Oil 101 - Introduction to Petroleum Product Marketing
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Oil 101 - A Free Introduction to Oil and Gas Introduction to Marketing - Retail and Wholesale This petroleum product marketing overview includes discussions on What is Marketing, the structure and key functions of oil company marketing departments, and some historical perspective on how demand for transportation fuels, including service stations came, to dominate US landscape. The complete Petroleum Product Marketing Module includes lessons on marketing fundamentals, retail vs wholesale marketing, and key business drivers and processes in petroleum product marketing. What is Petroleum Product Marketing? As we stated earlier, Marketing is the final step in the ‘Microbes to Markets’ chain that delivers useful petroleum products to end-user customers. The main business drivers of this segment are volume, market share and margin. Worldwide, transportation fuels including gasoline, diesel, jet fuel and marine fuel oil account the largest percentage of global demand, and it is the fastest growing portion of refinery products. In the United States, passenger cars still consume more petroleum products than any other sector. Today, the US accounts for about 44% of the world’s gasoline consumption, and transportation fuels are 65% of the US demand. Since the US has one of the most competitive retail markets in the world, it has been a leading indicator in development of new service station formats. Many of these retail formats are adopted around the world – with some customization to accommodate local legislation and consumer preferences.
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Oil 101 - Introduction to Petroleum Product Marketing
- 2. EKTINTERACTIVE.COM This Intro to Marketing overview includes: What is Marketing Structure and Key Functions of Oil Company Marketing Departments Historical Perspective M A R K E T I N G
- 3. EKTINTERACTIVE.COM Complete Marketing Module includes: Marketing Fundamentals Retail vsWholesale Marketing Drivers in Processes in Petroleum Product Marketing Learn More
- 4. EKTINTERACTIVE.COM What is Petroleum Product Marketing?
- 5. EKTINTERACTIVE.COM Delivering Product to Customers Marketing is the final step in the ‘Microbes to Markets’ chain that delivers useful petroleum products to end-user customers.
- 7. EKTINTERACTIVE.COM Transportation fuels including gasoline, diesel, jet fuel and marine fuel oil account the largest percentage of global demand. Transportation Fuels Dominate Demand
- 8. EKTINTERACTIVE.COM They are the fastest growing portion of refinery products.
- 9. EKTINTERACTIVE.COM US Gasoline Demand The US accounts for about 44% of the world’s gasoline consumption, and transportation fuels are 65% of the US demand.
- 10. EKTINTERACTIVE.COM Retail Markets The US has one of the most competitive retail markets in the world.
- 11. EKTINTERACTIVE.COM Most drivers think of the oil and gas industry as fueling their automobiles.
- 12. EKTINTERACTIVE.COM However, refineries produce a much broader variety of products than the grades of unleaded gasoline you can choose from at the pump.
- 13. EKTINTERACTIVE.COM Structure of Product Marketing Department Marketing Departments are usually organized by retail and wholesale channels.
- 14. EKTINTERACTIVE.COM Marketing Channels A channel is a set of intermediaries used to get products to the end-user customers.
- 15. EKTINTERACTIVE.COM Retail vs Wholesale In downstream marketing, the two key channels are retail and wholesale. Each channel can move both branded and unbranded product.
- 16. EKTINTERACTIVE.COM Product Marketing - Wholesale Wholesale is generally divided according to class-of-trade, including end-user customer groups like national accounts, domestic heating oil, industrial and commercial, and aviation and marine.
- 17. EKTINTERACTIVE.COM Lubricants and specialty product sales are usually managed by product category.
- 18. EKTINTERACTIVE.COM Product Marketing - Retail The leading edge of product marketing is retail. In the US, the largest segment is automotive fuels.
- 19. EKTINTERACTIVE.COM Product Marketing - Retail Retail marketing of motor fuels primarily involves the sale of gasoline, diesel fuel, automotive services and convenience store merchandise...
- 20. EKTINTERACTIVE.COM Product Marketing - Retail through a network of branded and unbranded gasoline stations.
- 21. EKTINTERACTIVE.COM Retail - Service Stations Service stations first appeared in the US around 1910.
- 22. EKTINTERACTIVE.COM Retail - Hypermarkets Marketing of gasoline through mass merchandisers, called hypermarkets, has had a major impact on gasoline volumes moved through traditional service stations.
- 23. EKTINTERACTIVE.COM Retail - Hypermarkets Hypermarket is the term used for a supermarket, other traditional retail store, or discounter with discounted gasoline sold from pump islands in the parking lot - such as Wal-Mart or Costco in the US, Tesco and Auchan in Europe.
- 24. EKTINTERACTIVE.COM Retail - Hypermarkets In France, 65% of the retail gasoline is sold through hypermarkets and in the UK it is over 33%.
