1.1 BACKGROUND OF THE STUDY
Distribution is the process of planning, implementing and controlling the physical flow of materials, final goods and related information from point of origin to point of consumption to meet customer requirements at a profit (Phillip Kotler and Amstrong 2001). It is the marketing function responsible for movement of products to the final users. It could be said that production is not complete until the goods reach the final users and for this to be accomplished, manufactured goods have to pass through distribution channels. The key point of this research work as concerns any business set up or organization especially one in a stiff Competitive economy like the case under consideration in this research work in respect of A-Z Petroleum Products Ltd needs to examine how it can effectively develop its distribution strategies.
Distribution strategies on its own, is a broad conception of how resources are to be deployed to build a channel (or channels) linking the producer to the consumer to insuring that the product and associated services are made available to the target segment of the market. It concerned with efficient channel arrangements that may be used to make goods and services available to customers/users by deciding on which intermediaries and marketing channel structures to be selected to move products in the most competitive and efficient manner to satisfy customer’s needs and wants. However, it is very important to position the channel of distribution of lubricating products in strategic places where users can get them and at the right time probably by using more effective, efficient and strategic physical distribution pattern including well positioning of field salesmen, institutional distribution system of products etc.
The level of the economy has put distribution into a less important position and scarcity or short supply of products. Most management today are interested on profit maximization without due attention to the effect of distribution on the company and economy as a whole. This calls for the need for this research work to research intensively on the assessment of the effectiveness of the distribution strategies of A-Z Petroleum Products Ltd.
A-Z Petroleum Products Ltd. has made considerable progress in the area of products development to meet international standard and effective marketing of lubricating oil to meet customers taste satisfactorily at reasonable profit. The company is using the distribution channel below:
Factory→ Depot→ Mega Distributors → Sub Distributors → Final Consumers
The distribution channel is a set of firms or individual that takes title in transferring title to a particular goods as it moves from point of production to the point of consumption. The distribution channel of the company need to cover areas/markets not yet served and under served by current efforts (current level of distribution) with the aim of improving market potentials and market share. Infact, marketing channel decisions are among the most important decisions that management faces. A company’s channels decisions are linked with every other marketing decision. The company’s pricing depends on whether it uses mass merchandisers or high quality specialty stores. The firm’s sales force and advertising decisions depend on how much persuasion, training, motivation and support the dealers need. Companies often pay too little attention to their distribution channels, however, sometimes with damaging results. In contrast, many companies have used imaginative distribution systems to gain a competitive advantage. Therefore, management must design its channels carefully with an eye on tomorrow’s likely selling environment as well as today’s.
The importance of distribution cannot be over-emphasized no matter how the economic position of the country looks like. One major raw material used in the production of A-Z lubricant is base oil. This requires smooth transportation facilities and arrangement from the point of origin to where they will be used for production of A-Z lubricants. This calls for a lot of logistics especially in the transportation of the necessary raw materials and distribution of finished products to the company’s major distributors as at when needed.
Transportation is then the pivot of the successful operation of any physical distribution system. Choice and type of transportation therefore becomes very important since the objective is to make the products available to consumers as at the right time.
The poor road network has hampered the effectiveness of distribution and rail-way mode of transportation which would have provided an alternative transportation, has not been functional for sometime now which contributes to the high transportation cost.
Therefore, this research work is to “Assess the effectiveness of distribution strategies of A-Z Petroleum Products Ltd.
BRIEF HISTORICAL BACKGROUND OF A-Z PETROLEUM PRODUCTS LTD.
A-Z Petroleum Products Ltd is owned by Chief Dr. Chika Okafor. It is one of the subsidiaries of Chicason group of companies. It is a full-service lubricating oil Blending Plant Incorporated in 1995, engaged in the research and development, production and marketing of petroleum and petrochemical products.
The company while procuring base stocks from the Nigerian National Petroleum Corporation (NNPC) through the operating licence granted by the Ministry of Petroleum Resources, employs the latest in additive and blending technology to deliver to its customers the high quality products that best meet their specific needs which led to the Company award of ISO 2000 & 2001.
A-Z Petroleum Products Ltd is founded on the tradition of total commitment to Excellence. Managed by a team of industry-trained professionals, the company combines informed industrial foresight and creative knowledge to deliver ‘State-of-art’ premium lubricants that guarantee the efficient running of motor vehicles and industrial machinery.
The Company’s products offer an exceptional combination of superior quality and economy achieved through well-researched, innovative and efficient production methods much to the benefits of the customers.
