Case Study : Eco7-Launching a New Motor Oil

BPMM6013Marketing Management

Eco7 : Launching a New Motor Oil

Hafizullah Mohd Amin 822481See Pei Hiam 822112

Zuhadi Shamsuddin 822416

Content• Executive Summary

• Introduction

• Situational Analysis– STP Analysis

– SWOT Analysis

– BCG Analysis

• Financial Forecast

• Controls

• Conclusion

• References

• Proposed Marketing Objective

• Proposed Marketing Mix Strategy & Tactics – Product

– Price

– Place

– Promotion

Executive Summary

• Consumer interest in “green” automobile technology, such as hybrids or electric vehicles, had increased steadily.

• Most research and development focused on improving fuel efficiency, alternative energy sources, or reducing emissions.

• It had generated significant buzz within the industry and initial sales penetration of channel partners had shown promise, but the green motor oil market was clearly in its infancy.

Introduction

1936

Founded in United States

1980s

Focused on becoming the preferred brand in the

DIFM channel

1995

Divested its petroleum division, exiting the lower margin business of

refining and marketing fuels

2014

Operated 10 lubricant blending and packaging

plants; 7 regional distribution centers

2005

Sluggish growth and Avellin start losing it’s

market share

2012

Start developing a new motor oil manufactured from recycle

materials 7

Initiators

DECISION MAKING UNIT

Consumer Behavior

A complex buying behavior backed by extensive research

Dissonance reducing buying behavior with inclination towards

brands with high awareness

HIGH INVOLVEMENT

Less likely

More likely

Planned Purchase

Urgent Replacement

Information Gatherers

Influencers

Decision Makers

Purchasers

Users

Need to change motor oil by the driver of the vehicles

• Sudden requirement

• Planned – Self

• Planned – Schedule

Service provider / friends / family / research by self / service engineer / firms owners

Driver with/without advice from technical consultant

Owner of vehicle / owner of firms

Need to replace perceive by the driver of vehicle

1

2

3

4

5

6

• Older

• Higher income

• Had more education

• Live in metropolitan area

Demographic

STP AnalysisPassenger Car Motor Oil

do-it-yourself (DIY) do-it-for-me (DIFM)Segmentation base

Behavioral

• Younger

• Less affluent

• Live in smaller towns or rural areas

Psychographic • Favored trucks & sports utility vehicles

• Know more about their vehicles

• Traditionalist

• Prefer foreign cars and luxury vehicles

• Don’t worry much about the details

• Professionals

• Cost-conscious

• Customer-loyalty

• Quality-conscious

• Rely on professionals advice

STP Analysis

PCMO Consumers

Price Focused

45%

Quality Focused

30%

PCMO Service Providers

32% Fast Lube

29% Car Dealer

12% Oil Change-plus

10% Mass merchandisers and clubs

9% Repair shop

8% Others

?

STP AnalysisPCMO Service Providers

Car Dealer

Oil Change-plus

Mass merchandisers and clubs

Repair shopFast LubeThe value proposition was the speed with which the oil change service could be completed—often in just thirty minutes.

Car dealers focused on the sale or lease of vehicles and usually provided after-sales service, particularly as part of the vehicle warranty.

The outlets were usually specialty stores focused primarily on a specific product or service, such as tires, mufflers, or brakes, rather than on motor oil.

Mass merchandisers and clubs were large-format retail chains that sold clothing, household goods, food, and electronics.

These were typically small, independent outlets offering auto mechanic services and sometimes tire changes or gasoline sales.

