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ANALYSIS OF CENTRICA PLC

Submitted to: The Board of Centrica PLC

From: The Marketing DirectorDate: 12th April 2009

INTRODUCTION:

Centrica PLC is a multinational company with 4 key SBUs. The company has expanded rapidly organically and

through diversification. It has a huge customer base and has embraced marketing orientation culture. However they

are facing challenges such as management of its complex portfolio and the growing competition in the energy market.

Their key objective is to develop a market-oriented focus for the next decade.

1:0 EXTERNAL ANAYSIS:

1:2 Political/Legal Factors:

The government has de-regularized the energy market by letting companies to manage themselves. De regularization of telecommunication sector in the UK has lowered entry barriers. Some markets have government control measures to ensure fairness to industry players. De regularization of the energy industry is growing globally. Governments engage in scrutinizing CRM programs. Politics affect energy sector performance. Companies are required to adhere to the Disability and Discrimination Act. Some governments set guidelines on performance and direction of the energy sector. There is legislation governing disabled members of the society.

1:3 Economical Factors:

UK is a profitable market. The global telecommunication market is estimated to be in excess of 1 trillion US dollars. There is large fluctuation in wholesale natural gas prices. Volatility affects companies financial performance. There is regulation of prices through subsidies by the government in some countries. GDP is improving in the UK economy. Broadband cost is affecting pricing in the market. There is 10% corporate tax surcharge on UK offshore gas production. There is fluctuation of energy prices in the market.

1:4 Sociological Factors:

Poverty levels are high on people aged 60yrs and over in the UK. Older people limit their use of telephone and going out for social occasions There is high death rate amongst older people. People dont trust energy market following the Enron Affair. People feel safer in their own homes hence energy companies strive to provide safety and security programs

within the community.

There is increasing need for utilities within the society.

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1:5 Technological Factors:

There is rapid change in technology e.g. increased wireless communication and broadband. Companies use a 24 hour service transactional website. Broadband market is a monopoly and has an economic effect on internet service providers.

1:6 Environmental Factors:

Weather affects sales volumes in the energy market. Companies are sensitive to ecological effects. There is concern about the environment hence the move by companies to seek alternative sources of energy e.g.

Green Energy

1:7 STAKEHOLDER ANALYSES:

1:7:1 Customers:

Customers have a strong bargaining power Customers are open to solutions and they readily accept new offerings from companies It is costly to acquire a new customer Customers see gas and electricity markets as not emotionally involving. Customers form strong perceptions about different energy suppliers. Customers are aware of the changing environment. Utilities have become part of customers lifestyle. Customers awareness of the brand is beneficial to companies. Reliability of service providers is important for customers.

1:7:2 Competitors:

Competition is growing within the energy industry. Some companies are making the utility industry more exciting Telecommunication industry has established players with high level of market awareness. There is increased competition in Customer Relationship Management. Competition has caused exit of some businesses from the market.

1:7:3 Distributors:

De regulation in the market has caused increased distribution opportunity. Companies distribute their products & services through whole sellers and Retailers. Some companies distribute gas through UK-Inter connector pipeline.

1:7:4 Shareholders:

Shareholders expect high returns from companies. Companies engage shareholders in dialogue as they strive for continual improvement.

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1:7:5 Suppliers: Companies have long-term contracts with suppliers of raw materials. Some companies supply their own raw materials by acquiring producing fields. Some suppliers enjoy monopoly which is costly to companies. i.e Internet broadband services

1:7:6 Publics Publics highly scrutinize company executives. Energy market has a perception problem following the Enron Affair therefore developing trust is important. Some companies enjoy public confidence. Publics have low awareness levels of some energy brands. Public view energy products as similar without much differentiation.

2:0 INTERNAL ANALYSES:

2:1 Marketing Strategy Audit The companys expansion strategy is to diversify through acquisition, alliance formation, joint ventures and

exportation.

The company has 4 key SBUs including: British Gas, Goldfish, AA, and One Tel. The company has plans to continue expanding in new markets e.g. US & Canada. They practice backward integration. They practice divesting strategy. The company is planning to invest in a CRM program. The company uses listing in the stock exchange market to raise funds for investment. The company uses cause related marketing strategy to increase its sales. The company has invested heavily in CSR activities They have also invested heavily in wind energy.

2:2 Marketing Organization Audit

2:2:1 Marketing organization Audit

The company has a matrix structure. It has an autonomous marketing department The company has centralized the key functions. The structure is not straight forward and lacks key roles and responsibilities.

2:2:2 Marketing Efficiency:

The company has an effective marketing structure. The company practices marketing orientation.

Finance department does detailed group financials in line with the financial reporting standards. The company does not have an independent production department although it does gas production business. Corporate Affairs department has a challenge of managing the perception of some of the companys brand

image in the market.

HR department has a challenge of recruiting enough skilled staff i.e engineers to support the capacity demand ofthe business.

