the deal wrote:Offcourse the strategy of offering discounts to gain market share is not sustainable especially if the discounts are not coming from efficiency gains i.e low direct operating costs and overheards...customers will always go back the moment you stop the discounts since they will be eating into your margins...I believe KK should become number 1 in Kenya by developing a competitive advantage over its rivals like Total i.e through innovation, customer care etc...I'm sure Puma will not be impressed with this latest development!
There is 'core' market share & 'other' deals. Banks like core (cheaper) deposits vs wholesale/other (expensive) deposits.
Likewise, the K-Card has been adopted by many firms & individuals which makes many of them 'core' customers who still get 2/- per liter discount. The 'other' market will fill up where convenient.
A 'core' customer [K-Card] will plan his trip (or even drive) to a KK station. I do so to get my 2/- & it 'wastes' a few minutes vs paying cash.
An 'other' customer with whom I was on the road yesterday doesn't care. He pulled into a Total coz it was closer by 50 meters. To him there is no difference between Total & KK since he is paying cash & the same price.
The market share also includes deals to supply KenGen [Total has always been a major supplier to KenGen] for thermal generation since the rains are iffy. I do not have PIEA's detailed breakdown on the split between (competitive) thermal supplies, (low margin) jet fuel & diesel/petrol for cars.
What does Puma want? It wants KK for its regional reach (not just Kenya) since Puma is already in some of these markets. My interest would be to find out what is KK's volume sales in 2012 vs 2011 regionally. A smart OMC will sell where the margins are better (e.g. in UG instead of KE) just like many sugarcane farmers who sell the cane to the highest bidder!
KK does OTS imports & private imports. The private imports can be exported since there is no obligation to sell it locally. The OTS (as I understand it) has to be sold locally. Therefore, if KK can get a better price in UG, then exports it to UG. Note that KK has a major constraint of limited storage space so it has to select where the returns are better to maximize profits.
KK is no different from any other firm e.g. KQ, EABL, BAT which has to (& should) close unprofitable routes/brands where it cannot scale/ascend into profitability.
Greedy when others are fearful. Very fearful when others are greedy - to paraphrase Warren Buffett