Marketing Forecast & Budget - Caltex Australia Limited - Case Study Example

Name : xxxxxxxxxxx Institution : xxxxxxxxxxx Course : xxxxxxxxxxx Title : Marketing forecast & budget Tutor : xxxxxxxxxxx @2010 Marketing forecast & budget Introduction Caltex Australia Limited deals with oil refinery as well as marketing group and has about 30% market share. It has two refineries which are situated within Queensland and NSW, in addition to several distribution points allover Australia. Caltex Australia Limited also has a national network of service stations which are branded as Caltex or Ampol. US Chevron Texaco refining joint enterprise owns about 50% of the company. Caltex Australia Limited is the leading company in market within strategic refinery of petroleum on top of being the leading distribution industry within Australia. It runs two key refineries at Kurnell in Sydney and also at Lytton in Brisbane. The company is still investing to make sure that it sustains market leadership. The extent of the market business facilitates the company in taking advantage of the developing essentials of the industry (Caltex 2008). The marketing operation is involved in the promotion and sale of Caltex products using a global network of about 2,000 Caltex, Caltex Woolworths, Ampol branded services stations and also branded resellers. Moreover, marketing makes sales directly to a big number of commercial clients. In this report, I will be analyzing the recent launch of Caltex Bio E-10 unleaded petrol which has brought high performance fuel to the forecourt. This petrol has approximately 10% ethanol. Specifically, I will be looking at the investment in Silverwater terminal whose main objective is to support the growth of Caltex in biofuels within New South Wales (Archibald 2010). Silverwater terminal upgrade at New South Wales The most recent $8 million upgrade of the Silver water terminal, whereby Caltex invested $5million, is a part of the company’s efforts to meet the New South Wales ethanol mandate. This will also facilitate addition of more Caltex service station within Sydney as well as regional New South Wales to provide Bio E-10 unleaded petrol. The New South Wales government is that four percent of the volume of petrol sold should be ethanol. This will progress the replacement of all regular unleaded petrol within New South Wales with E10 by July 2011. Caltex gets its ethanol from producers within New South Wales as well as Queensland which manufacture ethanol from renewable sources, assisting in reducing Australia’s greenhouse gas emissions in addition to reliance on fossil fuels. Caltex has invested more than $16 million in bringing biofuels to its clients, through developing its service stations and also its biofuels distribution potentials at Banksmeadow, Newcastle and Queensland terminals and at the present at Silverwater (Archibald 2010). The terminal upgrade will enable Caltex to dispense its Bio E10 Unleaded from Silverwater which will in turn lower congestion at Banksmeadow and Newcastle terminals and offer a third alternative for dependable distribution by truck in New South Wales. Caltex provides its clients with numerous alternative fuels which consist of Bio E10 Unleaded, Bio E-Flex as well as variety of biodiesel blends and LPG autogas. Most new and numerous old cars, SUVs and light commercial petrol vehicles can utilize E10 which is there at about four hundred Caltex service stations within New South Wales, the ACT in addition to Queensland. Caltex is steadily replacing regular unleaded petrol with E10 allover New South Wales (Archibald 2010). Bio E-10 unleaded petrol It is important to give a brief description of the product that Caltex plans to launch before creating the marketing budget. Bio E-10 unleaded petrol is improved with up to 10% ethanol which is a renewable non-fossil component. It assists in minimization of greenhouse gas emission and dependency on fossil fuels. The fuel is thus environmental friendly and recommended for the future. Caltex marketing strategies will be boosted by the fact that Bio E-10 unleaded petrol is preferred to the substitute products. It will be easier to convince potential customers to try the new product (Bob 2009). The marketing budget The marketing budget by Caltex for the product Bio E-10 unleaded petrol into the Silverwater terminal market segment is aimed at making the most reasonable estimates for the advertisement and promotional plans for the product as well other marketing strategies that are necessary for the product. The costs for each marketing plan for every month are indicated in the budget. Caltex Australia Limited intends to invest $5 million over a period of 6 months beginning from January 2011 to launch the new