On-Highway ULSD Consumption in U.S. PADD 1 Region ...................... 47
Figure L. 1: Porter’s Five Forces Analysis of Chosen Segment ..................................... 48
Figure N. 1: Indirect Intermediary Strategy .................................................................... 50
Figure O. 1: Wholesale Prices for ULSD in PADD 1 Region ........................................ 51
Figure P. 1: ULSD Cost Curve Scenarios with 2006 Demand Estimates ...................... 52
vii
List of Tables
Table C.1: Timeline for Introduction of ULSD in North American Region .................. 36
Table F.1: Summary of Competitor's Strengths and Weaknesses .................................. 39
Table H.1: Segmentation Analysis for North American Market of ULSD .................... 44
Table I.1: Market Segment Profile .................................................................................. 45
Table M.1: Market Segment Profile ............................................................................... 49
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1 .0 Company Background
The Petroleum Company of Trinidad and Tobago Limited (Petrotrin) is an integrated Oil
and Gas Company. It is a limited liability company that is wholly owned by the Government of
the Republic of Trinidad and Tobago. Its principal activities are the exploration for, development
of and production of hydrocarbons and the manufacturing and marketing of petroleum products.
The company was incorporated on January 21, 1993 to consolidate and operate the
petroleum producing, refining and marketing assets of State-owned enterprises: Trinidad and
Tobago Oil Company Limited (Trintoc) and Trinidad and Tobago Petroleum Company Limited
(Trintopec). In 2000, Petrotrin acquired the assets of Texaco Inc. in the joint venture Trinmar
Limited, making that entity a part of its Exploration and Production operations.
Petrotrin operates in land and marine acreage across the southern half of Trinidad with
offshore operations at Galeota in the southeast and in the Gulf of Paria.
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2 .0 Description of Product
Octo-Sulphur Diesel will be a diesel fuel positioned as the only product with a substantially
low sulphur content and high Cetane number on the market. The diesel fuel will have a sulphur
content of less than 8 ppm and a Centane number between 41 and 50. Octo-Sulphur Diesel will
be enhanced with lubricity and conductivity additives that will ensure compliance to
international standards and provide a measure of safety to users when handling. The extremely
low sulphur content contributes to environment preservation while its high Cetane number
contributes to increased efficiency and performance. The strategic role of Octo-Sulphur Diesel
for Petrotrin is centered around the following objectives:
• To earn a substantial market share in the ultra low sulphur diesel market.
• To strengthen and satisfy the needs of customers seeking to comply with the new
environmental standard and legislations.
• To be the regional market leader in innovative product introductions.
10
3 .0 Situation Analysis
3.1 Industry Analysis
3.1.1 Consumption
The sales volume for the on-highway diesel fuel segment within the North American has
reached a total of 37,625,136 thousand gallons (2.45 million barrels per day) (U.S. Energy
Information Administration 2009). This product segment has shown a steady growth since 1986,
where the on-highway diesel market suffered an abrupt decline during 2008 due to the global
economic recession. However, during the period 2008 to 2009 the market size increased by
10.18% (see Appendix A). Forecasts reveal that on-highway diesel (ULSD) consumption is
expected to increase to 2.5 and 2.6 million barrels per day in 2011 and 2012 respectively. With
respect to the volume consumption in 2010, this reflects a 10.34% increase in volume
consumption by 2012.
Recent high prices of gasoline have seen the emergence of higher performance rated diesel
powered automobile engines. In the North American market, the diesel vehicle sales have
increased by two million vehicles between 2000 and 2009 (see Appendix B).
• New technology has encouraged and enabled use of cleaner burning diesels.
• Strong growth in diesel-powered trucking, rail, marine, construction, agriculture and
mining worldwide.
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3.1.2 Trends
The pollution emitted by diesel engines contributes greatly to our global continuing air
quality problems. In order to reduce emissions from diesel vehicles in North America, the U.S.
Environmental Protection Agency (EPA) has established strict new emissions standards for new
on-road, heavy-duty diesel vehicles and engines. Starting with the 2007 model year, compliance
with these emission standards will effectively require that new heavy-duty diesel engines be
equipped with the next generation of advanced emission control systems. These systems are very
sensitive to sulphur levels in the diesel fuel, and cannot tolerate the levels of sulphur allowed in
the current on-road LSD. Therefore, the EPA has established regulations to significantly lower
the maximum allowable amount of sulphur in diesel fuel (ULSD) and thereby enable the
effective operation of advanced emission control systems.
EPA’s regulations are also phasing-in stringent emission standards that apply to diesel
powered light-duty trucks and passenger vehicles. These vehicles are also expected to use
advanced emission control systems, in conjunction with 15 ppm ULSD, in order to meet these
new standards.
