Indian Lubricants Industry (B): Distribution Challenges for Izo
& Prabhar Oil Company
Prabhar Oil Company, and Distribution Challenges in the Indian
Lubricants Industry(AbstractA leading multination oil giant Izo is
planning to increase its market foothold in India, but is facing
several challenges on the way to catch up with its competitors. Its
rivals include public sector undertakings (PSUs) such as IOC, HPCL
and BPCL which enjoy well-established brand presence, and
distribution network in Indias near-stagnant automotive lubricants
market. Creating a wider distribution network is however posing the
biggest challenge for lubricants players in India. Public sector
companies have an early advantage of a wider distribution network
of petrol pumps. However, few private companies such as Castrol
have made strong retail network in the bazaar trade. In this
competitive business environment, Izo-a new market entrant- is
facing a number of distribution challenges. This case highlights
the problems faced by Izo in managing one of its distributors, POC,
in its quest to quickly increase its market share. Simultaneously,
the case also highlights the key sales management issues when
dealing with matured markets specially when dealing with tough
customers.This case can be covered while teaching any of these
courses- strategic marketing, distribution management, or sales
management. The students can be either at undergraduate level or
graduate level, but given the context of the case, graduate
students would be more adept in learning from the case, and
appreciate finer nuances in the case study. Few key learnings from
the case that emerge are- challenges of a matured industry, the
nature of competition in the given market structure, sales
management issues especially salesforce controls, performance
management, and motivation.Key Words: Lubricants, distribution,
market entry, distribution challenges.On a cold November morning in
2006, Alok was called for a closed door meeting in Izos New Delhi
regional office. Alok had recently joined as the area sales manager
in Izo, which was a leading MNC oil company marketing lubricants in
India since 1998. The people present in the meeting included, the
financial controller office of Izo, the regional manager to whom
Alok reported, Vineet, and a representative from Izos Singapore
office. Alok was told that Prabhar oil company (POC) had filed a
complaint against him for cheating and financial embezzlement, and
the evidence suggested that he was guilty. Prabhar Oil Company was
one of the distributors in Aloks sales territory. However, within
10 minutes of the start of the meeting, Alok was left aghast. He
was forced to sign false declarations, and beg for mercy for
reducing the future penal action against him, although he refused.
All the while, Alok kept telling the investigators that it was a
fabricated case based on false evidence since POC was terminated as
Izo distributor based on his recommendation. Alok felt cheated and
betrayed by Izo given his painful toil to ensure high performance
from the distributors in the hyper-competitive auto lubricants
market. Indian Automotive Lubricants Industry
The scenario of Indian lubricant (lube, for short) industry has
changed after the liberalization of Indian economy in the early
1990s. Prior to 1992, the Indian lube industry was dominated by
four major public sector companies including, Indian Oil
Corporation (IOC), Hindustan Petroleum Corporation Limited (HPCL),
Bharat Petroleum Corporation Limited (BPCL), and Indian British
Petroleum (IBP). There were a few private sector companies too such
as Castrol, Gulf, Tidewater, etc. About 90% of the Indian lube
market was controlled by public sector undertakings (PSUs), while
the remaining 10% was held by private sector players. During
1992-93, as a part of liberalization and policy deregulation,
government decided to open the market, and allowed foreign players
to enter Indian lubricant industry. Following that, there was also
substantial reduction of import duties on lube base oil from 85% to
25% that accelerated the growth in the market. Administered pricing
regime was subsequently eliminated, and free pricing was permitted
in lubricants. Deregulation encouraged all the major multinationals
(MNCs) such as Shell, Mobil, Exxon, Caltex, Esso, Elf, Pennzoil,
Gulf Oil, BP among others to venture their operations in the
country with their foreign brand. Entry of MNC players led to
increased competition, and considerable reduction in the market
share of PSUs, which declined from around 55% in 1997-98, to 48% in
1999-2000.
Growth Opportunities
The auto lube industry has been facing challenging times for
previous several years in terms of slow growths in consumer demand,
low profitability, and advances in auto technology. Decline in
automotive sales and rising crude prices caused severe base oil
supply imbalances in the country. Due to shortage of raw materials,
many players were forced to bring in multiple price hikes.
However, factors such as growing disposable income of
individuals and double income households, changing demographics,
changing lifestyle, improvement in road infrastructures, increasing
usage of automotive transportation, rural demand, and support from
the government is expected to drive demand for cars and
two-wheelers in future. Being the second largest producer of
two-wheelers, and fourth largest in terms of commercial vehicles
market globally, the Indian automotive market is one of the fastest
growing markets in the world, and is expected to grow at a CAGR of
9.5% till 2010. The automobile industry also expects customer
migration from two to four-wheeler vehicles, which will further
fuel demand growth. Moreover, the introduction of Tatas Nano car
will further boost the future of automotive lubricant market in the
country. It was expected that the global lubricant demand would
grow about 2.3% per annum to reach 41.7 million metric tonnes by
2010, while India is likely to see a growth of over 3% during the
same period (Annexure I). The demand of automotive lubricants in
India was also expected to increase to 1.92 MMT by 2014-15
(Annexure II).
Increasing demand for four-stroke motorcycles, tie-up with OEMs,
and tightening of pollution norms are the key demand drivers of
engine oil segment in India. Brake oil and coolants oil segment are
another large segment. Introduction of new cooling system
technologies, growth of heavy commercial vehicles and increasing
awareness among the customers boosted the demand of coolants oil.
The brake oil segment has been growing due to introduction of new
brake systems, consumption by commercial passenger vehicles, and
changing mindset of consumers. Similarly, advanced gear system
technologies, and automatic transmission system have boosted the
demand of gear oil. Overall market is growing and there would be
huge growth opportunities in export market and yet untapped rural
markets.
Future Challenges
It was expected that Indian market would become highly
competitive, given that major international players identified
India as a focus market, and several new companies were setting up
their operations in the country. Pricing of petroleum products were
linked to global prices although few products were protected
through cross-subsidization, which would get dismantled in the
coming years. PSUs were placed in a comparatively competitive
position since they had integrated operations (own their
refineries) which helped them to depend less on buying base oil
from other companies, and could also resort to cross subsidization
across different petroleum products, if the need arose. Moreover,
they had bigger balance sheets, larger resources and the most
needed government support. All these posed big challenges for
private players. To add to the challenges, with the developments in
R&D, new generation lubricants with longer drain periods had
eaten into the replacement demand, impacting volume growth in the
market significantly. Mr Naveen Kshatriya, Chief Executive and
Managing Director of Castrol India, mentions: About ten years ago,
a truck needed about 200 liters of lubricants every year, but today
it has come down to about 75-80 liters. Customer preferences,
differentiation of quality and price, expanding product basket, MNC
OEM endorsement, and OEM product specification were crucial factors
for future growth in the industry (Annexure III). Then, low product
awareness and involvement, especially in rural market also pose a
big challenge for the Indian lubricant companies. To survive in the
market, continuous product innovation would be necessary for
players in terms of new products, brands, quality, services,
performance, and pricing to reward value-for-money to the
customers. It is essential for companies to focus on consumer,
channel-partners, and OEM relationships using brands as the primary
drivers of their business. In this game, market players are
required to maintain good relationships with their stakeholders,
especially the channel partners, and customers.
