Conventional fossil fuels are being used by human population since ages to full fill their various energy requirements. Many countries in world have an economy entirely based on their fossil fuel production. Natural gas is one the very important fuels used for both domestic as well as industrial purposes and its pricing affects cost of many products and services indirectly. Gas manufacturing and marketing management all over the world uses various formulas and mechanism to determine their prices. Gas for consumption as a fuel is available in various forms in different markets like CNG (compressed natural gas) LPG (liquefied petroleum gas) LNG (Liquified natural gas) etc. In many countries fuel for domestic consumption is subsidized by the governments. Gas marketing organizations have to take care of that while deciding on prices they charge to a domestic costumer. Pricing in business is a measurable number that accounts for the profitability of the business. Gas prices in a free marketing environment are determined on the basis of international crude oil prices which fluctuates regularly because of change in various parameters like demand’ supply’ market sentiments and future prospects (Smith, 2011) regards pricing as an art that requires a careful analysis and understanding of the kind of prices in a business that would yield the highest profit. This is based on an accurate understanding of the current market scenario and gathering the appropriate information. However, setting prices is not an easy job as there are many uncertainties in the areas of “price structure, price point, and price discount” which “will vary over time, geography and customer situation”. Therefore prices are always set with many doubts in mind (Smith, 2011). With the high rate of competition in any market segmentation, business and firms choose to entice customers with bundles of smart products, reasonable prices, additional services and features that would rate their product over the other products present in the market. These bundles of services help the business maximise their profit whilst keeping the consumer satisfied. In this report we will be conducting a research on various strategic measures used by British Gas to determine their prices and how these strategies assist the organization in maintaining its long term sustainability in a free market. The report will consist an in depth analysis and literature review regarding entire business structure of fossil fuels and various measures taken to decide their prices by organizations (Ellickson and Misra, 2008).
As the title of the research suggests, the present research will be conducted on the UK’s leading energy supplying company British Gas which has the largest market share in the industry for the past few decades. The products offered by company are petrol ( gasoline) ; high speed diesel’ aviation fuel ( jet turbine fuel)’ gas for domestic consumption and gas for industrial and power plant consumption etc. The focus of this research will be on the pricing strategy used by British Gas. It will analyse the role of this strategy in helping British Gas gain a sustainable growth which keeps unharmed and whole even during recession in this fierce competitive energy market. The aim and objective of the study is to conduct a research and explore the pricing strategies used by British Gas to compete with other competitors and the different factors used by them to bring up a strong pricing structure. The research will also try to study the objectives, the powerful brand name and unique deliverance and assets of Centrica the parent company of British Gas. The research will include a literature review from various articles’ journals’ online publications and other research conducted on similar subject. The literature review will help us in gaining new insights on the pricing strategy followed by large organizations of energy sector and analysing their core logic behind pricing formulae and challenges faced by them in due course of determining prices (Data Book, 2010).
Background of the Organisation
British gas group or commonly known as BG group is one of the leading player not only in UK but in world in energy sector. The company is headquartered in UK but it has operations in approximately 25 countries. The company deals in various energy products but it is considered as a most efficient provider of natural gas. Company is considered as a total solution provider in gas needs and its operations begins with exploration of gas and ends at delivery of the product to consumers. British gas was a monopoly gas supplier in UK a couple of decades back and it was under government control. The privatization of the company took place in year 1986. Thus formation of organization British gas plc took place. The company was demerged in year 1997 into two separate companies Centrica Plc and BG plc. The Centrica took care of the production and supplies of north and south Morecombe gas field While BG group took responsibility of gas distribution’ transportation and international exploration for the company (Centrica, 2011). The company has entered into various markets and it also integrates the front and back end operations. It is now not only providing gas to its consumers but also providing electricity’ domestic and industrial heating systems’ installation services’ and domestic appliances for various purposes. The key sector in which British gas is working is production and exploration of new and existing energy fields’ development of a robust transportation and distribution networks’ providing end consumer behaviour services like installation and appliances selling and company has also shown its commitment towards keeping a strong focus on liquefied natural gas market which they consider as fuel which will be available in abundant amount and consumed by various sectors in future. The strategy followed by British gas for the market is to keep focus on understanding’ building’ and supplying gas to markets at both domestic and international level. Pricing of the gas is a very important part which needs to be decided with outmost care when focusing on the developing and understanding the marketing strategy (British Gas, 2011).
The research question for the dissertation are as follows
- Looking at the current energy market, what are the pricing strategies adopted by British Gas which allows them to come up with a competitive prices in market?
- How does the pricing strategy used by British Gas allow for a sustainable growth and edge over other players present in the market?
The aims and objectives of the present research are as follows.
- To analyse different aspects of pricing strategy followed by British gas in determining their product’s prices and rationale behind their current pricing strategy.
- To investigate various challenges faced by the organization from free market and other players present in the industry.
- To explore and assess various risk factors present in market which can impact the pricing mechanism in a negative way and disrupting all forecasting about future prices.