Effective June 1, 2006, refiners and importers nationwide are now required to ensure that
at least 80 percent of the volume of the highway diesel fuel they produce or import is ULSD-
compliant. This is the beginning of a four-year transitional period that will see all highway diesel
fuel in the United States become ULSD. These new EPA standards will require action on part of
refineries, terminals and organizations. By December 2010, all highway-use diesel fuel offered
for sale in the U.S. must be ULSD fuel (see Appendix C).
12
Diesel fuel classified as ULSD is flowing to distribution and marketing points
downstream from refineries (i.e., pipelines, distributors, terminals and transporters) and is now
available at many retail locations (U.S. Environmental Protection Agency 2000). The functional
market is expected to show sustained growth and consumer interest in the future years as
consumption shifts to more environmentally safe products and cheaper fuel prices (as opposed to
gasoline prices).
As a result of this shift from LSD to ULSD, U.S. diesel imports are also shifting from
LSD to ULSD production (see Appendix D).
3.2 Competitor Analysis
3.2.1 Concentration & Market Share
According to the U.S. Energy Information Agency (EIA), Petrotrin’s first three major
competitors are British Petroleum (BP), Conoco Phillips and Exxon each having a market share
of 14%, 11% and 9% respectively. The projected market share for Petrotrin upon initial entry
into the North American ULSD market will be approximately 1% (see Appendix E).
3.2.2 Competitor’s Strengths and Weaknesses
Table F.1 (see Appendix F) provides a summary of Petrotrin’s performance in
comparison to Conoco Phillips, BP and Exxon across key marketing and communication
variables.
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3.2.3 SWOT Analysis
Figure G.1 (see Appendix G) encapsulates Petrotrin’s strengths, weaknesses,
opportunities and threats of marketing ULSD in the North American region.
3.2.4 Customer Analysis
3.2.4.1 Market Segmentation Analysis
Table H.1 (see Appendix H) contains the market segmentation analysis for the North
American ULSD market.
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4 .0 Market Targeting and Profiling
4.1 Evaluating Market Segments
The following factors were considered in evaluating on how many and which segments to
approach:
• Segment size and growth – analysis and on current sales, projected sales-growth and
expected profit margins for each market segment.
• Segment structural attractiveness – Long run attractiveness includes an assessment of
current and potential competitors, the threats of substitutes and the power of buyers and
suppliers.
• Petrotrin’s objectives and resources – Evaluation of how well Petrotrin’s resources and
core business strengths fit with the market segment opportunities.
After the evaluation of the segments described in the market segmentation analysis, it is
recommended that Petrotrin enter only one segment based on its overall attractiveness.
Therefore, a concentrated marketing strategy will be developed for this segment. Table J.1
(see Appendix I) represents a profile for this chosen segment. Appendix J describes where this
chosen segment exists in the ULSD supply chain.
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4.2 Description of Target Market
Segment Identification
The chosen segment can be identified as “East Coast Clean Burners”.
Segment Needs
The customer groups in this segment seek quality and are environmentally conscious. The
ultra low sulphur diesel product will cater to the environmental and quality needs of the customer
groups by maintaining low sulphur content levels (< 8 ppm) and high Cetane numbers (41-50).
Segment Trends
The current trends in this segment reflect a shift from conventional diesel to ultra low
sulphur diesel. This shift is a result of regulations enforced by the United States Environmental
Protection Agency. Trends also reflect a shift in cheaper fuel prices provided by diesel as
opposed to gasoline.
Segment Size and Growth
The on-highway ULSD consumption within the PADD 1 region has reached an average
of 838 thousand barrels per day in 2011 (U.S. Energy Information Administration 2010). It is
expected that this segment will grow by 8.94 % in 2012 (see Appendix K).
Segment Structural Attractiveness
The overall long term attractiveness of the chosen segment has been described using
Porter’s Five Forces Model (see Appendix L)
End User Characteristics
16
The end users of the ULSD product are individuals who drive on-highway diesel vehicles.
The characteristics of these users have been identified in Appendix M.
5 .0 Objectives for the Market Target
5.1 Financial Objectives
• To realize a 5% increase in profits.
• To achieve a sales volume of 40,000 bpd.
• To achieve annual customer sales volumes that respond to segment growth.
• To obtain a market share of 3% by 2018.
5.2 Market Position Objectives
• To provide low-priced, quality ULSD product with unique specifications that are
positioned away from the competitors.
• To provide a ULSD product that offers environmentally friendly and performance
benefits.
• To provide ULSD product that is intrinsically safe to its end users.
5.3 Customer Satisfaction Targets
• To provide continuous feedback of EPA results from sulphur content testing.
• To exceed customer’s expectations in terms of quality service.