Market Size
The Indian lubricants market is the fifth largest market in the
world in terms of volume after US, China, Russia and Japan, valued
at Rs.17000 crores [1 crore = 10 million] in 2009. The Indian
market contributes 3-4% of the global demand of 38.5 million tonnes
per annum, growing at close to 6% annually. It has been broadly
divided into three major categories including Automotive,
Industrial and Marine & Energy applications (Annexure IV).
Among them, automotive segment comprised about 67% (950 million
liters) of total lubricant market, or about 8%-10% of global lube
production. Automotive lubes are further classified into diesel
engine (classified as CI engines) lubes and petrol engine
(classified as SI engines) lubes, with 70% and 30% market share
respectively. Accounting for about 70% of the market share, engine
oil is a key segment in the Indian automotive lubricants market,
playing a critical role in determining the market share of industry
players. Other auto lubes include gear oil, transmission fluids,
hydraulic brake fluids, and engine coolants.The industry is in a
fragmented stage for many years with more than 22 big and small
manufacturers with over 30 lubricant brands. However, the industry
is led by four largest players IOC, Castrol, HPCL and BPCL
commanding more than 70% of the market, and the remaining 30% is
shared by several players including MNCs, and unorganized sector.
This leads to an extremely competitive market scenario (Annexure
V). Accounting for about 50% market, the public sector firms still
dominate the lube market. IOC has been the leader in terms of
profitability, with its Servo brand (Annexure VI). In the private
sector, Castrol has been the single largest player, accounting for
about 20% of the domestic market share. The other MNC competitors
such as Tidewater Oil, Elf, Shell, Mobil, Exxon, Pennzoil, Caltex,
Gulf, among others hold marginal market share. Too many players in
the market have created a chaotic situation that leaves little room
to differentiate amongst the various brands. Industry experts
believe that consolidation will continue to have a major impact on
market share, positioning, business ranking, manufacturing and on
the competitive environment. Industry analysts have also predicted
that, those oil companies owning refineries, sound research and
development (R&D) facilities, innovative business plan, wide
distribution network, strong brand, wide infrastructure and
professionalized technical services would continue to survive in
the market.
In recent times, the scenario has been changing, and competition
is now based more on brand identification with respect to
performance rather than price. This has led to price wars, and
increased trade and consumer promotions with key influencers,
diluting the brand image further, and contributing little towards
enhancing value in relationship with consumers.
Consumer Buying Behavior
In the Indian automotive lubricants market, there are generally
two types of customers, the quality conscious customer, and the
price conscious customer. However, different factors such as lube
oil changing habits of consumers, brand and price awareness, price
sensitivity, purchase location, key decision makers, and key
influencers play a critical role in determining their buying
behaviors and patterns.
Generally, Indian consumers have little knowledge about price
competitiveness, performance, or quality of the different lubricant
brands. Unlike in developed markets which are characterized by high
level of involvement and the Do-It-Yourself markets, Indian
consumers have very low involvement with lube consumption. Oil
change in auto engines is a job best left to service stations, or
even unorganized roadside mechanics, due to the messy nature of the
job, high perceived expertise of these oil changers, and sometimes
old relationships with these intermediaries. Many customers also
send their drivers/chauffeurs or local/contract mechanics to change
lubricants in their vehicles. In such cases, it is more likely that
drivers or mechanics get influenced for some monetary gain. The
auto service mechanics are the key influencers in the vehicles
owner's decision to purchase a lube brand. However, for selling
lube to corporate customers (OEMs tie-up), technology based product
specification, quality, price competitiveness, brand recall, and
negotiation skill are much more important. In rural areas,
consumers generally take decision based on availability of
lubricant brands and the suggestion from the local garage
owner/retailer, mechanics or key decision makers in the family. For
example Bhim Rao, tractor driver said, I have been using Castrol
for the last 10-15 years, I use it because it was suggested by my
mechanic and it is of good quality. I will switch the brand if
other company offers a lower price or when Castrol will stop
offering promotions and discounts. Good oil is one that is long
lasting and gives a powerful sound. Automotive lubricants companies
tried to create consumer awareness about the product quality,
pricing and performance of lubricants using different advertisement
media; and promotional strategies such as trade shows, discounts,
gifts, and freebies. Sachin, tempo driver said: I have just bought
this tempo and I dont know which oil has been used. I plan to buy
Servo in future because passenger cars use it. I remember Rahul
Dravid in the Servo advertisement though that is not the reason for
purchase. I hope companies offer promotions and discounts and
reduce prices. A good oil is one which gives good engine power.
Consumers sought value-for-money in the lube that they have been
buying from the market. They have been also migrating to better
quality vehicles, leading to use of higher grade lubricants.
Consumers take decision to buy a lube brand based on their past
experience too.
The distributors or retailers were more interested in profit
margins, and try to convince the consumers to buy the brand that
gave them more margins. However, some consumers were
brand-conscious and were strongly brand loyal, a segment that is a
stronghold of Castrol. The other segments were more value-conscious
where price and word of mouth of the influencers (especially
mechanics) played a critical role in decision making.
Branding StrategiesIn the highly price sensitive Indian
automotive lubricant market, manufactures adopted strategies to
create brand awareness among consumers through various means of
advertising, brand endorsements, marketing campaigns, and trade,
and consumer promotions. Many companies appointed famous
celebrities as brand ambassador to attract larger target audience
towards their lubricant brands. e.g. Indian cricketer Rahul Dravid,
and Bollywood actor John Abraham are the brand ambassadors of
Castrol. Indian cricketer, M S Dhoni is the brand ambassador of
BPCLs MAK brand, and Tennis star Sania Mirza is engaged with HPCL
as a brand ambassador of its Turbo brand. The leading market
players aired a series of eye-catching advertisements, promotional
campaigns and sponsorships to strengthen their brand propositions.
