Eco7 Launching a New

Motor Oil

Prem Prakash Dewani

Professor, IIM Lucknow

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 Framework

 Situation Analysis
 Problem Statement

 Various Options Available

 Criteria of Evaluation
 Evaluation of Various Options
 Recommendations
 Contingency Plan
 Conclusion

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 Situation Analysis
Aaron Jonnerson, VP of marketing at the automotive division of
Avellin, must make marketing mix decisions for the launch of Eco7,
a new environmentally friendly motor oil

The company’s performance has been mediocre, shareholder

pressure is increasing and expectations are high for Eco7

However, Jonnerson faces significant challenges in ensuring a

successful launch, the market for passenger car motor oil (PCMO) is
mature and consumers are price sensitive.

The independent oil change outlets that are Avellin’s core

customers have declined relative to other channels

Jonnerson must design the best pricing strategy to ensure a

successful launch

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 Learning Objectives of the Case
• Demonstrates how channel conflict can arise as market evolve

• Examines the challenges of managing and changing relationships with multiple

channels

• Explores how new product launch success depends on support from channel
partners

• Demonstrates the relationship between channel and pricing decision in a

marketing plan

• Evaluates how changing market priorities and new product attributes affect
channel decisions

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 Questions
Q1) How do consumers purchase motor oil?

Q2) Assess Avellin’s position in the PCMO industry, including consumer perception and Avellin’s
distribution strategy

Q3) What is the strategic role Eco7? How should Avellin weigh consumer interest in and willingness
to pay for, a green motor oil?
Is it the right product at the right time

What is the right launch strategy for Eco7?

Q4) How should Eco7 be priced? What are the profit implications for wholesalers and DIFM stores?

Q5) How should Eco7 be distributed? What is your recommendations regarding exclusivity for
Aventage stores?

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 Questions

1
How do consumers
purchase motor oil?

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How do consumers purchase motor oil?
Important Factors are:
• Time constraints causing shift to DIFM
• Low Perceived Risk
• Low Perceived Differentiation
• Price Sensitivity
• Low Involvement Product

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 How do consumers purchase motor oil?
Important Factors are:
 Time constraints causing shift to DIFM
• Low Perceived Risk
• Low Perceived Differentiation
• Price Sensitivity
• Low Involvement Product

• Time Constraints Causing Shift to DIFM

• Consumers have become reluctant to spend the time required to purchase the oil and filter, drain
the old oil, replace it with new oil and then discard the oil properly.

• DIY segment has steadily shrunk as increasing numbers of consumers prefer to use a DIFM
service.

• Purchase decision has been shifted away from consumers

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 How do consumers purchase motor oil?
Important Factors are:
• Time constraints causing shift to DIFM
 Low Perceived Risk
• Low Perceived Differentiation
• Price Sensitivity
• Low Involvement Product

• Low Perceived Risk

• Low perceived risk for not replacing motor oil

• Consumer are not bothered about the brand also, ‘it should meet the manufacturer’s
requirement’

• Relative to other replacements such as tyre or brakes, consumers are unlikely to see any safety
concerns when it comes to selecting motor oil.

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 How do consumers purchase motor oil?
Important Factors are:
• Time constraints causing shift to DIFM
• Low Perceived Risk
 Low Perceived Differentiation
• Price Sensitivity
• Low Involvement Product
• Low Perceived Differentiation
• Not much differentiation among various brands available

• Over 40 % of consumers do not have a brand in mind for their next oil change and if price expectations are
met, 83 % of DIFM consumers are willing to accept he installer’s recommendations

• DIY consumers are more likely to consistently use one brand because of trust & familiarity, in that segment
also 1/3 are undecided about next purchase.

• Increasing numbers of private labels is indicator that consumers are not brand conscious.

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How do consumers purchase motor oil?
Important Factors are:
• Time constraints causing shift to DIFM
• Low Perceived Risk
• Low Perceived Differentiation
 Price Sensitivity
• Low Involvement Product

• Price Sensitivity
• Expensive synthetics account for less than 20 % of the market.

• Together DIY and DIFM (Price focused) account for 70 % of PCMO purchasers (Exhibit 3).

• Therefore, it is not easy for PCMO manufacturer to raise prices.