• To create a strong customer awareness of environment preservation.
17
• To establish effective distribution channels.
• To respond in a timely manner to urgent orders.
5.4 Product Objectives
• To develop a unique ULSD product that can be used for both on-highway road use and
blending.
• To establish a brand.
• To develop a product line.
• To improve product quality and end use performance.
5.5 Price Objectives
• Revenue maximization - To increase market share/sales volume to 6% in 2013.
• Profit maximization - To garner the greatest dollar amount in profits (5% increase).
• Status quo - To offer the best quality ULSD product at a competitive price maintain a
stable level of profit.
5.6 Promotion Objectives
• To build product identification and image building.
• To provide an understanding of Petrotrin’s ULSD product.
• To create and establish product loyalty.
18
• Create awareness of Petrotrin’s products.
• To differentiate our ULSD products from competitors.
• To increase sales volume of our ULSD products.
5.7 Distribution Objectives
• To keep adequate stocking of products.
• To improve current diesel product flow within the channels.
• To achieve higher gross margins of ULSD product sold.
• To reduce lead times for orders.
• To reduce transportation and distribution costs.
19
6 .0 Marketing Programme Positioning Strategy
6.1 Positioning Statement Octo-Sulphur Diesel is the one motor fuel that provides wholesale petroleum bulk
stations and terminals with a competitively priced, high efficiency, clean burning fuel because
Petrotrin possesses the technology and expertise to create such a product at lowest costs possible.
Unlike our most aggressive competitor, our superior products contain additives that make this
fuel intrinsically safe to handle and provide increased lubricity.
6.2 Product Decisions and Strategy
6.2.1 Product Decisions
6.2.1.1 Product Mix
The product line will consist of three types of product:
• Octo-Sulphur Diesel Regular
• Octo-Sulphur Diesel Super (D975)
• Octo-Sulphur Diesel Premium (HMA)
6.2.1.2 Product Concept
Core Product
• Clean burning fuel with high efficiency.
Tangible Product
• Quality levels
o Octo-Sulphur Diesel Regular - < 8 ppm sulphur, Cetane number 41 – 50
20
o Octo-Sulphur Diesel Super – < 8 ppm sulphur, Cetane number 48, lubricity
additive, double-filtered
o Octo-Sulphur Diesel Premium - < 8 ppm sulphur, Centane number 48, lubricity
additive, conductivity additive, double-filtered
• Trade name – Octo-Sulphur Diesel, a Petrotrin product
Augmented Product
• Quality customer service
• On-time delivery
6.2.2 Product Strategy
The product life cycle concept was used as a tool in designing a marketing strategy that is
flexible enough to match the varying marketplace characteristics at different life cycle stages.
Introduction Stage
During this stage, it is advised that Petrotrin maintain one basic model or type of Octo-
Sulphur Diesel product (Octo-Sulphur Diesel Regular) while concentrating on educating
customer groups on its benefits.
Growth Stage
During product growth, it is recommended that Petrotrin expand the product line by
introducing Octo-Sulphur Diesel Super and Octo-Sulphur Diesel Premium to the market in an
attempt to extensively satisfy unforeseeable wants and needs. As more direct competitors enter
the market, Petrotrin should focus on maintaining the current sales volume. This can be
21
facilitated by engaging in in-depth negotiations with product intermediaries and holding press
conferences to demonstrate market success of the product taking place and its benefits over the
competitors’ products.
Maturity
During this period of product saturation, it is recommended that Petrotrin channel efforts
in exploring new markets such as other PADD regions and/or regional markets. In order to
supply other regions or explore new markets, Petrotrin will have to make operational adjustments
to its production facilities.
Decline
In this stage, it is recommended that Petrotrin maintain its market position and concentrate
on satisfying a special customer group for a long time. This may involve withdrawal of some
products from the market and focusing on the development of a specific product to meet the
needs of one particular customer group.
6.3 Pricing Decisions and Strategy
6.3.1 Pricing Decisions
The following pricing decisions should be considered as incentives to attract customers:
Discounts
Petrotrin should also consider providing incentives such as discounts on freight charges
for customers with annual contracts.
22
Credit Terms and Payment Period
Petrotrin should consider the immediate partial payment option which requires the customer
make a certain amount or percentage of payment at the time the product is acquired. This may be
in the form of a down payment. Subsequent payments occur either in one lump sum or at agreed
intervals (e.g., once per month) through an installment plan.