Castrol has been spending about Rs. 100 crore on advertisements
every year to encourage its customers who were ready to pay premium
for world class lubricants. Giriraj Bagri, Vice
President-Marketing, Castrol India, mentions, When the automotive
industry was still in a nascent stage in India, Castrol took on the
role of educating consumers on the need to use good quality oil and
the role it played in the maintenance of vehicles. Over the years,
the company has created several path-breaking advertising campaigns
such as Castrol Power1 Passion Hunt and Castrol Golden Spanner
Mechanic aimed at building brand loyalty and long-term
relationships with consumers. Castrol also became a host sponsor of
many international cricket, football, and car racing game to
enhance their brand image in the market. These efforts have led to
Castrol becoming among Indias most widely recognised brands and
leader in its market segments. The company distinguished its brand
through continuous innovation, strong relationship with customers,
business stakeholders, communities and its own staff. BPCL using
its MAK Lubricants has also adopted different promotional campaign
such as JEET KI KHUSHI, GADI MEIN DHAMAK HASI MEIN CHAMAK, and
KISMAT KI BALTI KHOLO. Other leading companies such as TATA BP,
Shell, HPCL, Mobil, Elf, and Gulf Oil too have adopted different
promotional campaigns to garner higher market share.
Distribution and Retailing
The Indian automotive lubricant market has mainly two major
channels for distribution and retailing, the original equipment
segment that comprised about 70% of the automotive lubricants
market, and the retail segment accounting for the remaining
(Exhibit I).
Original Equipment Segment With growing competition, automotive
lubricants manufactures have sought collaboration with original
equipment manufacturers (OEMs) to strengthen value proposition of a
particular brand. Many companies such as Castrol have made strong
partnership with major Indian and global OEMs including Tata
Motors, Mahindra and Mahindra, Volvo, Audi, Ford for participating
in their workshops for high quality lubricants. MAK Lubricants from
BPCL also tied-up with Chevron, Hero Honda Motors, GM and TVS to
supply its automotive lubricants.
Exhibit I
The Indian Automotive Lubricants Market; Distribution Channel
and Market Share
Source: Compiled by the Case Writers
Retail Segment In the retail segment, petrol pumps or retail
outlets and retailers (also known as the bazaar trade) are the two
major channels of distribution. Over the last few years, sales of
lubricants through bazaar trade has become more popular in the
market and positioned lubricants as high involvement consumer
goods, transforming the lubricant products from non-durable to fast
moving consumer goods (FMCG). Bazaar trade now comprised about 12%
market share of total automotive lubricants sales in India.
Accounting for about 18% market share, petrol pumps remained the
major channel of distribution in the retail trade. The other
marketing channel includes authorized service stations, wholesale
distributors, garages, lube oil shops, auto spare shops,
super-markets, rural and agricultural dealers. A new retailing
concept called User Outlet has also been developed by many MNCs,
such as Castrol where consumers select their own lube brand after
servicing of their vehicles in the same outlets. The Servo lube
range has been perceived by customers as a one-stop for quick, easy
and convenient auto care with a refreshing experience in different
aspects of auto care such as engine oil change, and maintenance
checkups of both four and two wheelers. Convenient stores and
highway shops have been also developed to retail lubricants.
With increasing number of players in the market, it is very
important for the companies to capture larger segments of
consumers, by building a strong distribution network across the
country. Public sector companies (being integrated oil companies)
manufactured their own base oil and followed different distribution
strategies as compared to private sector firms which were dependent
on import of base oil (strictly regulated by the government, till
recently). PSUs having an advantage of their own widely spread
network of petrol pumps to sell their automotive lubricant brands,
left the private sector firms with little choice but to distribute
through distributors and the retail outlets in the bazaar trade.
Although few MNC entrants such as Shell, Mobil among others did
strike joint ventures with PSU majors that were more for strategic
and regulatory requirements guiding market entry into India, than a
concerted distribution strategy.
Setting up a retail network is not an easy task and this job has
been made more difficult for private players with the entry of PSUs
in bazaar trade. Manish Bagla, Senior Manager,
PriceWaterhouseCoopers mentioned that, the lubricant market in
India has largely been an oligopoly business with large share
controlled by the government-owned oil marketing companies (OMCs).
One needs to have lube oil base stock, which is produced by
refineries, which in turn are largely owned by the OMCs. For
ready-made access of the distribution centers, multinational
companies had taken initiatives to make strategic tie-up with OMCs
to sell their lube brands. Sometimes MNCs fail to read the cultural
background (or cultural differences) as they move from country to
country selling their products. They feel that the strategy which
had succeeded in other countries would be replicated in most of the
countries. But in many cases this assumption was wrong. Chevron,
one such MNC, is planning to shut their automotive lubricant shop
in the country due to fierce competition and faulty business model.
Energy analysts also felt that Chevron did not manage to garner a
sizable market share in India because of its dependence on third
party for sale of lubricant products. With a strong market share in
US, the company has intended to focus in China and other emerging
markets for its lubricants business. Building a strong retail chain
and distribution network would be among the key challenging tasks
for the industry players.
In the distribution channel for lubricants, the salesperson does
play a strategic role to access the customers / distributors /
dealers as a means of achieving a competitive advantage for the
organization. The salespersons have an obligation to the customers
as well as his organization too. By improving the buyers motivation
to continue the relationship, the sales professional can secure the
continuity of the buyer-seller relationship. The salesperson also
affects the perceived value of supplier services, which
differentiates the suppliers from their competing suppliers.
Skilled salespeople have an expertise to manage conflict well and
mediate information between the two organizations buyers and
sellers. Acquiring and retaining dynamic salespersons have been a
daunting task for Indian lubricants firms. The Indian lubricants
players have been concentrating to redefine the sales function as a
long-term marketing mix element.Izos market entry into India
A leading multinational oil giant, Izo, as part of its India
entry strategy was actively looking to expand its distribution
network for automotive lubricants on a pan-India basis. Izo was
forced to exit the Indian market in the late 1970s when a few
socialistic thinkers compelled several MNCs to shut shop and exit
the Indian market. After a gap of more than 20 years, it was time
to look at re-entry strategy for the Indian lubricant market, which
by 1997 had already become saturated. While Izo was among the top
10 Fortune 100 companies, it was also considered to be was an old
and conservative company by its competitors.Being a late entrant in
the Indian auto lube market, Izo had to face intense competition in
the bazaar trade of automotive lubricants where nearly 35 MNCs were
present with its well known brands including, Shell, Castrol,
Caltex, and the well-established Indian PSU brands such as Indian
Oils Servo, BPCLs MAK and HPCLs Turbo. Besides the well-known
brands, there were also several local brands, including the
recycled and crudely refined used black oil which either sold under
some unknown label or as a spurious counterpart of well-known
brands such as Castrol, and other premium brands. Given the nature
of the competitive market conditions, Izo unveiled its ambitious
plans of establishing its all India distribution network for
automotive lubricants by appointing new distributors in all
important locations, to fuel its growth plans in India. The Indian
automotive lubricant market has been going through a challenging
environmental turbulence due to global financial meltdown, and
decline in automotive vehicle sales volume in India. A multitude of
new private players have been facing stiff competition to grab a
small share of the increasingly fragmented market. Anticipating
future opportunities, many existing players were adopting different
strategies to strengthen their brands through various means of
advertising, marketing campaigns and event sponsorships. The
industry analysts felt that private sector firms cannot match the
public sector units in terms of coverage due to their larger petrol
station networks (also called retail outlets). Nationalized PSU oil
companies combined held about 50% of market share. It was also
expected that monopoly of public sector holdings would no longer
exist. But late entrants such as Izo, faced greater competition for
market share, branding, positioning, establishing distribution
network, and building a strong relationship with distributors, and
customers in India.Prabhar Oil CompanyPrabhar Oil Company (POC) was
a well-known distributor of automotive lubricants in Muzaffarnagar
district in western Uttar Pradesh (UP). The proprietor, Mr. Prabhar
Singh was an outspoken and aggressive person, and a distributor of
lubricants for several MNC and Indian oil companies such as Veedol,
MICO, and Gulf Oil. Having worked for the previous 10 years in the
lube trade, popularly known as bazaar market, Prabhar had
established a modest establishment of his own, that included a
small showroom and office, manned by a few young sales and office
staff. The office which started as small shop in busy street was
later expanded into a larger showroom-cum-office with godown space.