Others

Strengths Weaknesses

Opportunities Threats

WT

SO

SWOT Analysis

• Preferred brand in DIFM channel since 1980s

• Well established 1936

• Sluggish growth since 2005

• Poor financial management

• Lack of product innovation

• Competitors offer lower price

• Baud & Motoline expanded their fast-lube chain

• Sevoline introduced SevoGreen

• Ranked third among PCMO manufacturers

• Green motor oil market in its infancy and expected to grow

BCG Analysis

Hig

h

High

Low

Low

Ind

ust

ry G

row

th R

ate

Relative Market Share

? star

dog cash cow

7

Proposed Marketing Objective

• To start capturing market for environmentally friendly motor oil

• To become the preferred brand in DIFM channel *

• To increase the overall market share by 2% *

Marketing Mix Product

• Environmental friendly motor oil

• Eco7 is packaged part of PCMO services

• Manufactured from recycled materials

• 65% of recycled oil

• 45% less energy

• Recycling the used oil potentially multiple times

• Better driving performance

Marketing Mix Price

Conventional$3.25

Full Synthetic$7.00

Synthetic Blend $4.75

Price @ $5.25• Too tight and would squeeze margins• Devalue the innovation• Undermine efforts to market Eco7 as

premium product• Easy to sell • 4.5 sales per day

Price @ $6.75• Nearly as expensive as full synthetic• Hard to sell independently• Require installer to understand the

product well enough to explain to customer

• Competitor is selling at $7.50• 3.5 sales per day

Marketing Mix Place

Car Dealer AvellinAutoIndependent DIFM

• Included fast lubes, oil change–plus stores, and repair shops. • To build loyalty, the company

promoted its Aventage program.• 6,000 independent fast-lube• 6,500 oil change-plus store and

repair shop.• 4,400 were in Aventage program.

• Car dealer that sells hybrid and electric cars.• They provided predetermined

maintenance check. •One-stop shop for all maintenance• The oil change would be done in

strict accordance with the manufacturer recommendation.

•Avellin also sold via its own AvellinAuto stores.•AvellinAuto usually located near

the distribution centre and away from independent DIFM•Margin is slightly higher• 436 stores open as of 2014•Generated 7% of PCMO sales

Marketing Mix Promotion

Aventage AveGreen

Market

Mission

Message

Measure

Money

Media

Independent DIFM Car dealer

To strengthen their brand awareness and improvement of perception

To create new market segment and support green product

Main focus is on communicating their vision of providing best value to customers in

terms of quality, durability and value for money

Main focus is emphasizing the significant green factor with no sacrifice in quality and

value for money

A mix of advertising, public relations, direct marketing and relationship marketing

About 2-3% of net profit is used for promotion purposes

Metrics used are response rate from firm owner/customer, loyalty rate, monthly sales report and customer satisfaction index

Eco7 : Test Marketing

CostEvo 7 : $2.01Synthetic : $1.95Conventional : $1.20

Campaign Slogan

You have the green light

Eye-catching green bottle and come with accompanying in-store display materials.

Advertise on local television and news paper

Price$5.25 and $6.75

Survey 1What is your interest in a green motor oil?

Survey 2Assuming similar quality and performance, how likely are you to purchase a green motor oil if it is ….

Survey 3What information source will be most influential in your decision to purchase green motor oils?

3 months trails

Outcome

Concerns on pricing

Installer advice influence purchaser

Ignore the DIY segment

Limit the encroachment of private label

Starting to promote due to higher margin

Alternative approach : available only in AvellinAuto and DIFM (Aventage program)