6.3.2 Pricing Strategy
The following factors will be considered in determining a price strategy for Octo-Sulphur Diesel:
Pricing Objectives
This factor is essential since it determines which pricing strategies will be adopted. Based
on the price objectives set earlier in Section 5.5, Petrotrin will be seeking to introduce a unique
ULSD product into the market with the goals of growing market share and establishing a long-
term customer base (revenue maximization). This objective involves the maximization of
revenue from the sale of products without regard to profit. Petrotrin will also be seeking to
maximize profits which will involve increasing the price of Octo-Sulphur Diesel product. After
acquiring the desired level of profit, Petrotrin will also be seeking to maintain a status quo by
keeping ULSD prices in line with similar products offered by competitors to avoid starting a
price war and to maintain a stable level of profit generated from ULSD product.
Costs
A cost analysis should be performed to determine both fixed (independent form
production volume) and variable costs (production volume dependent) associated with the Octo-
Sulphur Diesel product. Some fixed costs to be considered include distribution costs (freight and
storage). Freight charges differ depending on whether or not customer groups provide storage for
23
the diesel product. Following this analysis a competitive advantage analysis should be conducted
to distinguished the difference between Petrotrin’s and its competitor’s costs.
Market Competition
In order for Petrotrin to accomplish the pricing objective of maintaining a status quo and
revenue maximization, it will be important to perform an analysis of the market competition in
order to determine the price-based position of competitors and the type of response expected
from a competitor to a possible change in prices.
Customer Demand
It is important to examine the relationship between price and demand. Customer demand
is driven by quality, revenue and availability of potential substitutes. When devising a price
strategy it is essential to be aware of the price sensitivity of the Octo-Sulphur Diesel product.
Some essential customer information for devising a price strategy include diesel product
elements that customers look upon as values e.g. performance, safety, quality, price acceptance
in the market, price expected by the market, price stability, cyclic character of industry, degree of
price elasticity and customer economic circumstances.
Product Life Curve
The effect of the diesel product life curve on price depends on three main factors:
• The expected length of the life-cycle
• The objectives of the Octo-Sulphur Diesel product launch
• Petrotrin’s expectations on profit
Recommended Pricing Strategy
24
Due to the fact that the ULSD market is fairly new, it is recommended that Petrotrin
employ a penetration pricing strategy in an effort to attract and grow market share. Market
research will be required to determine the price range for competitors’ ULSD products and a
penetration price set at the lower end of the market range should be used to entice the maximum
number of customer groups possible to purchase our Octo-Sulphur Diesel product. Based on the
product strategy mentioned earlier, the Octo-Sulphur Diesel Regular product will be released
into the market at this stage. This penetration price should be set at a level to cover our cost of
production for Octo-Sulphur Diesel Regular.
After Petrotrin acquires the desired levels of market share or the product is entering the
growth stage where sales climb quickly, new customers join the early adopters in repurchasing
ULSD product and competitors enter the field, it is recommended that Petrotrin adopt the skim
pricing strategy in an effort to maximize on profit. This skim pricing strategy should be applied
to all products on the Octo-Sulphur Diesel product line. This strategy will be successful at this
stage since there will be few ULSD products on the market that provides the same features and
benefits that the Octo-Sulphur Diesel product line offers and it is likely that Petrotrin will have
any direct competitors during this stage. However, as competitors enter the ULSD market with
similar ULSD products it is recommended that Petrotrin lower the price of its ULSD products in
order to remain competitive and avoid a price war. This switch in strategy will be imminent
during the maturity stage of the product life cycle where Petrotrin main focus will be to capture
competitors’ customers. Maintaining this competitive price will allow Petrotrin to acquire stable
profits.
25
In the event that the product enters the decline stage, a survival pricing strategy (competitive
pricing) can be put into place that will allow Petrotrin stay in business and cover essential costs.
6.4 Promotional Decisions and Strategies
Due to the fact that Petrotrin’s target customer group are Wholesale Petroleum Bulk Stations
and Terminals, it is recommended that Petrotrin employ the push communication strategy that
allows for the promotion of sales through discounts provided to wholesalers, holding press
conferences with wholesale customer groups and providing product line information through
websites. The information provided to wholesalers will vary depending on the stage in the
product life cycle. In the introduction, growth, maturity and decline stages, the promotional mix
will focus on informative, persuasive, competitive and reminder type promotions respectively.
6.5 Distribution Decisions and Strategies
6.5.1 Distribution Channel
When deciding on a distribution channel, the following factors were considered:
• Market factors – Consumer buying behaviour changing due to new services arising from
competitors.
• Product factors – Handling of ULSD products to prevent contamination.
• Producer factors – Financial and marketing resources
• Competitive factors – Intermediary performance.
26
It is recommended that Petrotrin utilize an indirect intermediary strategy which consists of a
distribution channel with two intermediaries (see Appendix N).
6.5.2 Intensity Distribution Strategies and Market Coverage
It is recommended that Petrotrin employ the selective intensity distribution strategy where a
limited number of retailer-owned and manufacturer owned wholesaling intermediaries are
selected to distribute Petrotrin’s ULSD products. This type of distribution strategy is aimed at
establishing good market coverage and achieving good distribution and profit results.