This office-cum-showroom served to showcase several brands that POC
sold as their companys distributor.
POC had different territorial rights for distribution of
different companies brands. For MICO, POC sold to small retail
shops, garages and small-sized firms in western UP, while for Gulf
Oil, POCs territory was confined to few districts such as
Muzaffarnagar, Meerut, and nearby areas. POC was a growing
enterprise and served to feed the entrepreneurial spirit of Mr.
Prabhar who was well educated, being a LLB, with a PhD. in History.
He entered this business mainly for financial reasons, and also due
to his brother-in-laws influence who being in this trade convinced
Prabhar of the underlying opportunities in this trade. Aloks
SagaAlok was a newly appointed area sales executive in Izo, with
sales responsibility for western Uttar Pradesh (UP). This being his
first job in a MNC, Alok was pretty excited, and eager to do good
work. When Alok met Vineet in August 2005 for the first time in New
Delhi office, he had many questions to ask, including those related
to sales quotas for his distributors, and the kind of distributor
profiles that best suited the company expectations. Alok was eager
to learn, but he knew that since he was new to this industry it may
take him a little more time to learn the ropes compared to his
colleagues who had worked previously in the same industry. Alok was
also very apprehensive whether Vineet would allow him to take his
own time in learning the sales processes, appointing distributors,
and achieving the steep sales quotas given to his distributors. But
Vineet reassured Alok that soon he would learn the tricks of the
trade, and catch up with his colleagues with previous industry
experience. Nevertheless, Alok believed that his performance was of
utmost concern for Izo, and if it was not up to expectations, then
he may have difficulties in justifying it. Alok was also asked to
meet Rajesh, who was till recently handling POC, just before he
left Gulf Oil to join Izo, and who was instrumental in appointing
POC as Izos distributor for Muzzafarnagar.Alok started off well in
his new responsibilities by appointing new distributors for many
districts in his territory, including Dehra Dun, Meerut, Bijnor and
Haldwani. With POC as a distributor, he had his task cut out for
him in terms of motivating him to achieve the given sales quotas.
He understood from the very beginning that his own performance
depended on the success of his distributors. Alok realized that his
responsibility lay in keeping the distributors motivated at all
times, and showing them the value in their activities as a
distributor of a MNC company. Alok started off with his enthusiasm
and began to strengthen the distributor network in his sales
territory, build a long-lasting relationship with them, which
helped him to achieve the sales quotas. Alok also used to go along
with his distributors on sales calls meeting retailers, garage
owners, lube oil shops, auto shops, and even rural agricultural
sellers, to ensure higher penetration of Izos products.
Alok's Relationship with POC
Rajesh was familiar with Prabhars working style and mannerisms,
and had previously cautioned Alok about using tact when working
with Prabhar. Aloks relationship saga with POC began on a bad note,
which soon became his Achilles heel. While other distributors were
showing growth in terms of volume and value, POC was a non-starter
from the beginning. Alok failed to understand the reasons there of.
His numerous conversations with Prabhar always gave him some
confidence that POC would take-off slowly yet steadily, and that
the competing brands sold by POC wouldn't really affect Izo. But
Alok did anticipate that initial sales for Izo would happen at the
expense of other brands sold by POC. To that extent Prabhar would
really need to be 'shown the money' in being an Izo distributor.
Alok clearly remembered the day when the POC showroom dedicated to
Izo was inaugurated. Alok with help of Rajesh had pulled up a good
job in making a good showcase of POC being a potential star
distributor of Izo, and a future feather in the cap of Izo. But
little did he know that things would take a U turn soon.Izo-POC
Channel Relationship: Early Warning SignalsThe early warning
signals started coming when the VP (Sales) of Izo remarked in
private conversation to Vineet and Alok, that POC may prove to be a
tough nut to crack', by which he meant that POC could prove to be a
challenge larger than what Izo could handle. POC met less than 50%
of its targets in the first three consecutive months and Alok
thought that it was time to have a straight talk with Prabhar. Alok
tried to find the reasons of the disappointing results from POC,
and he was told that there were several issues which were required
to be tackled with Izo, before he could commit more resources to
Izo, in terms of his time and capital. POC had a sales turnover of
over Rs 10 million per annum from products other than Izo, which
only contributed less than 5% of it; the lion's share being that of
MICO lubricants, and other auto accessories. Appealing to POC to
extend credit to retailers was becoming difficult proposition for
Alok, and Prabhar deliberately kept the working capital
requirements low. Moreover, POC also priced the retailer cost price
for Izo products about 30% higher than competing brands despite
Izos lower brand recall and low market penetration. In such a
scenario, competing with entrenched brands such as Castrol, and
Servo seemed almost an impossible task for Alok. Since POC earned
lower margins by selling Izo products, its return on investment
(ROI) was lower (about 20%) compared to that earned from selling
other companies' products (which ranged between 30% to 45%).
However, while on one hand, Aloks other distributors in the
territory made headway into eating the competitors' market share,
POC was still stagnating, given the low levels of motivation and
efforts put by Prabhar in the market.