Financial Forecast – Price & Cost per unit

Conventional Synthetic Private Label Eco7 : Full Eco7 : Dis

DIFM Retail

Average retail price, per quart $3.25 $7.00 $4.75 $6.75 $5.25

Average revenue, per oil change (5 quarts)Gross margin %

$16.2550%

$35.0060%

$23.7565%

$33.7555%

$26.2550%

Wholesaler

Average revenue, per oil change (5 quarts)Gross margin %,

$8.1312.5%

$14.0012.5%

$8.3115.0%

$15.1912.5%

$13.1310.0%

Avellin

Average revenue, per oil change (5 quarts)Gross margin %

$7.1115.6%

$12.2520.4%

NA $13.2924.4%

$11.8114.9%

Cost, per oil change (5 quarts) $6.00 $9.75 NA $10.05 $10.05

Cost, per quart $1.20 $1.95 NA $2.01 $2.01

Financial Forecast – Incremental Revenue & Gross Profitfor Independent DIFM

Eco7 : Full Eco7 : Dis

Eco7 vs Conventional per unit Monthly 105 unit

Annual1260 unit

per change Monthly 135 unit

Annual1620 unit

Revenue, Eco 7Revenue, conventionalIncremental revenue

$33.75$16.25$17.50 $1,838.00 $22,050.00

$26.25$16.25$10.00 $1,350.00 $16.200.00

Gross profit, Eco7Gross profit, conventionalIncremental gross profit

$18.56$8.13

$10.44 $1,096.00 $13,151.00

$13.13$8.13$5.00 $675.00 $8,100.00

Eco7 vs Private Label Synthetic

Revenue, Eco 7Revenue, PL syntheticIncremental revenue

$33.75$23.75$10.00 $1,050.00 $12,600.00

$26.25$23.75$2.50 $338.00 $4,050.00

Gross profit, Eco7Gross profit, PL syntheticIncremental gross profit

$18.56$15.44

$3.03 $328.00 $3,938.00

$13.13$15.44($2.31) ($312.00) ($3,746.00)

Eco7 vs Full Synthetic

Revenue, Eco 7Revenue, Full syntheticIncremental revenue

$33.75$35.00($1.25)

$26.25$35.00($8.75)

Gross profit per change, Eco7Gross profit per change, Full syntheticIncremental gross profit

$18.56$21.00($2.44)

$13.13$21.00($7.88)

Financial Forecast – Incremental Revenue & Gross Profitfor AvellinAuto

Eco7 : Full Eco7 : Dis

Eco7 vs Conventional per unit Monthly 150 unit

Annual1800 unit

per change Monthly 180 unit

Annual2160 unit

Revenue, Eco 7Revenue, conventionalIncremental revenue

$33.75$16.25$17.50 $2,625.00 $31,500.00

$26.25$16.25$10.00 $1,800.00 $21,600.00

Gross profit, Eco7Gross profit, conventionalIncremental gross profit

$18.56$8.13

$10.44 $1,566.00 $18,788.00

$13.13$8.13$5.00 $900.00 $10,800.00

Eco7 vs Private Label Synthetic

Revenue, Eco 7Revenue, PL syntheticIncremental revenue

$33.75$23.75$10.00 $1,500.00 $18,000.00

$26.25$23.75$2.50 $450.00 $5,400.00

Gross profit, Eco7Gross profit, PL syntheticIncremental gross profit

$18.56$15.44

$3.03 $469.00 $5,625.00

$13.13$15.44($2.31) ($416.00) ($4,995.00)

Eco7 vs Full Synthetic

Revenue, Eco 7Revenue, Full syntheticIncremental revenue

$33.75$35.00($1.25)

$26.25$35.00($8.75)

Gross profit per change, Eco7Gross profit per change, Full syntheticIncremental gross profit

$18.56$21.00($2.44)

$13.13$21.00($7.88)

Financial Forecast – Incremental Revenue & Gross Profitfor Avellin (Annual) average retail price @ $6.75 (Exclusive)

Aventage Non - Aventage Others AvellinAuto

Total StoresPenetration

4,40095%

NA NA 436100%

Eco7 penetration, total storesEco7 upgrades per store, annual

4,1801,260

4361,800

Total Eco7 upgrades 5,266,800 784,800

Revenue per change, Eco 7Revenue per change, conventionalIncremental revenue per change

$13.29$7.11$6.18

$13.29$7.11$6.18

Gross profit per change, Eco7Gross profit per change, conventionalIncremental gross profit per change