6.5.3 Transportation
Water carriers – This mode of transport will be required to transport ULSD product from
Petrotrin’s refinery to the wholesaling intermediaries in the North American region. This mode
of transportation is the least costly mode of transportation.
Trucks and Pipelines – This mode of transport will be required to deliver ULSD product from
Petrotrin warehouses to retailers. Pipelines help reduce lead times.
6.5.4 Warehousing
Storage and distribution warehouses in the PADD 1 region will be required to gather and
redistribute products.
6.5.5 Materials Handling
Ultra high purity product will require special handling techniques and practices for
movement of ULSD product from the storage facilities to wholesalers to minimize contamination
of ULSD fuel and keep on-spec.
27
28
7 .0 Forecasting and Budgeting
7.1 Financial Planning
Assumptions
The following is a list of assumptions taken into consideration to conduct estimations:
• Petrotrin will enter the USLD market in the U.S. PADD 1 region in 2012 upon
completion of the ULSD plant.
• Petrotrin production during 2012 will only consist of Octo-Sulphur Diesel Regular
product.
• All customers groups require product storage tanks.
ULSD Consumption in PADD 1 Region
The on-highway ULSD consumption within the PADD 1 region has reached an average
of 838 thousand barrels per day in 2011 (U.S. Energy Information Administration 2010). It is
expected that this segment will grow by 8.94 % in 2012 (see Appendix L).
Estimated Sales Volume in PADD 1 Region
Upon completion of Petrotrin’s ULSD plant in 2012, it is estimated that Petrotrin will sell
40,000 barrels per day in the U.S. PADD 1 region market. This sales volume is based on the
assumption that all ULSD product manufactured will be sold to this market.
Wholesale Price for Octo-Sulphur Diesel Regular
29
Forecasts reveal that refiner’s wholesale price for ultra low sulphur diesel product in the
U.S. PADD 1 region will be US $ 3.02 per gallon (see Appendix O) (U.S. Energy Information
Administration 2011).
Production / Refinery Costs
In EIA’s refinery-by-refinery analysis, the increased cost of producing ULSD in 2006 is
estimated to be between US 5.4 and 6.8 cents per gallon (see Appendix P). Using the National
Energy Modeling System (NEMS) Petroleum Market Module (PMM), the increased cost of
producing ULSD is estimated to be between US 4.7 and 7.3 cents per gallon from 2007 to 2010
and between US 6.5 and 9.2 cents per gallon in 2011 (U.S. Energy Information Administration
2001).
Marketing Costs
Marketing Costs will consist of distribution and promotion costs.
i. Distribution Costs - It estimated that Petrotrin’s distribution costs would include:
a. Oil tanker freight charges: US 6 cents per gallon.
b. Distribution tanks and pipeline: US 1.1 cents per gallon.
ii. Promotion Costs – Petrotrin mainly engage in press conferences with potential customer
groups as a method for promotion of their products. The costs associated with carry out
these conferences are not substantial, therefore these costs will be considered to be
negligible.
30
Projected Income Statement (2012)
US $ US $
Revenue 1,851,864,000
Production Costs (9.2 cents per gallon) (56,414,400)
Gross Profit 1,795,449,600
Marketing Costs (43,537,200)
Net Profit 1,751,912,400
Figure 7.1: Projected Income Statement for Octo-Sulphur Diesel Regular Sales in PADD Region 1
31
8 .0 Contingency Plans
In the event that the planned aforementioned strategies fail, Petrotrin can market its ultra low
sulphur diesel products regionally since the regional market is gradually moving towards
utilization of lower emission fuels and environment conscious solutions. This region is also less
likely to have less aggressive competitors.
32
References
U.S. Energy Information Administration. East Coast (PADD 1) No 2 Diesel Ultra Low Sulfur
Less than 15 ppm Wholesale/Resale Price by All Sellers (Dollars per Gallon). 4 1, 2011.
http://tonto.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=EMA_EPD2DXL0_PWA_R10_
DPG&f=M (accessed April 8, 2012).
—. Independent Statistics and Analysis: East Coast (PADD 1) Product Supplied of Distillate
Fuel Oil, 0 to 15 ppm Sulfur (Thousand Barrels per Day). July 29, 2010.
http://tonto.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MD0UP_R10_2&f=A (accessed
April 4, 2011).
U.S. Energy Information Administration. Short Term Energy Outlook. march 2011.
—. The Transition to Ultra-Low-Sulfur Diesel Fuel: Effects on Prices and Supply: Comparison
of Studies on ULSD Production and Distribution . May 2001.
http://www.eia.doe.gov/oiaf/servicerpt/ulsd/chapter7.html (accessed March 26, 2011).
