Influence of strategic responses towards price regulation by the energy regulatory commission on performance of oil marketers in Kenya

Abstract

This project examines the influence of strategic responses towards price regulation by the energy regulatory commission on the performance of oil marketers in Kenya. The study used a descriptive survey design which is a research technique where data is gathered through asking various questions from the respondents. The population of the study was from the sixty four oil marketing companies in Kenya (OMC’s). The sample size for this study was thirty two oil marketing companies. The thirty two OMC’s were selected using systematic random sampling method due to their simplicity and good representation of the population. Primary data was collected by use of a semi structured questionnaire. Primary data was collected from the marketing managers or their equivalents which were considered appropriate since they understood the strategic responses adopted by their respective oil marketers in Kenya. The questionnaires were administered by drop and pick later method at an agreed time with the researcher. The data was then analyzed using descriptive statistics in the form of percentages, mean and standard deviation to determine the frequency of strategic responses adopted by oil marketers in Kenya. It was revealed that the most popular strategic responses adopted by most oil marketers were cost focus, diversification both of which used to a large extent while cost leadership and product diversification were used to a moderate extent. Further, the analysis revealed that the least used strategies responses adopted by oil marketers were mergers and acquisitions, strategic alliances, downsizing and logistics outsourcing which were used to a small extent. From the analysis, a large majority of the respondents indicated that cost focus was widely used by the OMC’s to a large extent. The OMC’s who used cost focus commanded a combined market share of eighty percent. Further, all the leading OMC’s in market share use cost focus strategy. A correlation analysis showed that there existed a strong positive correlation between strategic responses and ROACE and thus the strategic responses used by OMC’s influenced ROACE to a large extent. A majority of the marketing companies that used cost focus and diversification reported an average ROACE of six percent. The study recommends that Oil marketers should pursue only those strategies that they can comfortably or successfully be implemented with the least possible restrictions from the government and other regulatory bodies for example the energy regulatory commission (ERC). The limitation of this study was that the respondents were not willing to commit their time to respond to the questionnaires. Most of the respondents agreed to participate on condition that the information will not be divulged to any other party other than for academic purposes only. From the findings, it was reviewed that majority of the OMC’s used product differentiation as a response strategy. The oil products sold in Kenya are jointly imported from the same source and distributed using common facilities. With this common user importation and distribution facilities, it is expected that product differentiation will be least applicable by the OMC’s. Due to this controversy, future researchers can conduct further research to investigate the applicability of differentiation as a response strategy.