product; Bio E-10 unleaded petrol into the Silverwater terminal market segment (Levine et al 2008). Marketing Forecast and budget Jan Feb March April May June Total Advertising $40, 000 $30, 000 $30, 000 $30, 000 $30, 000 $20, 000 $180,000 Promotions $30, 000 $25, 000 $20, 000 $15, 000 $15, 000 $15, 000 $120,000 PR $15, 000 $15, 000 $10, 000 $10, 000 $10, 000 $10, 000 $70,000 Service $30, 000 $20, 000 $15, 000 $15, 000 $15, 000 $10, 000 $105,000 Shows $30, 000 $20, 000 $15, 000 $15, 000 $10, 000 $10, 000 $100,000 Training $20, 000 $15, 000 $15, 000 $10, 000 $10, 000 $10, 000 $80,000 Catalogs $15, 000 $10, 000 $10, 000 $10, 000 $10, 000 $10, 000 $65,000 Others $40, 000 $30, 000 $25, 000 $15, 000 $15, 000 $15, 000 $140,000 Marketing expenses $220,000 $165,000 $130,000 $205,000 $115,000 $100,000 $935,000 Total Sales $180,000 $205,000 $210,000 $220,000 $200,000 $200,000 $1,215,000 Revenue The revenue generated from the market launch in the first six months will be $1,215,000 while the total marketing expenses will be $935, 000. The net return of the launch in the first six months will thus be $280,000. Breakeven point analysis Break even point is the point at which the difference between costs or expenses and revenue are equal. This implies that there is neither a net loss nor a net gain. The break even point of the marketing budget will be at the second month of the product launch; February 2011. At this point the total sales of the Bio E-10 unleaded petrol in the new market will cover the costs of the marketing budget (Gruttadaro 2010). Return on investment-ROI Return on Investment is a performance measure applied in the assessment of the viability of an investment or to compare of several investments. The ROI is computed by dividing the gain from an investment by the cost of the investment. The result is thus indicated as a percentage or ratio. The ROI formula is expressed as; In the marketing budget drawn the ROI for the six months is; ROI=1,215,000-935,000/1,215,000 ROI=0.23 The ROI is positive implying that the venture is viable (Gruttadaro 2010). Importance of the marketing budget The marketing budget will help identify the particular needs and wants of the clients and determine the particular demand for the product. It will also assist in the delivery of the product in the most appropriate manner. It will help Caltex identify the competitors in the Silverwater terminal market segment and thus evaluate its competitive edge in the market. It will help in the identification of new viable product areas, new as well as potential clients and enable the firm assess whether the intended marketing options yield the desired results (Gruttadaro 2010). Viability of the marketing budget The marketing budget created is expected to be effective as a result of a number of factors. Some of the factors include: Caltex is the leading firm in petroleum marketing Caltex is not only a refiner but also an excellent marketer of petroleum products. The firm is in fact essentially a marketer. It is the leading firm in petroleum and convenience marketing in Australia. It has been expanding the marketing business in the recent past. This is enough justification that the marketing budget created will be effective. The firm has been strengthening the regional supplier to expand further across the value chain. Caltex has also established effective supply and venture connections with Woolworths; a leading grocer in Australia to ensure that it expansion plans are as effective as possible. The fact that Caltex is the leading firm in Biofuels makes it easier to penetrate the Silverwater terminal market segment successfully (Westwood 2009). Caltex’s marketing strategy is based on a strong supply chain Caltex has a marketing position based on a strong supply chain in Australia. The supply chain is composed of two refineries in major markets. The refineries at Kurnell and Lytton ensure that the firm fully satisfies its share of the market. In addition to Bio E-10 unleaded petrol, Caltex supplies a wide range of other petroleum products in Australia. It has effective terminals, depots and retail outlets that help satisfy customer needs. The comprehensive supply chain will ensure that Caltex succeeds in the penetration of Silverwater terminal market segment and invest effectively in the potential marketing area (Jon 2010). Caltex as a marketing leader Caltex is generally a market leader and has a strong brand name. The strong brand name will not only ease the firm’s marketing plans but will also assist in the penetration of the market. The firm has a substantial market share in Australia which makes the launch of the Bio E-10 unleaded petrol a simple strategy. It is the most convenience retailer of petroleum