—. U.S. Energy Information Administration: Independent Statistics and Analysis. 12 22, 2009.
http://www.eia.doe.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=K2DVHNNUS1&f=A
(accessed March 22, 2011).
U.S. Environmental Protection Agency. "Regulatory Announcement: Heavy-Duty Engine and
Vehicle Standards and Highway Diesel Fuel Sulfur COntrol Requirements." December 2000.
33
Appendix
34
Appendix A. Diesel Oil Consumption in North American Region
Figure A. 1: On-Highway Diesel (Gas Oil) Consumption in North American Region
Source: U.S. Energy Information Administration
35
Appendix B. Diesel Vehicle Sales in North American Region – EIA
Figure B. 2: On Diesel Vehicle Sales in North American Region
Source: U.S. Energy Information Administration
36
Appendix C. Timeline for Introduction of ULSD in North American Region – EPA
Table C.1: Timeline for Introduction of ULSD in North American Region
Source: Environmental Protection Agency
Timeline
Fuel 2006 2007 2008 2009 2010 2011 2012
Highway Diesel 80% ULSD (15 ppm)
20% 500 ppm diesel
100% ULSD
Non-road 500 ppm diesel ULSD
Locomotive and Marine 500 ppm diesel ULSD
37
Appendix D. U.S. Diesel Imports (shift to ULSD)
Figure D. 3: U.S. Diesel Imports (shift to ULSD)
Source: U.S. Energy Information Administration, Short NPRA 2007 Annual Meeting
38
Appendix E. North American ULSD Market Share
Figure E. 4: North American ULSD Market Share
Source: U.S. Energy Information Administration, Short Term Energy Outlook, March 2011
39
Appendix F. Competitor Analysis
Table F.2: Summary of Competitor's Strengths and Weaknesses
Factors Petrotrin BP Conoco Phillips Exxon
Market Share 1% 14% 11% 9%
Target Market U.S. motor fuel bulk station
firms and wholesale resellers.
U.S. motor fuel bulk station
firms and wholesale resellers.
U.S. motor fuel bulk station
firms and wholesale resellers.
U.S. motor fuel bulk station
firms and wholesale resellers.
Marketing
Objectives/Strategy
• To become the
leading
manufacturer of
ULSD in the
CARICOM market.
• To ensure that our
ULSD products meet
or exceed the
standards of EPA
environmental and
emissions
requirements.
(sulphur 15 ppm)
• To secure a ULSD
market share in the
U.S. region
equivalent to or
exceeding our
current
conventional diesel
• To secure and
increase our ULSD
market share in the
U.S. region.
• To ensure that our
ULSD products meet
or exceed the
standards of EPA
environmental and
emissions
requirements.
• To meet the on-
highway diesel
demand of U.S.
population by selling
2 million barrels per
day of ULSD.
• To be the leader in
development of
• To ensure that our
ULSD products meet
or exceed the
standards of EPA
environmental and
emissions
requirements.
• To increase our
market share of
ULSD in the U.S.
Region.
• To minimize
company ownership
of motor fuel
stations while
securing long-term
markets for refined
products from
ConocoPhillips
• To increase our
market share of
ULSD in the U.S.
Region.
• To ensure that our
ULSD products meet
or exceed the
standards of EPA
environmental and
emissions
requirements.
• TO increase our
global production of
ULSD.
• To make profit.
40
(LSD) market share.
(Current
conventional diesel
market share < 1%).
• To distribute our
ULSD products
through motor fuel
stations.
• To sell 40,000
barrels per day of
ULSD in North
America.
• To increase profit by
5% in the fiscal year
2011 – 2012.
• To increase
repurchase of our
ULSD products
through holding
press conferences
and offering
discounts.
• To increase
awareness of
environmental
damage caused by
conventional diesel
(LSD).
ULSD in the U.S.
Region.
• To distribute our
ULSD products
through select
company owned
fuel stations.
• To increase
repurchase through
the fixation of ULSD
EPA regulatory
labels on all
company owned
diesel dispensers.
• To maintain public
awareness that our
firm is acting in
compliance to EPA
standards by
acquiring at least 2
pages of results
from our sulphur
tests conducted by
the EPA.
• To set prices of
ULSD products at BP
owned fuel stations.
refineries.
• Focus on the
wholesale channel
of trade by
providing quality
fuels at the lowest
possible delivery
cost to the
marketplace.
• Enhance the value
of its U.S. brands by
signing a global
agreement with
Ethyl Corporation to
supply detergent
additives for all
diesel products at
the company’s U.S.
marketing outlets.