The company does not have operations department to control the implementation of its plans.2:2:3 Interface Efficiency

HR Department recruits and trains staff in line with business requirements e.g customer care Marketing department works closely with corporate affairs i.e through CSR activities, they increase their sales

volumes.

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Legal department have developed control measures and policies used in the company to control risks. The company has integrated the operations of its energy and home services to enhance customer loyalty. I.T department plans to upgrade the system to support cross selling activities. Finance department allocates budget for other functions i.e Marketing activities & salaries and wages. The company is able to offer integrated solutions to customer needs.

2:3 Marketing Systems Audit:

2:3:1 Marketing Information Audit

The company gathers information from the existing internal database e.g identifying segments andcustomer behavior.

2:3:2 Control systems Audit:

The company is sensitive to high standards of corporate governance. The company has a control mechanism to monitor its communication activities. They have measures and policies to control risks. They are keen to operate in a prudent risk management framework. The company adheres to standards of financial reporting.

2:3:3 Market Research The company conducts market research on customer acquisition and retention. They also carry out employee satisfaction survey internally.

2:4 Marketing Productivity Audit

2:4:1 Profitability Analysis: The companys total profit increased by 37% There was 32% increase in ROCE in 2002 The companys most profitable business is Energy supply which contributes 79% of its total profit. Financial services and telecommunication are the worst performing businesses with decline in profitability. The companys total turnover increased by 13% between 2001 and 2002 Dividend increased by 29% between 2001 and 2002. The company out performed the FTSE (Share market) in 2002 The companys cash flow declined by 10% from 885m pounds in 2001 to 790m pounds in 2002.

2:4:1 Cost effectiveness Analysis The company works to reduce contract exposures through risk reduction measures. They maintain 50% long-term borrowing in fixed accounts to attract interest. The company has distributor Agreements to control risk. They are experiencing high man power cost to support engineering workforce. It sources energy needs from its own power station to reduce cost.

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2:5 Marketing Function Audit

2:5:1 Products: Offers wide range of products and services Offers enhanced services and quality products. Serves both B2C and B2B markets. The companys product offerings have been the same over time. They offer products in relation to market conditions. The company engages in New Product Development. The company has a complex product portfolio. The company encourages innovation.

2:5:2 Price The company has a low pricing strategy The company prices its products according to the market condition. The company has competitive prices for its products. They prefer to trade in UK pounds. Gives pricing discounts to elderly consumers.

2:5:3 Place The company has a wide distribution network. They have offices where there are large customer numbers. They offer one stop shop for utility suppliers. Sell through its own outlets and partners.

2:5:4 Promotions The company does advertising through print media, TV, Radio and National press. They also engage in PR and sponsorship activities. It promotes its brands through CSR activities. They use text phones and websites to communicate to customers They also communicate below the line using posters Enjoys celebrity support to promote its products.

2:5:5 Processes: The company plans to enhance its IT to improve its processes. The company has 24hr online access to serve it customers. The company uses its own employees to install home services They use customer complaints as feedback to improve service delivery.

They transport residential gas to customers homes.

2:5:6 Physical Evidence The company has its own outlets however they lack corporate brand to enhance its identity.

2:5:6 People: The company has large staff numbers. They reward staff achievement and success.

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They empower and respect employees. They provide training to employees; i.e conducts induction programs to train about products and customer care They transport skills from other countries to new markets. The company works on succession plans. Lacks enough skilled staff.

The company encourages team working and sharing of innovative ideas. They conduct employee survey which gives staff an opportunity to give feedback to their employer.

3:0 SWOT ANALYSES:

STRENTH:

Has a huge customer base for cross selling The company has a good credit rating. The company has control measures and policies in place

to manage risk.

Practices market orientation Some of the companies brand are strong e.g. British Gas

AA

The company is able to offers both domestic andCommercial services.

Top Management is committed to service excellence. They have skilled staff. They have a favorable people management policy. The company has a wide distribution network. The company has strong financial performance The company has a strong image. It is trusted and enjoys

Government good will.

Investors have confidence in the company

The company practices innovation and NPD Has enhanced supply chain.

WEAKNESSES:

The company has a challenge in managing itsComplex Portfolio.

The company has an old accounting policy inplace.

They lack enough skilled staff. Some brands have an image problem There is weak customer relations across the

group

The company is not good in complaintsHandling.

Has low rate of cross selling Management are taking too long to transform

the company

Has low capitalization compared to theCompetition.

Low awareness level of some of its keyactivities such as CSR

OPPORTUNITIES:

Wide utility market in Europe. De regulated energy market. Rapid growth in technology Economic stability of some markets. Flexibility of companies to collaborate with. Emerging markets such as Spain for growth opportunities

THREATS:

High cost of man power. High cost of customer acquisition Growing competition in the market Risk of weather conditions Counterparty risks. The complexity of energy market. Increase in customer demand and bargaining

Power.

CONCLUSION:

Centricas diversity strategy has resulted in a strong growth of customer base and increased turnover. The expansion is

paying dividend although the company is taking too long to transform.

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