Alok was left wondering if Izos relationship with POC was driven
only by the economics of the business, or if other factors too were
important. If other distributors could manage with same overheads,
profit margins, and ROI, why was POC finding it difficult to
perform? The answer probably lay in POCs lack of motivation to sell
Izos products, and the lack of rapport and camaraderie between
Prabhar and Alok, unlike what Rajesh enjoyed with Prabhar in the
same territory in a different company. Alok was aware as Rajesh
also once mentioned to him that Prabhar despite being an emotional
person took business decisions without losing sight of the economic
considerations. The second quarter also went by, without any
improvement in POCs performance on meeting sales quotas or even
market penetration. Alok knew his time was running out! It was time
for action before it was too late; it was time to take some hard
decisions. Alok's pleas to the regional office asking for more time
for POC to show performance was proving to be futile. Vineet wanted
performance from Izo distributors, and its sales managers.
Moreover, Alok also knew that his dismal performance may also lead
to an extension of his probation period, which may eventually lead
to his exit from the company.
Prabhar was quite well-known in the trade, but as Alok realized
that retailers were not sure whether they were getting a fair price
from POC. However, after discussing this issue with Prabhar, Alok
found that he had a business ideology of working with low volumes,
and higher margins. Since Izo products were already priced higher
than competitor products, taking high margins increased the
retailer's cost price such that Izos prices beat that of Castrols
well known brands. Alok also knew that his interference with
deciding the retailer cost price may become a bone of contention
with POC. Alok did manage to broach this topic with Prabhar, but in
vain. Prabhar was a man of predetermined ideas and ideologies, and
didnt tolerate any interference in his working style. Alok clearly
remembered situations where Prabhar would ask Alok to plead to his
boss to provide POC a status of star distributor before he could
commit himself to Izo. Alok knew that only performance could lead
to rewards, but not vice-versa.
The results of third quarter again showed no improvement, like
the previous two. Alok discussed the issue of non-performance in
detail with Prabhar, and decided that he had to take a final
decision because of POC's lack of commitment towards Izo. But when
detailed discussions with Prabhar yielded no results, Alok
requested Prabhar to end the association with Izo, and quit as
their distributor. Alok also suggested that the company would need
another distributor who would show higher commitment towards the
companys objectives, and higher performance in the territory.
Prabhar flatly refused to exit as an Izo distributor. It was the
last straw for Alok, and his patience gave in finally, and he
became determined to show that Prabhar was not indispensable, who
could take Izo or himself as his hostage. On the next Monday
morning at 9 am, Alok faxed a letter to Vineet, recommending POCs
termination as a distributor, and restating his intention to
appoint a new distributor in that territory within a
month.Terminating the Relationship with POCWhen Vineet received the
fax message, he was perplexed. Rajesh was sitting before him along
with another sales manager. Rajesh only shrugged his shoulders in
vain, and said, Alok is probably acting hastilyPrabhar probably
wants more attention and time to develop into a high volume
distributor. Vineet wasnt sure if waiting more would lead to any
better results, since Alok was getting quite desperate to make
things change for better. Moreover, the time for annual performance
appraisal of all sales managers was also due in this quarter. If
Vineet rejected the recommendation to terminate POC, it may have a
detrimental effect on Aloks motivation. But terminating a
distributor also implied bearing its related consequences,
including a possible backlash from Prabhar. Based on suggestions of
few sales managers, who perked him into taking bold decisions to
teach distributors such as POC, that Izo cannot be held hostage for
long by likes of him, Vineet decided to go along with Alok, and
asked him to replace POC with a new distributor, in the shortest
possible time.However, POC was not sent any official communication
about its termination as an Izo distributor. On Monday, Alok met
Prabhar to inform him that POC and Izo would not be able to work
together since POC failed to perform, and meet Izos standards. Alok
also explicitly mentioned that he would be on look out for a new
distributor in the territory. Prabhars reaction was that of silent
shrug of his shoulders, after which Alok left his office.
After this incidence, Alok never met Prabhar, and got going with
other distributors, including Myrut Oil Company (MOC) which was run
by two partners, young, ambitious, and hungry for grow. MOCs
performance was often proudly cited in sales meetings by Vineet, as
a role model for other distributors to follow. All sales managers
in North India were advised to meet MOCs partners, and appoint new
distributors with similar profiles. Another advantage of having MOC
as a distributor of the company for Muzaffarnagar, from Izos
perspective, was that both partners, Sarish and Sandy looked at
Izos distributorship as their core business, unlike POC which
sidelined business with Izo. Aloks rapport with MOC and Sandy was
especially good, and when he could not locate a better distributor
for Muzaffarnagar district, he asked Sandy to expand his territory
to include POCs territory. It didnt take much time for this news to
spread across the trade that POC was no longer a distributor, and
MOC had replaced him. Prabhar was obviously not very happy, and
tried his best to ensure that his retailers did not go against him,
and tried to convince them that POC was still the distributor for
Izo. It did not take more than 3 months for MOC to start business
with retailers in the new territory, and with much lower prices
than that of POC. The retailers happily accepted the products, and
the sales in the territory increased. Both MOC and Alok were happy
for being able to increase the sales performance. Alok thought that
past worries were over, and the story of POCs engagement with Izo
had happily ended.
The Tipping Point While the saga with Alok was continuing,
Prabhar had a line of communication open with Rajesh, and thought
would he would bail him out of his predicament. Little did he
realize that Rajesh would say that, it was Aloks decision, and wash
his hands off the whole situation. Prabhar was left high a dry, and
Alok knew that Prabhar was going through something for which he
himself was to be blamed. Prabhar felt his ego was deflated, and he
decided to strike back! He cooked his accounts books to show that
Alok had taken money from him on several occasions but never
returned. This was to make a case against Alok that he took a bribe
from POC and indulged in several unethical practices, including
putting up a Billboard for which POC was paid in advance, trusting
that the billboard would be put, but never was. Aloks repeated
reminders to Prabhar to put up the billboard only resulted in
replies such as, I will do it, dont worry. Prabhar realized that
not having installed a billboard, for which POC was already paid in
advance, could be cooked as an evidence of bribe taking by Alok
from POC. Prabhar cooked several such evidences including small
gifts that he forced Alok to take during festive occasions such as
Diwali and New Year. Alok did not refuse those gifts that time, as
Izo policies allowed employees to take small gifts from customers,
if refusing them could lead to spoiling relationship with
customers, provided the gift was less than Rs 500 in value. Alok
had already informed Vineet about the gift-taking incidence. After
several such false evidences were cooked up and case made against
Alok, Prabhar lodged a formal written complaint against Alok to VP
of Izo, and requested him to take action against Alok, citing his
own helplessness. He also promised that he would co-operate to make
sure that justice was delivered to him. The onus to prove the
charges against Alok was that of Izo, which decided to initiate the
investigation taking Vineet, and few others Izos employees into
confidence, and keeping Alok in the dark. Alok was not even told
that POC had lodged a complaint against him, and he continued with
his daily activities in his territory.
