ExxonMobil: Social Responsibility in a Commodity Market

Presented For: Presented By: Class: MKT 550, Summer July 16, 2012 Case

Table of Contents

INTRODUCTION ............................................................................................................................................ 1

THE IMPACT OF GASOLINE PRICES ON PRODUCTS AND SERVICES ....................................................... 1

MARKETING CAUSES GASOLINE PRICES TO BE HIGHER THAN NORMAL .............................................. 2

IS EXXONMOBIL ACTING RESPONSIBLY WHEN PRICING GASOLINE ...................................................... 2

CONSUMERS ALSO HAVE A ROLE IN THE PRICE OF GASOLINE .............................................................. 3

FIXING THE PROBLEM OF RISING GAS PRICES ........................................................................................ 4

REFERENCES................................................................................................................................................ 5

Introduction
This case questions ExxonMobils ethics when pricing gasoline, while being the most profitable company in America and setting record profits year-after-year (Kotler & Armstrong, 2010). Moreover, it discusses past investigations done federally and by the state attorney general. Furthermore, the case dissects the price of gasoline through the supply and demand of oil, distribution and marketing, refining, taxes, and profit margins. Finally, it discusses proposed solutions to coping with or alleviating the continued rising cost of gasoline.

The Impact of Gasoline Prices on Products and Services

The price of gasoline impacts everything within our world, as we know it today. Beginning with petroleum-made products and transportation costs and then trickles down through all goods and services (Koploy, 2011). The harder question would be, What doesnt get impacted by rising gasoline prices? According to Matt Phillips (2011), of the Wall Street Journal, for every $10 increase in oil prices, gasoline prices increase about 25 cents per gallon. Furthermore, every onecent increase in gasoline equates to $1 billion in household energy consumption per year. Therefore, a $10 increase in oil relates to a $25 billion dollar decrease in household consumption. Households, businesses, governments, and states all must pay for this increase in energy consumption from somewhere; therefore, they will be spending $25 billion less on other goods as their discretionary spending decreases. Businesses must recoup the added expenses and begin to raise the prices of their goods and/or services. Governments and states must also pay for the increase, which means, in some form or

another higher taxes or less money spent on other things. Finally, this is all falling on the shoulders of households throughout America as they begin to pay for higher costs on everything, such as: food, products, services, taxes, and even the mental stress trying to balance their family budgets.

Marketing Causes Gasoline Prices to be Higher than Normal

It is my belief that unintended marketing of crude oil prices creates gasoline prices to be higher than normal. According to the case, ExxonMobil: Social Responsibility in a Commodity Market, Roughly 58 percent of the retail price of gas covers the cost of crude oil (Kotler & Armstrong, 2010). Therefore, the majority cost of gasoline is based off of the price of crude oil. Moreover, crude oil is priced within the commodity markets and is supposed to be based on the worlds supply and demand of oil (Adams, 2006). However, as news around the world is broadcasted market speculators try and gauge where oil prices will eventually be. According to Robert Lenzner (2012), of Forbes magazine, speculators have added $23.39 to the price of a barrel of oil. As explained previously this roughly equates to a $.50 per gallon increase at the pumps. Consequently, the unintended marketing throughout the world is essentially adding about $.50 to the price of a gallon of gas.

Is ExxonMobil Acting Responsibly When Pricing Gasoline

According to the case, ExxonMobil: Social Responsibility in a Commodity Market, ExxonMobil was investigated both federally and by the state, in which neither of them found any evidence to suggest any price gouging or wrongdoing (Kotler & Armstrong,

2010). Having said that it is my belief that ExxonMobil was acting just ass any other company would do trying to be as profitable as can be in order to please their stakeholders. From a business perspective they obviously have been doing great being in one of the top three spots on Fortunes 500 list year-after-year. ExxonMobils price of gasoline does not vary drastically, if any, compared to its competitors. Therefore, in theory, if ExxonMobil were to use some of its profits to lower their price of gas, and try to keep their prices relatively stable, they would ideally attract more demand for their product. This in return would give them an even higher volume of sales, or, in other words, more revenues. They could then market how they are trying to help the consumers checkbooks and the economy, increasing more discretionary spending. Furthermore, this is going to force their competitors to try and reduce their prices also. Moreover, after building an even larger customer base, which should create more loyal consumers for having thought about the world economy and their customers, as the price of crude oil fluctuates downward they would begin to realize an even higher profit margin due to the increase in their volume of sales.

Consumers Also Have a Role in the Price of Gasoline

The price of gas is based on the supply and demand of crude oil (Adams, 2006). Having stated that, consumers really cant do much when it comes to affecting the supply of oil; however, they do create the demand for the product. Consumers will consistently drive the demand of oil higher by driving inefficient vehicles; making useless trips, such as going out six different times rather than combining all their activities in one trip; not car pooling when the opportunity presents itself; and/or living an extraordinary distance from their workplace or everyday necessities. Consequently, it is the responsibility of the 3

consumer to try and use gasoline efficiently, whether the price of gas is high or low, in order to try and keep demand at its lowest possible level. However, with newly emerging markets, such as China and India, which account for 37 percent of the worlds population (Kotler & Armstrong, 2010), demand is going to increase no matter what is done until an alternative fuel is found to replace gas.

Fixing the Problem of Rising Gas Prices

First and foremost I would begin investing more money into research and development in order to try and come up with a more efficient means of energy. While that is being done, I would try and boost our nations supply of oil by increasing drilling within the United States and its territories. Furthermore, I would look into other means that could reduce the cost of oil this country pays for a barrel of crude oil. Moreover, I would not forget about the responsibilities that the government, businesses, and consumers have when creating the demand in this country as stated above. Additionally, the previously stated entities could also try and obtain very highly efficient vehicles such as electric/hybrid vehicles, while public services, such as law enforcement personnel, firefighters, and city workers could also begin to double the occupancy in their vehicles wherever it is possible. The advantages of increasing the supply of oil are fairly clear, lower gas prices increase disposable spending, which in turn will help boost the economy. However, some disadvantages could be higher taxes in order to fund the R&D, higher cost of vehicles as they become more expensive to build, and political repercussions as the United States begins to by less and less oil from overseas.

References
Adams, C. (2006, September 15). How is the market price established for crude oil? The Straight Dope. Retrieved July 12, 2012, from http://www.straightdope.com/columns/read/2671/how-is-the-market-priceestablished-for-crude-oil. Koploy, M. (2011, June 6). How rising fuel prices impact everything. The Utopianist. Retrieved July 11, 2012, from http://utopianist.com/2011/06/how-rising-fuelprices-impact-everything-infographic/. Kotler, P., & Armstrong, G. (2010). ExxonMobile: Social responsibility in a commodity market. In Marketing: Defined, Explained, Applied (pp. 10-11). New York, NY: Prentice Hall. Lenzner, R. (2012, February 27). Speculation in crude oil adds $23.39 to the price per barrel. Forbes. Retrieved July 12, 2012, from http://www.forbes.com/sites/robertlenzner/2012/02/27/speculation-in-crude-oiladds-23-39-to-the-price-per-barrel/. Phillips, M. (2011, February 24). Oil prices: $10 = 25 Cents at the pump. Wall Street Journal. Retrieved July 12, 2012, from http://blogs.wsj.com/marketbeat/2011/02/24/oil-prices-10-25-cents-at-thepump/.