A wide range of lubricating oil products have been developed for consumers. Besides the standard prime products listed below there are other several specialty products produced for customers on order. The standard range includes:
- MOTOR OIL
- AZ- Crown Super Series
- AZ- Plus Motor oil series
- AZ- Extra GL series
- AZ- Extra DL series
- HYDRAULIC OIL
AZ- HL series
- GEAR OIL
- AZGO-EP series-Automotive Gear Oil
- AZI-EP series- Industrial Gear oil
- AZ-ATF – Automatic transmission fluid
LLE- fluid Dexron
- AZTHERM 32 – Heat transfer oil
- AZ-AC Series – Petroleum Based Air Compressor oil
- ALEXIS CS Series – Industrial Circulation oil
- ALEXIS PS – Process Oil
1.2 STATEMENT OF THE PROBLEM
This research work is interested in the assessment of the effectiveness of distribution strategies of A-Z Petroleum Products Ltd. During the process of manufacturing and cost consideration, management decides on how to make the company’s product available to the final consumers as at the right time, right quality and at an affordable price which is a challenge to the management and the essence of this work.
Poor road network adversely affect the effectiveness and efficiency of products distribution in the country. This results in high rate of vehicle breakdown and causes the products to get to the final consumers at the wrong time.
High cost of transportation/delivery equally affects the distribution strategy of the firm. This factor increases both the production and market cost of goods and services to the detriment of the final consumers.
Government policy goes a long way in affecting the distribution strategy of the firm. It is obvious that government contract or appoint adhoc / standing taskforce who mobilizes revenue for the government or its representatives in-line with the established Law, bye law, edict or act as the case may be. Thereby, causes impediments to smooth flow of business by demanding for annual official registration, stickers, emblems, daily tickets, infrastructure levy doing the course of business in an area.
Environmental factors like whether / seasons are uncontrollable variables that affect the distribution strategy of a firm. During this period, distribution is hampered resulting in low turnover and profit reduced astronomically.
Artificial Scarcity of Products arises when the raw materials used in the production of lubricants (base oil) is unavailable or insufficient for production purposes. This indirectly affects distribution processes because the products in question cannot be assessable to consumers during the course of production. Meanwhile, production is said to be incomplete until the products get to the final consumers.
1.3 OBJECTIVES OF THE STUDY
- To determine the quality of A-Z lubricants from Management perspective.
- To assess the effect of high cost of transportation on the company’s distribution activities
- To determine the impact of poor road network on the company distribution strategies.
- To determine the availability of A-Z products from customers perspective.
- To assess the effect of government policy on the company distribution strategies.
- To assess the effect of environmental factors (season) on the company’s distribution strategies.
- HYPOTHESIS FORMULATION
Ho: The quality of A-Z lubricants does not significantly affect its demand.
Hi: The quality of A-Z lubricants significantly affects its demand
Ho: Cost of transportation does not significantly affect the price of A-Z lubricants.
Hi: Cost of transportation significantly affect the price of A-Z lubricants.
1.5 LIMITATIONS OF THE STUDY
Time factor is the major constraint of this research work. This research work was made in a comprehensive way in order to meet the aspirations of people interested in the field for further studies though time could not permit me to go further.
Inability to provide and unveil top management exclusive sales policy and strategy in respect of the subject matter under consideration. Moreover, the competition in the market makes the respondents to be skeptic to the questions, its implications or the actual purpose of the study not cleared to them because of their level of education and exposure.
Financial factor is another constraint to this intensive research work. The extra cost of running around to different locations, academic and non-academic institutions couple with my inability to assess some relevant but encrypted sites online due to high cost of online registration.
1.6 SIGNIFICANCE OF THE STUDY
- This research work is very crucial for the management of A-Z Petroleum products Ltd as it will make management to device means of cutting down cost on distribution activities in order to make reasonable profits.
- It will serve as a knowledge base for management to employ.
- It will enable the management to provide consumers with the right products at the right time, right place and at the right price which result to a substantial percentage of sales for the company.
- Finally, it will serve as a blue print of action guide to infant companies and as a compendium of knowledge for further research work in logistics/distribution channel management of indigenous and multinational companies in the oil and gas industry (FMCG).
1.7 DEFINITION OF TERMS
Distribution: This is the process of planning, implementing and controlling the physical flow of materials, final goods and related information from point of origin to points of consumption to meet customer requirements at a profit.
Distribution Strategy: This is the efficient channel arrangements that may be used to make goods and services available to consumers by deciding on which intermediaries and marketing channel structures to be selected to move products in the most competitive and efficient manner to satisfy customer’s needs and wants.