It was 11 pm in the night in August 2006, when Alok received a
call from Prabhar on his mobile. Prabhar was in a very bad mood and
lambasted Izo, and Alok for treating him shabbily and not giving
him his due respect. He was in no mood for listening. The half-hour
call ended in a threat to Alok to bear the consequences of having
treated Prabhar, and POC with such disrespect and not giving him
his due. Alok hung the phone and informed Vineet and Rajesh about
it. He later went on his regular sales beat in his territory.
Several weeks went by, and Alok almost forgot about Prabhars phone
call, that he received another phone call; it was Vineet on call.
Among other things, Vineet asked him to make a visit to New Delhi
and meet him in person. He also asked him that he should make his
return plans for the same day, and at his own cost.Annexure I
Growth Trend of Indian Automotive Lubricants Market
Year Rate
1990-91 - 1996-972.5%
1996-97 - 2001-022.0%
2001-02 - 2006-074.5%
2004-05 - 2009-103.5%
2009-10 - 2014-154.0%
Sensitivity Coefficient5.0%
Source: http://www.indiastat.com
Annexure IILubricants Demand: Past & Future (Estimated)
Source: http://www.indiastat.com
Annexure IIIIndian Automotive Lubricants Industry Application of
Porters Five Forces Model
Source: Compiled by the case writers
Annexure IV
Brief Overview of Lubricants
Lubricant is substance used for the reduction of friction
between two moving surfaces and helps to improving efficiency and
reducing wear. The lubricants mainly used as important applications
in internal combustion engines, vehicles and industrial gearboxes,
compressors, turbines or hydraulic systems and more applications
has required for special type of tailored made lubricants.
About 5,000 to 10,000 different lubricant formulations have been
necessary to satisfy more than 90% of all lubricant applications.
For the manufacturing of lubricants, generally it contains about
93% of base oils (mineral oil), 7% chemical additives and fewer
other components. There has been required a specific applications
and application methods to develop a various types of lubricants.
For the production of simple lubricants normally involves blending
processes but specialties often require the use of chemical such as
saponification ( in the case of greases), esterification (when
manufacturing ester base oils or additives) or amidation (when
manufacturing components for metalworking lubricants). For further
manufacturing processes include drying, filtration, homogenizing,
dispersion or distillation. The Indian automotive lube firms have
been manufacturing various types of lubes with different viscosity
grade such as 5W-20, 10W-30, 15W-40, 5W-30, 10W-40, 20W-40, etc.
The viscosity grade describes the oil's thickness, where W stands
for winter. The first number indicates the viscosity of the oil at
a cold temperature, while the second number indicates the viscosity
at operating temperature. The different engine such as Compression
Ignition (CI) engines and Spark Ignition (SI) engines requires a
specific type of lubricants. In CI engines, diesel is used a fuel
while in SI engines, petrol or gasoline is used as fuel. Diesel
engines are heavy engines and lesser speeds; on the other hand
petrol engines are lightweight and achieve higher speed.
Compiled by the case writers from:
a) Theo Mang, Lubricants and their Market,
http://www.wiley-vch.de/books/sample/3527314970_c01.pdf, 2007
b) Haresh Khemani Comparison of Spark Ignition (SI) and
Compression Ignition (CI) Engines,
http://www.brighthub.com/engineering/mechanical/articles/1537.aspx#ixzz0WLi0KyRD,
November 5th 2008
Annexure VNet Profit (Annual Interim) of Leading Indian
Lubricants Companies
Source: Crisil, Angel research,
http://birlaa.com/wp-filez/Savita.pdf, August 28th 2007
Annexure VI Indian Domestic Automotive Lubricants Market
(In Rs. Crores; 10 million=1 crore)Company
NameMar-03Mar-04Mar-05Mar-06Mar-07Mar-08Mar-09
Bharat Petroleum Corpn.
Ltd.12501694.6965.8291.61805.51580.56735.9
Castrol India Ltd.152.92137.38127.46146.81154.49218.4262.3
Gulf Oil Corpn. Ltd.15.3222.9120.0322.7923.0125.1329.04
Hindustan Petroleum Corpn.
Ltd.1537.361903.941277.33405.631571.171134.88574.98
I B P Co. Ltd. [Merged]87.75214.6658.8712.44
Indian Oil Corpn.
Ltd.6114.897004.824891.384915.127499.476962.582949.55
Tide Water Oil Co. (India)
Ltd.9.997.677.347.538.9723.1827.55
Source: Compiled by the case writers based on CMIE data
Prabhar Oil Company, and Distribution Challenges in the Indian
Lubricants Industry:
Teaching Note
Teaching Objectives
The case study has written to understand the current scenario of
Indian automotive lubricants industry and the authors think that
the special perspectives behind the case is to understand the
marketing challenges, especially the retailing and distribution
challenges faced by the automotive lubricants players in India. Our
recommendation is to discuss the case in retail marketing/retailing
or strategic marketing/marketing strategy class since the case
fundamentally can help to illustrate the importance of retailing
and distribution in a competitive business environment. The case
discusses an overview of Indian automotive lubricants industry and
further more concentrated towards retailing and distribution
challenges in Indian automotive lubricants market which was faced
by one of the leading MNC oil giant Izo in the country. The case
provides a comprehensive framework for the development of
competitive marketing strategies, especially creation of retail
network to achieve the overall organizational goals and objectives
to gain a competitive advantage. More specifically, the case
illustrate the implementation of marketing strategies of Indian
automotive lubricants players into a practice through giving a
importance of branding, market segmentation, market positioning,
product & pricing strategies, customer relationship management,
creation of strong distribution network for retailing a lubricants
products. Izos failure of continuing POCs dealership and fired of
talented manpower from sales team would be the key discussion
point, which creates the relentless debate in the class.
Pedagogical ObjectivesThe case study enables the students to
understand and analyse: To understand the current business
environment of Indian automotive lubricants market
The dynamics of emerging Indian automotive lubricants market
The critical success factor for doing business in Indian
automotive lubricants market
To analyse the opportunities and challenges in Indian automotive
lubricants market
To understand the distribution & retailing is one the
biggest challenge for automotive lubricant players in India
Izos growth and expansion strategy in India To analyse the
factors that responsible for cancellation of POC as distributor and
termination of Aloks employment from Izo.
To understand Izos sales management system
To understand the customer relationship management (CRM) system
at Izo and its impact.
Teaching Plan
Total Discussion Time: 80-90 minutes
The following suggested teaching plan flow provides the
comprehensive structure to the case discussion in the class.