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 How do consumers purchase motor oil?
Important Factors are:
• Time constraints causing shift to DIFM
• Low Perceived Risk
• Low Perceived Differentiation
• Price Sensitivity
 Low Involvement Product

• Low Involvement Product

• Consumers prefer not to pay too much.

• PCMO is not a product for which consumers will do significant research

• In theory, the benefits of Eco7 could make it a ‘pull’ product that consumers demand. In reality, it
may be difficult for Avellin to succeed without significant ‘push’ support from its distribution
channel.

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 Questions

2
Assess Avellin’s position in the PCMO
industry, including consumer perception
and Avellin’s distribution strategy

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 Position in PCMO Industry?
• Lost Ground to market leader
• In 2000, Avellin was the # 2 Player, just behind Baud and slightly ahead of Motoline. By 2012,
Baud has become clear market leader, while Avellin lost ground for both companies (Exhibit 2)

• Growth in private label

• Avellin’s share loss is even more worrisome in light of the growth of private label at the expense
of the branded segment. Private label share to total PCMO sales has grown from 18 % to 32 %.

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 Position in PCMO Industry?
• Not preferred by DIY
• Avellin’s share of sales to national accounts for DIY segment is just 9 %, even though DIY still
accounts for 25 % of industry sales.

• DIY consumers are unlikely to be the target for Eco7.

• DIFM consumers are more likely to drive fuel efficient diesel or hybrid vehicle and to care about
the availability of green products (Exhibit 4).

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 Position in PCMO Industry?
• Skewed toward price-focused consumers
• Among DIFM consumers, the price-focused segment appears to favour Avellin.

• Consumer’s see it as the value brand

• This perception should be a concern for a company that relies heavily on the fast-lube channel,
where pricing tends to be higher than it is in most competing channels.

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 Position in PCMO Industry?
• Rise of competing channels to fast lube
• Over the last 12 years, mass merchandisers and clubs and car dealers have all gained
significant share.

• Oil change plus outlets have also increased their share of DIFM services.

• All have sought greater share in oil changes to increase the frequency of customer interactions.

• This change along with the fact that mass merchandisers, clubs, and car dealers generally offer
lower prices than fast lubes, do suggests that the shift away from fast lubes is unlikely to be
revered.

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 Position in PCMO Industry?
• Growth of branded fast-lube chains
• Growth in the fast lube chain has gone disproportionally to national chains like those lowed or
franchised by Baud and Motoline.

• Baud has:
• More extensive fast lube chain
• Better presence in national accounts offering DIFM services
• Better shelf space in the stores
• Clearly, consumers who are undecided, or intending to buy another brand, end up buying Baud’s
PCMO.

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 Questions

3
What is the strategic role Eco7?

How should Avellin weigh consumer interest in

and willingness to pay for a green motor oil?

Is it the right product at the right time?

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  Strengthen Customer Relationships
 Loyalty with the customer

 Provide a financial boost

 Avellin consumer trade up from conventional oil to the more
expensive, higher margin Eco7
 Customers switch from other PCMO brands to Avellin because of
Eco7’s benefits or because Eco7 has created better distribution
opportunities

 Reclaim innovation leadership

 Appease to DIY and quality focused segments, rather than as a
preferred brand among the price-conscious

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 Questions

What is the right launch strategy for Eco7?

How should Eco7 be priced? What are the profit

implications for wholesalers and DIFM stores?

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 Questions

What is the right launch strategy for Eco7?

How should Eco7 be distributed? What is your

recommendations regarding exclusivity for
Aventage stores?
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 Summary

Avellin Decisions Incremental Revenue Incremental Gross Profit

Scenario 1 Full Price for Eco7
Exclusivity for Aventage Stores
Scenario 2 Full Price for Eco7
Offered to all independent DIFMs
Scenario 3 Discounted Eco7
Offered to all independent DIFMs

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 Summary

Avellin Decisions Incremental Revenue Incremental Gross Profit

Scenario 1 Full Price for Eco7 $ 37.4 M $ 13.5 M
Exclusivity for Aventage Stores
Scenario 2 Full Price for Eco7 $ 39.9 M $ 14.4 M
Offered to all independent DIFMs
Scenario 3 Discounted Eco7 $ 46.9 M $ 7.2 M
Offered to all independent DIFMs

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