PSO strategy

Topics: Variable cost, Fixed cost, Total cost Pages: 23 (5415 words) Published: October 3, 2013
 
 
BACKGROUND REPORT
 
Pakistan State Oil Company Limited is one of Pakistan’s largest companies which posted an after tax profit of Rs. 9.31 billion this year. For nearly two decades PSO had held the reigns of market leadership when it came to lubricants. Yet in 1994, when the government announced a new petroleum policy in which lubricants were deregulated, PSO failed to react and manage the challenges of the free market conditions. It did not expand its stagnant product lines, and the growing consumer needs were met instead by its closest competitors, Shell and Caltex. In 2000, PSO underwent a corporate restructuring, and thus began its transformation process that has seen it restored as market leader in POL products, and has regained significant confidence in its lubricants division. The following highlight the changes brought on for lubricants during the transformation process: 1. The formation of a complete value chain under the new business unit concept. 2. Extension of product line.

3. Technical seminars conducted for dealers.
4. Improved customer services. PSO’s extensive progress in such short time warranted it a proposal for privatization in 2003. Yet time passed, and the prospect of privatization kept being delayed. Finally, with the completion of PTCL’s privatization process this year, PSO is now scheduled to be next in line with the date set for the end of 2005.

1. BUSINESS SCOPE
 Business we are in:
• The provision of the highest quality petroleum products and services to customers. Specific Region:
• 3,800 retail outlets (stations) scattered all over Pakistan’s geography • Lubricants manufacturing plants in Korangi and Kemari
Who are we serving?
• Automobile owners
• High-Street distributors
What are we offering?
• High quality grades of lubricants
• The world’s leading brand of motor oils: “Castrol” How are we achieving our goals?
• Integrated value chain
• Strong marketing capabilities
• Largest retail network 

Business we are not in:
• Engine parts manufacturing

2. EXTERNAL ENVIRONMENT
 2.1 Market Structure End-Customer Brackets
BRAND LOYAL
• Will buy lubricants based on perceived quality and from preferred vendor  • Will buy lubricants from that station that has shown best service or quality CONVENIENCE
• Will purchase lubricants from vendor that is most convenient • Purchases from station closest to home/work 
PRICE CONSCIOUS
• Purchases based on lower price
• The loudest customer type, will buy that lubricant that fits desired quality and fits the wallet IMPULSE
• Will buy lubricants on impulse
• While filling petrol at station, will suddenly realize the need for lubricant

• PSO has the most retail outlets, thus a good portion of its customers fall under the Convenience and Impulse brackets. • However, the majority of PSO’s customers fall under the Brand Loyal brackets because of Castrol’s higher quality offering.

 
• PSO is currently number two in the industry with a market share in 2005 of 36%. • Shell continues to be the market leader.
• Caltex has consistently maintained its position in the market. • Oil marketing giant Total has recently entered the Pakistani market, yet still has not afforded marketing efforts towards their lubricants. • There was a dip in PSO’s sales at the end of 2004.

• PSO has shown the largest jump in sales from 2004 to 2005.

3. INTERNAL ANALYSIS
 3.1 Profitability

• PSO operates with a lowest cost operations policy.
• It is closing the gap in market share with leader Shell. • It offers the highest quality lubricants in the market.
• It has a significantly high turnover.
• Lubricants have very high profit margins; an average of Rs. 20 profit per litre sold. •Castrol CR is PSO’s best performing lubricant.
• Castrol CR is a diesel lubricant, and the largest market is in the diesel engine vehicles category. • PSO’s in-house brands, Carient, DEO and Blaze 7 all show signs of continuous progress...
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