Diesel sold at 76,
Conoco and Phillips
66 branded outlets
will have the same
high-content level of
a proprietary
detergent additive,
greatly exceeding
the current industry
standard
41
• To enhance the
image of the
organization.
Positioning Good – Still owns shares in
conventional diesel market
within the U.S. Fairly late
entry into ULSD market.
Excellent – Strong presence
in emerging ULSD market
due to large portion of shares
in conventional market
complemented by early entry
into market.
Good – Fairly strong
presence in emerging ULSD
market.
Good – Emerging ULSD
market increase their energy
demands exponentially thus
the organization is profiting
at a satisfactory rate.
Product Product Quality: Sulphur
content -< 8 ppm; Centane
number 41-50; Lubricity
additives; Conductivity
additives;
Running Costs: Fair
Product Quality: Sulphur
content – 10 ppm; Lubricity
additives; Conductivity
additives in proprietary fuel
stations;
Running Costs: Good
Brand name: BP Cleaner
Diesel 50
Product Quality: Sulphur
content – <15 ppm
Running Costs: Good
Product Quality: Sulphur
content – <15 ppm
Running Costs: Good
Pricing Lowest BP controls prices of ULSD at
selected company owned
fuel stations.
Same as BP Same as BP
Promotion Advertising/Sales
Promotion: Relies the least
on advertising and
promotion. Holds press
conferences and offers
discounts.
Advertising/Sales
Promotion: Relies heavily on
advertising and promotion.
Advertising/Sales
Promotion: Relies on
advertising and promotion.
Advertising/Sales
Promotion: Relies on
advertising and promotion.
42
Reputation Image and Reputation: Good
image and reputation.
Image and Reputation: Fair –
reputation scarred over last
year due to response to Gulf
of Mexico oil spill.
Image and Reputation:
Strong reputation for quality
and trust.
Image and Reputation:
Accused of misleading
advertising campaign in
November 2007. Reputation
damaged due to Valdez oil
spill.
Media Strategy Does not rely on media Relies on media Seldom rely on media Seldom rely on media
Publicity No active publicity
programme for ULSD
Clean Fuels Programme No active publicity
programme
Outlook for Energy publicity
programme
Service Customer service levels:
Excellent
Performance against
promise: Good
Customer service levels:
Excellent
Performance against
promise: Fairly Good
Customer service levels:
Excellent
Performance against
promise: Good
Customer service levels:
Excellent
Performance against
promise: Good
43
Appendix G. SWOT Analysis
INTERNAL
EXTERNAL
Figure G. 5: SWOT Analysis for Marketing ULSD in North American Region
44
Appendix H. Market Segmentation Analysis
Table H.3: Segmentation Analysis for North American Market of ULSD
Main Dimension Segmentation Variables Characteristics
Geographic Region Petroleum Administration for Defense Districts
Regions I - V
Statistical Area Metropolitan statistical areas; micropolitan
statistical areas
Density Urban; suburban; small town; rural
Demographic Standard Industrial Classification 5171: Wholesale – Petroleum Bulk Stations &
Terminals;
5172: Wholesale – Petroleum & Petroleum Products
(No Bulk Stations);
5500: Retail – Auto Dealers & Gasoline Stations
Size of Company Medium; Large
Annual Sales US < $1.5 billion; US $1.6 - $2+ billion
Number of Locations <10,000, 10,000 - 20,000; 25,000+
User Status Light; Medium; Heavy user;
Customer capabilities Range of needs: broad; narrow;
Purchasing approaches Buying criteria Quality seekers; price seekers; service seekers;
Buying policies Annual contracts; Futures contract; Forwards
contract;
Current relationships new customers; existing customers;
Situational factors Urgency Customers with sudden delivery needs
Psychographic Loyalty Low levels; high levels;
Attitudes to risk Risk taking; risk avoiding;
Approach to new products Innovator; early adopter; early majority; late
majority; laggard;
Lifestyle Environmentally concerned; Involved with the
community;
Method of buying-decision-
making and purchasing
Individual; Buying center (consensual);
Decentralized; Centralized;
Stage in its Business Life Cycle Start-up; Growth; Maturity; Decline; Turn-Around;
Reliability (credit rating) and
promptness of payment
Good credit rating; Bad credit rating; Pay on time;
Late payments;
Product Uniqueness < 8 ppm sulphur content; < 15 ppm sulphur content;
High Cetane Number; Low Cetane Number;
Frequency of Use Daily;
Usage Rate Heavy;
Nature of Use On-Highway Diesel Fuel Sales; Blending; Heating Oil;
45
Appendix I. Market Segment Profile
Table I.4: Market Segment Profile
Variables Attributes
