Oil acts as a catalyst for growth in
any economy. In essence, it powers
the economic engine of a country.
On the other hand, the oil importing
countries are gaining from the
decline in oil prices, as the new levels
imply a decline in import bills and
lesser outflow of forex.
There is a great debate why the
decline has not resulted to a
significant fall at the pump prices.
While the crude prices are the same
across markets, the end-user prices
vary by country due to various factors
such as taxes and other levies.
The pump prices may not fall in
tandem with crude prices. That’s a
discussion for another day.
The effect therefore varies across
markets and marketers in the region
have reacted to the fall in different
ways. At a macro level, the losing
economies may suffer from decline in
consumer demand.
This arises as decline in government
revenue implies fewer projects are
initiated, renegotiated, or stopped,
leading to a fall in money to entities
and jobs in affected sectors.
However, it is important to consider
the impact at sector level. At this
level, gainers enjoy the benefits,
whether it is an exporting or
importing country.
For instance, the airline industry. A
decline in oil prices is a benefit to
Etihad (in an Exporting country) just
as is to Kenya Airways (importing
country).
This is bec ause the end user prices
benefit all sectors. The table below
shows some of the resulting issues.
At country level
Winners
Importing countries
Losers
Exporting Countries
At Sector level
Vehicles, Aircrafts … etc
Transport
Overall effect
Banking sector –
Increase revenue from sectors gaining from the drop
Retain Forex in oil importing countries
Reduced deposits from oil revenues
Power producers (who rely
on oil generators)
Consumer goods
Dealers / sellers of vehicles
Logistics / Courier
Agricultural production
(Mechanized) and related
delivery services
Hence, where does that leave the
marketing fraternity? Understanding
both the macro and sector-specific
effects can help to navigate the new
realities.
The new realities could imply your
spending on oil/fuel; Has increased
– especially in countries that have
eliminated fuel subsidies; Has
declined – those enjoying the decline
in oil prices; or Has remained the
same – where the governments /
regulators have remained firm in the
level of levies.
The above table shows some of the
key sectors that have an almost direct
effect from the change in oil prices
and also subsequent changes in other
sectors. However, there are also many
indirect areas that come in play due
to the changes.
Marketers in the above sectors have
a chance to invest more in their
brands, and pass on the benefits to
the consumers. This includes areas
like fares – both land and air fares
expected to fall.
The changes in oil prices therefore
have an impact on three out of the
four Ps in the marketing mix – which
include Price, Promotion and Place.
The article assumes the Product
remains the same.
Oil & Gas
As highlighted in the example of
fares above, sectors enjoying direct
positive effect of low fuel prices could
pass the benefit to customers, with
some immediate benefits such as low
fares coming in place.
In addition, with the cost of transport
also coming down, there is a
possibility of reducing prices at the
counter for other consumer goods.
Promotions may also enjoy the
benefits of low fuel. Some of the
direct areas could include the
customary road show.
If you had shelved road shows due to
high fuel cost, then this is the time to
get them back on track.
Lastly, the lower fuel cost implies
you can now deliver your products to
more places or at a higher frequency
(if need be) to your usual locations.
Fuel costs should no longer be an
excuse not to deliver to all markets in
demand.
Isaac is a marketing research consultant
within the Africa and Middle East
region. You can reach him on this and
related issue via email at: itngatia@
gmail.com or on Twitter @IsaacTN.