- 25. EKTINTERACTIVE.COM Retail - Hypermarkets Industry analysts say the US market is approaching 14-16%.
- 26. EKTINTERACTIVE.COM Long Term Contracts Petroleum product marketing is more about executing long term contractual relationships with large, sophisticated wholesale customers called jobbers or resellers.
- 27. EKTINTERACTIVE.COM Wholesale Dominates Volume Over 80% of the industry refinery volumes in the US are sold through this wholesale channel.
- 28. EKTINTERACTIVE.COM Join now for access to free eBooks, members only forums, and a growing body of digital learning content. Free eBooks include: History of Oil Upstream Fundamentals Midstream Fundamentals Downstream Fundamentals Business Processes/Risk Management Industry Trends Learn More!
- 29. EKTINTERACTIVE.COM Key Functions of Oil Product Marketing Department
- 30. EKTINTERACTIVE.COM Product Marketing Department - Key Functions Key functions of a Marketing Department in an oil company include: • Developing and implementing strategies to maximize return on site assets • Determining customer needs and preferences • Monitoring the quality and performance of products in the field • Forecasting future sales quantities
- 31. EKTINTERACTIVE.COM Wholesale Pricing Group The wholesale pricing group within the marketing department is responsible for tracking a complex set of global supply and demand factors, and using them to set and manage retail and wholesale prices.
- 32. EKTINTERACTIVE.COM Product Pricing The prices that a marketing department considers include futures prices, spot prices, rack prices, dealer tank wagon (DTW) prices, and street prices.
- 33. EKTINTERACTIVE.COM Retail Pricing The street-level retail price is then set by the service station operator, most often an independent franchisee.
- 34. EKTINTERACTIVE.COM All of these functions are defined further in our complete Petroleum Product Marketing Module.
- 36. EKTINTERACTIVE.COM Rise of Gasoline Demand It wasn’t until 1907, when Henry Ford began large-scale production of automobiles with internal combustion engines, that refiners began marketing gasoline and other petroleum products in earnest.
- 37. EKTINTERACTIVE.COM The First Service Station St. Louis had the first gasoline service station in 1907, and by 1920, demand for gasoline as an automotive fuel dwarfed all other uses of petroleum.
- 38. EKTINTERACTIVE.COM Service Stations Today Today in the US, there are over 150,000 nationwide sites selling gasoline.
- 39. EKTINTERACTIVE.COM This number covers any location with a pump and tank and includes service stations, truck stops, convenience stores, hypermarkets and marinas. 150,000 Service Stations
- 40. EKTINTERACTIVE.COM Franchise Arrangement Major integrated oil companies now own only 2% of these sites.
- 41. EKTINTERACTIVE.COM Franchise Arrangement The others are owned and managed by independent operators under a franchise arrangement with the oil companies.
- 42. EKTINTERACTIVE.COM In the US, service station sites far exceed those of other common franchise operators like Subway, McDonald's, and yes, even Starbucks!
- 43. EKTINTERACTIVE.COM There’s More? This Intro to Marketing was taken from our free Oil 101: Introduction to Oil & Gas course.
- 44. EKTINTERACTIVE.COM EKT Interactive staff have provided oil and gas training since 1986. Visit us at www.ektinteractive.com to learn more. Who are we?
Editor's Notes
- Hi, and welcome to Oil 101, the podcast. My name is Doug Stetzer and I’m content and community manager for EKT Interactive. In this final element of bringing ‘Microbes to Markets’, we will be discussing the marketing of petroleum products. We’ll be sure to put the links to the Downstream Overview, and Introductions to Refining and Supply and Trading in the program notes. If you want more information about our free Oil 101 “Microbes to Markets” content be sure to visit www.ektinteractive.com.
- This petroleum product marketing overview includes discussions on What is Marketing, the structure and key functions of oil company marketing departments, and some historical perspective on how demand for transportation fuels, including service stations came, to dominate US landscape.
- The complete Petroleum Product Marketing Module includes lessons on marketing fundamentals, retail vs wholesale marketing, and key business drivers and processes in petroleum product marketing.
- What is Petroleum Product Marketing?
- As stated earlier, marketing is the final step in the ‘Microbes to Markets’ chain that delivers useful petroleum products to end-user customers.
- The main business drivers of this segment are volume, market share and margin.
- Worldwide, transportation fuels including gasoline, diesel, jet fuel and marine fuel oil account the largest percentage of global demand,
- They are the fastest growing portion of refinery products
- In the United States passenger cars still consume more petroleum products than any other sector. The US accounts for about 44% of the world’s gasoline consumption, and transportation fuels are 65% of the US demand.
