Product differentiation strategies adopted by oil companies in Kenya

Abstract

Petroleum industry has been dominated by competition by many oil companies. To achieve competitive advantage in the market, it is necessary that firms pursue strategies, which are difficult for competitors to copy. Product differentiation provides firms in the oil industry with the opportunity to make them more competitive. To understand the extent of use of this strategy in the oil industry, a study was undertaken and the objectives were to establish strategies used by oil companies to differentiate their products in the Kenyan market; and to determine the extent to which the different categories of petroleum companies have adopted product differentiation as a competitive strategy. The population of interest was major Oil companies based in Nairobi, which handle a base load allocation in excess of five hundred metric tonnes. Based on the base load of five hundred metric tonnes and above, sixteen companies were sampled and data collected through structured questionnaires. Out of the sixteen sampled respondents, eleven responded representing a response rate of sixty nine per cent. Data was ana lysed using descriptive statistics such as mean scores standard deviations and percentages. The study established that Shell has embraced broad based product differentiation focusing on customer values. The Independent petroleum dealers and National Oil differentiate their products to target price sensitive segments of the market, for example the' matatu' market. Total differentiates its products through service (64%), Shell on quality (45%), Oilibya on Non-fuel offer (54.5%) and Independents on price (46%). All the Major oil companies ride on their brand name as a base of their strong foundation. Product differentiation is a more sustainable competitive strategy due to the inherent difficulty of imitation. Unlike price-based competition, which is ruinous for the industry, differentiation can assist a firm to stretch its competitive edge in the industry. However, oil companies in Kenya have not fully exploited the potential of product differentiation. As a result, it is recommended that:

1. Oil companies need to exploit the gains of differentiation by investing on attributes valued by customers. This decision should be preceded by consumer survey to ascertain the specific differentiating attributes valued by customers. 2. Price is a key consumer concern and the Oil Marketers need to strike a balance between quality of product and price. However, given the Governmental proposal to regulate the retail pump prices, competition based on price is unsustainable. There needs to be a paradigm shift to other differentiating factors such as service, quality, non-fuel offers and so on. Suggested considerations for future research include the following: The cost - benefit analysis on product differentiation in the oil industry in Kenya. Consumer perceptions about oil product differentiation in Kenya. Consumers are not aware of the differentiation strategies adopted by the Oil Marketers whether price or quality. Consumer survey to ascertain the specific differentiating attributes they value in product and service offering in the Oil industry