$3.24$1.11$2.13

$3.24$1.11$2.13

Incremental revenue $32,547,178 $4,849,819 $37,396,997

Incremental gross profit $11,216,638 $1,671,379 $12,888,017

Financial Forecast – Incremental Revenue & Gross Profitfor Avellin (Annual) average retail price @ $6.75



4,40075%

1,60045%

6,50030%

436100%


3,3001,260

7201,260

1,9501,260

4361,800

Total Eco7 upgrades 4,158,000 907,200 2,457,000 784,800


$13.29$7.11$6.18

$13.29$7.11$6.18

$13.29$7.11$6.18

$13.29$7.11$6.18


$3.24$1.11$2.13

$3.24$1.11$2.13

$3.24$1.11$2.13

$3.24$1.11$2.13

Incremental revenue $25,695,141 $5,606,213 $15,183,492 $4,849,819 $51,334,664

Incremental gross profit $8,855,241 $1,932,053 $5,232,642 $1,671,379 $17,691,314

Financial Forecast – Incremental Revenue & Gross Profitfor Avellin (Annual) average retail price @ $5.25



4,40090%

1,60060%

6,50040%

436100%


3,9601,620

9601,620

2,6001,620

4362,160

Total Eco7 upgrades 6,415,200 1,555,200 4,212,000 941,760


$11.81$7.11$4.70

$11.81$7.11$4.70

$11.81$7.11$4.70

$11.81$7.11$4.70


$1.76$1.11$0.65

$1.76$1.11$0.65

$1.76$1.11$0.65

$1.76$1.11$0.65

Incremental revenue $30,171,488 $7,314,300 $19,809,563 $4,429,215 $61,724,565

Incremental gross profit $4,189,928 $1,015,740 $2,750,963 $615,087 $8,571,717

Marketing ControlsType of Control Prime Responsibility Purpose of Control Approaches

i. Annual-plan Top managementMiddle management

To examine whether the planned resultsare being achieved

• Sales analysis• Market share analysis• Sales-to-expense ratios• Financial analysis• Market-based scorecard analysis

ii. Profitability Marketing controller To examine where the company is making and losing money

• product• territory• customer• segment• trade channel• order size

iii. Efficiency Line and staffmanagementMarketing controller

To evaluate and improve the spending efficiency and impact of marketing expenditures

• sales force• advertising• sales promotion• distribution

iii. Strategic Top managementMarketing auditor

To examine whether the company is pursuing its best opportunities with respect to markets, products, and channels

• Marketing effectiveness rating instrument

• Marketing audit• Marketing excellence review• Company ethical and social

responsibility review

Conclusions

• Eco7 is a good environmentally friendly product.

• The price between $5.25 - $6.75 should be further explored in order to identify the right price point.

• Test marketing is a good approach to understand the customer needs and demand

• Upgrades from conventional to Eco7 will have impact towards demand on conventional market, to some extend customer may choose product from competitor.

• The penetration percentage provided is too high to achieve.

• Avellin should consider collaboration with car dealer to capture new customer rather than relying on existing customer

References

• http://www.valvoline.com

• https://www.slideshare.net/jainprakhar1/apollo-v2

• https://www.epa.gov/greenvehicles/alternative-vehicle-fuels

• http://www.pennzoil.com

• https://www.essays24.com/Business/Eco-7-Launching-a-New-Motor-Oil/66837.html

• Kotler, P. & Keller, K. (2012). Marketing Management. London, England: Pearson.

http://www.valvoline.com/

https://www.slideshare.net/jainprakhar1/apollo-v2

https://www.epa.gov/greenvehicles/alternative-vehicle-fuels

http://www.pennzoil.com/

https://www.essays24.com/Business/Eco-7-Launching-a-New-Motor-Oil/66837.html

Thank you

-June 2017-

Case Study : Eco7-Launching a New Motor Oil

Marketing

Transcript of Case Study : Eco7-Launching a New Motor Oil