Effects Of Uniform Pricing Policy On The Marketing Of Petroleum Products In Nigeria

The aim of this study is to examine and determine the effects of uniform pricing policy on the marketing of petroleum products in Nigeria. Data were collected form primary and secondary data. The major data collection instrument is the questionnaire.

The data were presented in table as frequency distribution and analyzed with frequencies and percentage. Having analyzed the data, the two funding are:

The existing pricing policy has resulted in uniform prices by the "Big 8" and different prices by independent marketers.

The effects of the uniform pricing include: shortage of supplies relative to demand, diversion, bunkering and hoarding of petroleum products.

The conclusion is guided that deregulation of the down stream sector will improve the pricing system.

Introduction

1.1 Background of the Study

Frequent charges in the prices of petroleum products, have a regular feature of the oil sector in Nigeria the price of petroleum products have been reviewed upward trice in Nigeria between 1999 and 2003 (Eze, 2003:7). Pricing of petroleum products had been the responsibility of the petroleum product pricing regulatory Agency (PPPRA) and, Nigerian National Petroleum deregulation of petroleum products prices. The NNPC was established in 1977 to put the government in front seat in the oil industry. Form them the government ceased to be a mere regulatory agency. Through the NNPC, the government delved into exploration, drilling and marketing of petroleum products in Nigeria (Ugbaja 2001: 8). To facilitate this, the pipeline and product marketing company (PPMC) and petroleum product pricing Regulatory Agency (PPPRA) were established to regulate the pricing, distributing and marketing of petroleum products in Nigeria.

Prior to the deregulation of petroleum product pricing in the PPPRA and the NNPC ensured uniform pricing for all petroleum products throughout in Nigeria. For instance in 1989 the Babangida administration through these agencies raised the pump price of fuel, one of the petroleum products to N6.00 per liter. This was also further raised to N13.00 per liter by the Abacha regime in 1996.In 2001, the Obasanjo administration increased it to N19.00 and further to N26.00 in 2002. In 2003, it was again raised form N26.00 to N34.00, and in 2004 currently was increased to N40.00 per liter and is still will be raised again (Ojo, 2003:18).

Uniformity in the pricing of petroleum products throughout the country had been ensured and sustained because of the control and the regulation of the industry by the government agencies the current proposals of the deregulation of the oil sector will not only bring about heterogeneity in the prices of these product but will also bring about wholesome activities in the marketing of these products (Nwala, 2003:9).

It could be said that, price of product is the major determinant, of the market demand for such product, price is one of the most powerful weapons that are available for or to a market to beat down competitors. Customers are likely to patronize a company"s product whose prices is satisfying and psychologically fair to them. Notwithstanding, effective strategy and policy must be adopted if the company"s must succeed in its marketing program so as to yield an effective result in implementation of pricing.Pricing which is an area of primary importance in marketing and it is central to the profitable operation of a business, its marketing activities without critically monitoring and controlling its pricing system.Profit can only be made if consumer buy what the company produce, on the other hand consumer will only buy at the price that is more favorable to them. In time past many firms didn"t understand the theory and concept of pricing. This is very peculiar to developing economy especially Nigerian. They merely set prices that suit their purpose and interest without viewing it from customer point to view.

This is because there were no or not enough competitive firms. Many firm have to realize the importance of pricing as one of the most important element that helps to determine the success of any business enterprise.
In managing the pricing of product which is part of company"s marketing mix, management must first of all decide on its pricing goal, policy and strategy about a given product to satisfy consumers, efficient pricing of goods and services which is often a critical factor in successful operation of any business enterprise. Pricing has many definitions as there are many definitions given by some price authors;Price, as defined by Stanton (1985) is the amount of money charged for a product or services.

Brown and Jalques (1995) sees it as the amount of money which will be accepted in return for legal transfer of a product and services.A.D Umar, M. Tanko Y.A. Hashim (2005) described price as the values of a product (good and services) expressed in a monetary term.

The above definitions do not consider price or pricing in relation to the physical product alone, this is due to the fact a seller usually price or is pricing the constituent of the physical product severed services as well as it satisfying benefits for instance one model of an automobile may at a stated price included ratio power steering, tinted glass, are condition, metallic door are services of same for another model of the same make these six listed items may be priced separately.

To this end Kotler (2000) defined price as "“the amount of money needed to acquire some or a combination of a product and its accompanying or separate services.

Pricing is therefore the parallel of the total product offered to a buyer for a price and receives not only the product of offering but may include installation. Maintenance services and repair of a brand / new which may be helpful in future for promotion. This question here is how are price arrived at: historically in a competition environment (market) through bargaining with each other sellers would offer more than they expect to set from buyer who will in turn offer less than they expect to pay. They would arrive at a mutually acceptable price through bargaining.

1.2 Statement of Problem

Many companies do not handle pricing as it should be. The most common mistake is that pricing is too cost oriented, it is not revised often enough to capitalize on market changes, it is also set independent of the rest of the marketing mix other than as an interior element of market positioning strategy, and price is not varied enough to different product. Therefore, many companies find it difficult to break even due to largely the impact of competition, hence the need to adopt appropriate pricing policy. The current decline in business activities due to the world"s economic depression is drawing many industries to an extent that profit is far beyond reach for many companies. The inflation trend makes it so difficult for consumers to actually buy or even afford most of their needs. The value of naira that keep plunging day after day makes it so difficult for companies to services their metered product from overseas, the high import duties and other cost doing business that increase the cost of the end product to the detriment of the consumers. The adoption of price over time and space to meet varying circumstances and opportunities when price change should be initiated and now should it respond to competitor"s price changer.

1.3 Objectives of the Study

The purpose of this study is to determine the impact of uniform pricing of petroleum product in Nigeria. Thus, the objectives of the study are:

To examine, the trend in petroleum products pricing in Nigeria

To examine factors influencing petroleum products prices.