Region Petroleum Administration for Defense Districts Regions I: New York
City , Washington DC , Atlanta , Boston and Philadelphia
Statistical Area Metropolitan statistical areas
Density Urban
Standard Industrial Classification 5171: Wholesale – Petroleum Bulk Stations & Terminals
Size of Company Large
Annual Sales US $1.6 - $2+ billion
Number of Locations 25,000+
User Status Heavy user
Customer capabilities Narrow
Buying criteria Quality seekers;
Buying policies Annual contracts;
Current relationships New and Existing customers
Urgency Customers with sudden delivery needs
Loyalty High levels
Attitudes to risk Risk avoiding;
Approach to new products Early adopter;
Lifestyle Environmentally concerned
Method of buying-decision-making and
purchasing
Buying center (consensual); Decentralized;
Stage in its Business Life Cycle Maturity;
Reliability (credit rating) and promptness
of payment
Good credit rating; Pay on time;
Product Uniqueness < 8 ppm Sulphur Content; High Cetane Number;
Product Frequency of Use Daily;
Product Usage Rate Heavy;
Product Nature of Use On-highway Diesel Fuel Sales;
46
Appendix J. ULSD Supply Chain and Market Target Segment
Figure J. 6: ULSD Supply Chain and Market Segment
47
Appendix K. ULSD Consumption in U.S. PADD 1 Region
Figure K. 7: On-Highway ULSD Consumption in U.S. PADD 1 Region
Source: U.S. Energy Information Administration, Independent Statistics and Analysis: East Coast (PADD 1)
Product Supplied of Distillate Fuel Oil, 0 to 15 ppm Sulfur (Thousand Barrels per Day), 29 July 2010
48
Appendix L. Porter’s Five Forces Analysis of Chosen Segment
BARGAINING POWER OF SUPPLIERS
Large number of crude oil suppliers
ULSD with high Cetane numbers require unique crude oil
input
Crude oil purchases are a large portion of the supplier’s
business
Easy for crude oil suppliers to sell directly to Petrotrin’s
customer groups
Relatively easy to switch to substitute products from suppliers
(low cost)
Well informed about supplier’s product and market
THREAT OF NEW ENTRANTS
ULSD production process is not unique
No technology protection
Customers loyal to Petrotrin’s brand
High startup costs for ULSD production
Assets required to run ULSD plant are unique
Easy for competitors to acquire crude oil input
Difficult for new entrant to have enough resources to
compete efficiently
BARGAINING POWER OF BUYERS
Large number of customers
ULSD product is a relatively large expense for Petrotrin’s
customers
Customers have a substantial of information about the
ULSD product and market
Product is unique ( <8 ppm sulphur content, high Cetane
number)
Tendency exists for customers to enter ULSD industry
(backwards integration into the supply chain)
Relatively easy to switch to competitor’s products
THREAT OF SUBSTITUTES
Petrotrin’s ULSD compares favourably to possible
substitutes (more features)
Low cost for customers to switch to another product
Customers loyal to Petrotrin’s existing LSD products
COMPETITIVE RIVALRY
Large number of competitors but too many focused on
target market
Clear leader exists in target market (less rivalry)
Market is expanding
Low fixed costs
Low storage costs
Unique product – very low sulphur content, high Cetane
number
High exit costs
Easy for customers to switch to competitor’s product
Figure L. 8: Porter’s Five Forces Analysis of Chosen Segment
49
Appendix M. Characteristics of USLD End Users in U.S. PADD 1 Region
Table M.5: Market Segment Profile
Variables Characteristics
Age 16+ (Driving population)
Occupation Students; Professionals; Truck drivers; Retired;
Benefits Sought COMMUNICATION BENEFITS
• Sulphur content information
• Cetane number information
• Other fuel specifications
FUNCTIONAL BENEFITS
• Environment friendly fuel - Clean burning fuel
• Optimum fuel performance
• Safe to handle
PERCEPTUAL BENEFITS
• Quality
• Price
Personality Quick maturation with new products; Seeking cheaper
fuel prices; Environmentally concerned;
Product Usage Rate Daily basis
User Status Heavy
Loyalty Status High
Type of Vehicle ULSD and non-ULSD compliant vehicles
50
Appendix N. Indirect Intermediary Strategy
Figure N. 9: Indirect Intermediary Strategy
51
Appendix O. Wholesale Prices for ULSD in PADD 1 Region
Figure O. 10: Wholesale Prices for ULSD in PADD 1 Region
Source: U.S. Energy Information Administration
52
Appendix P. ULSD Cost Curve Scenarios with 2006 Demand
Estimates
Figure P. 11: ULSD Cost Curve Scenarios with 2006 Demand Estimates
Source: U.S. Energy Information Administration, The Transition to Ultra-Low-Sulfur Diesel Fuel: Effects on
Prices and Supply, May 2001