products in Australia (Jon 2010). Two marketing channels- Retail and Commercial The marketing activities of Caltex can be viewed in two perspectives; both retail and commercial. The firm balances the two distributions channels in equal proportions. Caltex supplies through the retail channel essentially as a wholesaler. It also supplies to branded franchisees, co-branded outlets with Woolworths and to private retailers in wholesale. These channels will assist in the distribution of Bio E-10 unleaded petrol in Silverwater (Jon 2010). Caltex is the leading firm in refining supports The major refineries in Australia are controlled by Caltex, Shell, BP or Mobil. Caltex’s refineries account for about a third of the entire production. The Caltex’s refineries are core to the firm’s supply chain and are basis of marketing activities. The refineries will ensure that Caltex delivers a consistent supply of Bio E-10 unleaded petrol in Silverwater (Gruttadaro 2010). Highly effective refineries Caltex’s refineries are equipped with upgrading processing systems to enhance the production of high quality products. The efficient plants will enable the firm supply high quality Bio E-10 unleaded petrol. This will give the firm a fine competitive edge to outdo the major competitors in the market (William 2009). Caltex maintains a strong balance sheet As one of the leading firms in the petroleum industry in Australia, Caltex is able to maintain a strong balance sheet. The strong balance sheet ensures that the firm has an ever rising working capital as a result of a rise in the value of crude oil and commodity inventories held by the firm. The firm has enhanced its focus in the two areas to sustain debt and overcome all challenges facing sustainable levels. Through the strong balance sheet the company is able to offer a firm financial basis for expansion and launch of products in new areas. The strong balance sheet will ensure that the marketing budget planned is fully financed to guarantee a successful execution (Bellis 2010). Recommendation and conclusion Caltex should proceed and launch Bio E-10 unleaded petrol at Silverwater terminal. This is justified by both Break Even Point analysis as well as the Return on Investment analysis of the marketing budget and forecast. The break even point was reached at the second month of the product launch which indicates that the investment was viable. At the second month the investment will neither benefit the company nor lead to losses (Business review weekly 2009). The investment makes significant profits after the break even point which further justifies the launch. The Return on Investment computation of the marketing budget yielded a positive figure of 0.23. This shows that the net returns of the six months analyzed were positive. The firm should proceed and execute the planned launched because it will not be a loss to the company. It will be a viable investment that will lead to establishment of new markets as well as increase in the proportion of the market share held by the company. The marketing forecast and budget is supported by other factors such as strong balance sheet of Caltex, strong brand name and the highly effective refineries owned by the company. The company is a market leader and has strong supply chains which will ensure that it does not fail in the supply of the products. The firm enjoys two marketing channels- Retail and Commercial and is the leading firm in refining supports. All these factors will justify the viability of the planned investment (Jon 2010). Bibliography Archibald, H., 2010, The bulletin. Volumes 6314-6317. Bob, T., 2009, International petroleum encyclopedia, Penn Well, Michigan.. Britton, N.J. "Boots Treads Carefully," Marketing, May 26, p. 22. Bellis, M., 2010, Marketing Plan for the Independent Inventor, Retrieved November 16, 2010 from http://inventors.about.com/od/licensingmarketing/a/in_marketing_2.html. Business review weekly, 2009, Caltex Australia Limited, Volume 17, Issues 25-29, Business Review Weekly, California. Caltex, 2008, Caltex Australia Limited Marketing strength, Merrill Lynch Australia Investment Conference, New York. Gruttadaro, D, 2010. The importance of Return on Investment, Retrieved November 16, 2010 from http://www.ehow.com/about_6397819_importance-return-investment.html. Jon, G., 2010, Marketing: essential principles, new realities, Kogan Page Publishers, Toronto. Levine, David &Michele Boldrin, 2008, Against intellectual monopoly, Cambridge University Press, Cambridge. William, L., 2009, The marketing plan: how to prepare and implement it, AMACOM Div American Mgmt Assn, Sydney. Westwood, J., 2009, The marketing plan: a step-by-step guide, Kogan Page Publishers, New Jersey. Read More