However, the structure is not compulsory and the case discussion
can be allowed to take any course. It is true that good written
management case study can be discussed in any discipline; it may be
in marketing, finance, human resource management, operations
management or in general management. Although, the following
teaching plan helps instructors to discuss all the theoretical
concepts and its practical implications through broad understanding
and analysis of the case studies and issues.
Automotive Lubricants Industry in India The instructor can start
case discussion in the class through asking questions like
What is lubricant? How are lubricant manufactured?
What are the different types of lubricants, and how are they
sold in India ?
How many automotive lubricants manufacturers in India and their
market share? (Explain the structure of Indian automotive
lubricants Industry).
Explain the role of consumer behaviour for buying automotive
lubricants in India. Which are the key influencers that support
consumers to buy a specific brand of lubricants? What are the
business challenges in Indian automotive lubricants market?
There are number of questions to be raise in the class during
the initial stage of the discussion but the facilitator make sure
that the students understand the overview and current business
environment of Indian automotive lubricants industry while
discussing the Porters five force model for industry analysis
(Annexure III of the case study). The key issues of the case study
the marketing / retail and distribution challenges must be discuss
in detail as below:
Marketing of Automotive Lubricants in the Changing Indian
Economy:
What are marketing and promotional strategies adopted by
different players in the Indian automotive lubricants market during
the recession time and how is subsequently changing during recent
period of time? (When economic slowdown is going to be over or on
recovery path?) Understand the competition and strategies adopted
by leading players like IOC, HPCL, BPCL and Castrol with their
well-established brand like Servo, Turbo, MAK and Castrol
respectively to capture the market potential. Focus should be given
to the marketing and promotional strategies adopted by these
players in this changing behaviour of Indian consumers towards
lubricant products. Discuss the advertising, branding and
promotional strategies including trade shows, discounts, gifts, and
freebies of key players in this sector. Point out the retail and
distribution strategy adopted by public sector and private sector
players. Classification of two major channel of distribution
including original equipment manufacturers (OEMs) and retail
segment discussed in detail and per Exhibit I of the case study. In
Indian automotive lubricants market, there was large number of
suppliers competing on the same stage to grab the market
opportunities. The PSUs having an advantage of their wider
distribution network of retail outlets/petrol pumps. To fight with
PSUs, private players adopted the bazaar trade and concentrated
towards tie-up with OEMs for retailing of lubricants. Now again
with the entry of PSUs in the bazaar trade, the retailing becomes
more difficult for private manufacturers. Highlight the advantages
of well-established retail chain of petrol station by PSUs and the
challenges faced by private sector players in bazaar trade for
retailing their lube brands.Framework for Developing &
Implementing Marketing Strategies in Indian Automotive Lubricants
Market; Special Concern to Izos Strategy. Here the instructor turns
the discussion towards the Izos growth and expansion strategy for
Indian market. Brief the Izos history in Indian and its U-turn
towards Indian market to regain the opportunities as it acquired
globally. Also required to highlight the growth drivers and demand
factors of Indian automotive lubricants market which attracted MNC
oil giant like Izo. It is necessary to understand the first mover
advantage taken by the state owned PSUs and few private sector
players who have already established strong distribution network
across the country and gained a sizable market share in the
lubricants sector. Which is indirectly became a disadvantage for
the late entrance like Izo, who is still facing a tough competition
and challenges to build a retail chain distribution network across
India.
The following important point is necessary to discuss during the
case analysis:
Managing Customer Relationship Understand the term CRM and its
importance in Indian automotive lubricants market. The importance
of CRM at corporate level (for OEMs) and retail level is essential.
Managing relationship with end user customers as well as the
relationship with wholesaler/distributors or mechanics is must for
continuous expansion of sales volume. The role of sales team / sale
person is very crucial for managing long-lasting relationship with
the customers in this sector. Izo has recruited young and dynamic
sales professionals like Alok to build a strong retail chain
distribution network across the country and to create a long-term
relationship with its customers.
But the sales person (Alok) was very eager to complete his
annual sales target and failed to understand the attitude of one of
its distributor POC and terminated the dealership from Izo products
with prior permission from higher authority. To give counter reply
to Alok, POC informed Izo company officials and field bribe case
against Alok. Finally, the Izo has been failed to managing proper
CRM as well as its sales team too.Market Positioning, Target
Marketing and Positioning To understand the target market and
market positioning strategy of different automotive lubricants
players in India. Izos strategy is to position at high quality
lubricants brand with targeting at all level of automotive
lubricants requirement. Izos target is pan India by appointing new
distributors at all important locations.
Product Strategy Discuss the different product strategy adopted
by the key players like IOCL, BPCL, HPCL, Castrol and some new
entrance like Shell, Mobil, Exxon, Caltex, Esso, Elf, Pennzoil,
Gulf Oil and BP to cater the all segments of lubricant products.
Izo have competitive products to fight with his rivals.
Brand Value & Brand Recall Highlight should be given the
already established brands like Castrol, Servo, MAK, Turbo, Mobil,
Gulf, etc with their brand value and brand recall in the Indian
automotive lube market. Due to late entry and stiff competition,
Izo have been facing a problem for creation of strong brand image
and getting lower brand recall with its low market
penetration.Product Pricing The competitive pricing strategy must
be discussed according to the product innovation, quality and
performance of different lube brands available in the market. The
pricing of Izos lube product is 30% higher than that of its
competing brand.
Distribution, Retailing and Supply Chain Management This is the
key discussion point in the class. Understand the distribution and
retailing of auto lube in Indian lubricants market with the
different retail and distribution segments including OEMs, Petrol
Pumps, Bazaar trade, etc. Highlight the distribution, retailing and
supply chain management strategy adopted by different auto lube
players in India. Izo have been eager to expand their distribution
network across the country with appointing new distributors at
important locations to cater whole gamut of the market.
Integrated Marketing Communications Understand the term
marketing communication which includes the conveying and sharing
meanings between buyers and sellers, either as individuals, firms,
or between individuals and firms in Indian auto lube industry.
Integrated Marketing Communication The Promotional Elements
Discuss the promotional elements of integrated marketing
communication in detail with respect to Indian auto lube industry.
Also point out the Izos strategy towards these promotional
elements.
In personnel selling, Izo have been trying hard for
establishment of strong retail chain for creation of good retail
sales prospects. Understand the issues behind Izos sales
professional namely Alok, who was failed to managing the
relationship with POC and finally both (Alok & POC) were
terminated from Izo. Highlights should be given in respect of Izos
sales team management system, HRM including training, motivation,
promotions, etc.
Alok was failed to convince POC in terms of sales promotion,
where POC was appealing to extend credit to retailers, which was
difficult for Alok as per the companys policy. The instructor may
also lead class to discuss the profit margin of the distributors
where Izo is offering lesser margin to its distributors than that
of its rivals, which directly impacts on sales volume of the
company.