- The US has one of the most competitive retail markets in the world. It has been the leading indicator in development of new service station formats. Many of these retail formats are then adopted around the world with some customization to accommodate local legislation and consumer preferences.
- Most drivers think of the oil and gas industry as fueling their automobiles… Their day-to-day exposure to the industry is the ever present detail gasoline site and advertising programs promoting gasoline brands.
- However, refineries produce a much broader variety of products than the grades of unleaded gasoline you can choose from at the pump. Nevertheless, this module focuses primarily on fuels marketing because of its importance to both refiners and consumers.
- Marketing Departments are usually organized by retail and wholesale channels.
- A channel is a set of intermediaries used to get products to the end-user customers. Channels vary in complexity and efficiency.
- In downstream marketing, the two key channels are retail and wholesale. Each channel can move both branded and unbranded product.
- Wholesale is generally divided according to class-of-trade, including end-user customer groups like national accounts, domestic heating oil, industrial and commercial, and aviation and marine.
- Lubricants and specialty product sales are usually managed by product category.
- Though not the largest part of a refiner's sales volume, The leading edge of the business is retail. In the US, the largest part is automotive.
- Retail marketing of motor fuels primarily involves the sale of gasoline, diesel fuel, automotive services and convenience store merchandise...
- through a network of branded and unbranded gasoline stations.
- Service stations first appeared in the US around 1910 were for a number of decades the predominant outlet for marketing gasoline.
- However, marketing of gasoline through mass merchandisers, called hypermarkets, has had a major impact on gasoline volumes moved through traditional service stations.
- Hypermarket is the term used for a supermarket, other traditional retail store, or discounter with discounted gasoline sold from pump islands in the parking lot - such as Wal-Mart or Costco in the US, Tesco and Auchan in Europe.
- In France, 65% of the retail gasoline is sold through hypermarkets and in the UK it is over 33%.
- Industry analysts say the US market is approaching 14-16%. You can be sure that oil companies and independent retailers are watching the growth of this format carefully.
- The general public sees the refiner products from the vantage point of brand advertising and filling their automobiles at the local service station. In reality, Petroleum product marketing is more about executing long term contractual relationships with large, sophisticated wholesale customers called jobbers or resellers.
- Over 80% of the industry refinery volumes in the US are sold through this wholesale channel.
- This episode is brought to you by EKT Interactive’s Oil 101 - a free Introduction to Oil and gas. Our Oil 101 materials are available at www.EKTInteractive.com. Within this free, members-only content area you’ll find eBooks on oil and gas industry fundamentals, relevant articles on key oil and gas topics, and a growing body of digital learning content. Claim your free membership and join the Oil 101 learning community at www.ektinteractive.com today.
- Now let’s talk about the Key Functions of an Oil Product Marketing Department.
- In addition to managing the day-to-day operations of the retail and wholesale channels, the key functions of a Marketing Department in an oil company include: Developing and implementing strategies to maximize return on site assets in a dynamic retailing environment Keeping in touch with customers to determine their needs and preferences Monitoring the quality and performance of products in the field Forecasting future sales quantities so that production and distribution departments can adjust their operations
- The wholesale pricing group within the marketing department is responsible for tracking a complex set of global supply and demand factors, and using them to set and manage retail and wholesale prices.
- The prices that a marketing department considers include futures prices, spot prices, rack prices, dealer tank wagon (DTW) prices, and street prices.
- The street-level retail price is then set by the service station operator, most often an independent franchisee.
- All of these functions are defined further in our complete Petroleum Product Marketing Module.
- As discussed in our refining module, in the 19th century, most crude oil was processed into kerosene to be used for lighting. The gasoline was typically burned as waste.
- It wasn’t until 1907, when Henry Ford began large-scale production of automobiles with internal combustion engines, that refiners began marketing gasoline and other petroleum products in earnest.
- St. Louis had the first gasoline service station in 1907, and by 1920, demand for gasoline as an automotive fuel dwarfed all other uses of petroleum, forever transforming the retail landscape.
- Today in the US, there are over 150,000 nationwide sites selling gasoline.
- This number covers any location with a pump and tank and includes service stations, truck stops, convenience stores, hypermarkets and marinas.
- It is estimated that the major integrated oil companies now own only 2% of these sites
- The others are owned and managed by independent operators under a franchise arrangement with the oil companies.
- In the US, service station sites far exceed those of other common franchise operators like subway, McDonald's, and yes, even Starbucks!
- Thanks for listening, and we hope you’ve learned a few things about the product marketing function of downstream oil and gas.
- Be sure to share this as you see fit, and review us on itunes if you have a chance. Your feedback really helps us improve as we move forward. If you want more information about our Oil 101 “Microbes to Markets” content go to www.ektinteractive.com and register to access our free content library. OK. See you next time.