To determine the effects of uniform prices for petroleum products.

To identify the problems of uniform prices petroleum products

To suggest ways of ensuring efficient pricing of petroleum products prices.

1.4 Hypothesis

The following questions are formulated for the purpose of this study.

Hypothesis 1

Ho: Uniform prices for petroleum products does not ensure efficient marketing of the products.

Hi: Uniform prices for petroleum products ensures efficient marketing of the products.

Hypothesis 2

Ho: Deregulation of petroleum products prices will not improve the marketing of the products

Hi: Deregulation of petroleum products prices will improbe the marketing of the products.

1.5 Significance of the Study

The usefulness of the findings and recommendations to the government, its petroleum product marketing agencies and students.

Firstly, the government will through the findings of this study understand the biting effects of the current pricing policy for petroleum products on the consumers. The recommendations will help in formulating pricing policies that will make the marketing efficient.

Secondly, the petroleum product pricing agency (PPPA) will through this study see the need to be more efficient I the fixing of petroleum product prices in spite of the proposed deregulation of the prices, influencing the prices will reduce the exploitative tendency of the markets.

Again, the Nigerian national petroleum corporation (NNPC) and all independent petroleum product marketers will see the need to cooperate with the government and NNPC will ensure efficient pricing policy and marketing of the products.

Finally, the study will be useful for academic purpose, it will serves as a data back to all students and researchers earring out a related study in future. The study will also provide the basis for further studies through the findings.

1.6 Scope and Limitation of the Study

This study focuses on effects of uniform pricing policy on the marketing of petroleum products and its implications in the Nigerian economy. However, in the course of the study, the researcher encountered the following constraint:

Finance:

The study could have been more extensive if the researchers succeeded in including other independent marketers outside Nigeria. But the researcher did not have enough funds for such an extensive study.

Time:

Due to the demand placed on the researcher by other academic activities, the researcher did not have ample time for the study. Thus, the study could not accomplish within a recorded time.

1.7 Definition of Terms and Acronyms

Upstream sector:

This refers to the drilling and refining section of petroleum processing activities.

Down Stream Sector:

This refers to the distributive and marketing section of petroleum products.

Uniform Pricing:

This refers to the phenomenon of fixing the same price for each of the petroleum products I the marketers.

Deregulation:

This refers to the system of allowing the supply and demand for product prices to determine their relative prices.

NNPC:

This is an acronym for Nigerian National Petroleum Corporation.

PPPA:

This is an acronym for petroleum products pricing Agency.

PPMC:

This is an acronym for pipeline products marketing company

Summary, Conclusion and Recommendation

5.1 Introduction

It is important to ascertain that the objective of this study wasto ascertain the effect of uniform pricing policy on the marketing of petroleum products in Nigeria.

In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of uniform pricing policy on the marketing of petroleum product.

5.2 Summary

The arguments in favor of deregulation are clear, but so are the arguments against. The principal argument for deregulation is that markets appear to be right more often than regulations and regulators. This is probably true on many occasions, but it is certainly not always true. The basic problem here is that many real-life markets not only do not function with the flexibility and efficiency that they display in our textbooks, but they cannot; and when these situations arise, the regulators must be called in. Sir Alan Walters posits that government intervention is "normally suggested" when there are increasing returns to scale, indivisibilities, technological external effects, and/or market failure connected with uncertainty. The key word above is "normally". What it means is that there can be situations in which regulation is not advisable, even though all the above-named irritations are present to some extent. The problem is detecting, acknowledging, and/or estimating their strength and scope (Banks, 2000: 95). After deregulation (if we have to), we have to make it work by providing the enabling environment and framework for efficient production, distribution and supply (i.e., re-regulate). Then, we will have petroleum products at prices dictated by the dynamics of the industry and markets. And then we will have a platform for a competitive strategy

5.3 Conclusion

This study examines the effect of uniform pricing policy on the marketing of petroleum products in Nigeria. The data for 5000 households were collected to estimate a demand system for PMS, AGO and DPK. The survey contains information on the occupation and income of the household members, as well as on household expenditure and consumption as well as on a wide range of demographic and socio-economic characteristics. The marginal social cost approach was adopted toevaluate equity and efficiency of petroleum products pricing reform in Nigeria. The study concludes that reduction or removal of subsidy on PMS will save largest amount from government budget. Where there is distribution concern, the marginal social cost of reducing subsidies on AGO is lowest. AGO has lowest marginal social cost among petroleum products. This result is in support of the reform of removal of subsidies on AGO in 2006. However, marginal social cost for all petroleum products are extremely low suggesting reduction of subsidies on all petroleum products in Nigeria.

5.4 Recommendations

Haven successfully completed the study, the researcher recommends that the federal government should abolish the petroleum equalization fund (PEF) and consequently the "bridging fund" component in the pricing template. The PEF was established in 1975 to equalize the cost of transporting petroleum products from depots to filling stations and ensure that petroleum products are made available at uniform prices throughout country. In a modern market economy like the type we are trying to build in Nigeria, there is no place for a fund like the PEF as it will only lead to distortions, inefficiency and cross-subsidization. It is an unnecessary bureaucracy! We cannot mandate the same price for a commodity throughout the country irrespective of distance from source. Why must petroleum products me treated differently from other products? All other products in the country do not have uniform prices and there is no equalization fund to ensure that other products are sold at uniform prices throughout the country. The prices of other products in the various cities and villages are determined by the interplay of market forces and transportation costs. Even the price of electricity now varies by location and type of consumer throughout the country. Market forces (including transportation/delivery cost) should be allowed to determine prices of all commodities, including petroleum products, in all locations.

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