The Conclusion Stage:
The facilitator requires turning the discussions towards the
final issues of the case study, which is distribution and retail
challenges of Izo. The few question must be understand like
Is there lack of management system at Izo in between company
officials (i.e. top management), sales professionals and
distributors?
Should Izo support Alok as their loyal employee or should they
side with Prabhar Oil Company to safeguard their reputation in the
market, even at the cost of betrayal of the psychological contract
between Alok and Izo? Why? How should the sales management
processes tackle the issues of distributor performance
management?
What sales management controls if present, may have prevented
Alok and Izo from getting into this situation?
The discussion will bring out the formulation and implementation
of new management strategy in terms of marketing, promotions,
branding, positioning, HRM, distribution & retailing for Indian
auto lube companies.
Few Suggested Assignment Questions and Answers for Students
Explain the current business environment of Indian automotive
lubricants industry. Using PESTEL analysis tool, we can analyse the
current business environment of Indian auto lube industry which
helps the new entrance lubricant players to identify their relevant
business environment in their growth and expansion strategy.
Political Environment Political environment is an important factor
particularly in a mixed economy like India, which is directly
affecting auto lube sector. The political factor players a critical
role for framing an automotive lubricants industry regulations and
policies. The government has taken substantial steps for the
liberalization of Indian auto lube market but still the Indian
political environment has been more supportive to the domestic
players, especially the PSUs, rather than private players and new
MNC entrants. With a current stable Indian government, the industry
players hoping some more positive moves for private and new
entrance.Economical Environment The economical environment of
emerging economy like India is very strong, which provide greater
opportunities for growth and expiations. Due to global economic
slowdown, India reported a GDP growth rate of 6.7% in FY 2008-09,
but economy is hoping to achieve a double digit growth rate in next
fiscal years through some key strategic move of disinvestments.
Though, India provides economical viable business opportunities for
auto lube players in the country.
Socio-cultural Environment Understanding the social and cultural
environment would be the key factor for each auto lube player in
India. The key points of socio-cultural environment are as
follow:
Generally in India, consumers have little knowledge about
pricing, performance and quality of different auto lube brands. But
the scenario has been changing and consumers becoming more towards
brand conscious, demanding branded, qualitative and price
competitive lubricant products.
The disposable income of Indian consumers is growing, though
demanding more automotive vehicles, which ultimately resulted into
an increase in auto lube demands.
The living standard of Indian consumers have been changing
towards a luxuries life style, demanding luxuries automotive
vehicles/cars, which requires a technology based specific &
innovative lubricants.
In India, the local consumers generally prefer local language
for communication, posing significant barriers for foreign
players.
Localization is must for lubricants business in India because
consumer has been giving more preferences to the local
vendors/mechanics, which is the key influencer in auto lube sales.
Word-of-mouth by these key influencers plays an important role in
the sales of auto lube rather than price, performance, quality and
brand of lubricant products.
Around 70% of the Indian population depends on agriculture
sector, living in rural area, which is still not fully taped by the
existing market players.
Technological Environment The manufacturing of auto lube depends
upon the technology of automotive vehicles. In this competitive
arena, the technology of automotive vehicles is changing day-by-day
as per the market demands. Though, technological innovation is must
for auto lube manufacturer to fulfill the market demands and stay
in the market. The Indian auto lube manufacturer having a competing
technology, which they have been getting from India itself or
acquiring from the other developed countries. Some Indian companies
have adopted mergers & acquisitions and strategic alliance to
access a technology. The new entreats would require a huge capital
investment for deploying a competitive technology. Environmental
Factor The environment of the country is very suitable for
automotive lube business. The industry is facing a shortage of
skilled manpower, but it can be managed because large number of
educated unemployed in the country. Some of the universities, which
is now provides a specialised skilled manpower to fulfill the
requirements of the lubricants industry. (E.g. Pandit Deen Dayal
Petroleum University, Gandhinagar) There is cut-thought competition
and new entrants will have to come out with competitive an
innovative branded lube products with a distinctive retail
distribution network across the country. Because the building a
strong distribution would be one the biggest challenge for existing
players.Legal and Regulatory The Indian petroleum sector have been
managed by the ministry of petroleum, government of India. All the
PSUs are protected by the government regulations. The new domestic
and foreign entrants would have to fulfill the government
stipulations.
List out the business challenges faced by the Indian auto lube
players. Why distributions and retailing becomes a key challenge
for Indian auto lube players, especially for the private
companies?
The following are the key challenges faced by the Indian auto
lube players.
Severe competition
Marketing challenges Challenges of branding and brand recall
Market positioning
Market penetration
Building strong relationship with distributors and customers
Challenge to capture a sizable market share
To understand the behaviour of Indian consumers
Challenges for getting a skilled manpower
Retailing and Distribution challenges
Out of the above challenges, retail and distribution challenges
becomes a key challenges for the auto lube players in India,
especially for the private players due to
PSUs having an advantage of well-established petrol retail
outlets to sale their auto lube products. Now the private players
can also sale their auto lube at PSUs petrol retail stations
through a strategic tie-up but, generally PSUs are trying to sale
more of their lube brands rather to sale a lube brands of private
sector firms at petrol retail stations.
The new entered private sector firms in India are generally from
outside the country, having a little knowledge about the Indian
market, consumer behaviour, geographical areas, market
opportunities and having a lack of local language knowledge, which
creates a challenges for private sector companies for distribution
and retailing of their lubricant products in the country.
For retailing of auto lubes, the private sector firms adopted a
Bazaar trade to sale their lube brands but PSUs are also entered in
the bazaar trade, therefore retailing became a more difficult for
private sector firms.
For OEMs tie-up requires a strategic planning and talented
manpower to capture the larger market opportunities. But getting
and retaining a talented manpower, especially in sales team (i.e.
sales professionals) has becoming a tough task for lubricants
players.
Distributors/wholesalers or retailers/mechanics have a more
interest in profit margins rather than price, quality and
performance of auto lube products. Therefore those companies
offering lesser profit margins to distributors/wholesalers or
retailers/mechanics are facing a stiff competition for expansion of
their sales volume.
What are the critical success factors for doing business in
Indian lube market for Izo and other new entrants in India?The key
success factor for industry competitors in the current and future
environment are as follow
Brand Image In the Indian automotive lube business, brand image
and brand equity is a critical factor for success, given the nature
of the auto lube products and consumer buying behaviour. But
building a strong lube brand is not an easy task for the industry
players, where almost 35 brands were already exist.
Extensive Marketing & Promotional Strategies Marketing plays
a critical role for capturing a wider market share. Extensive
advertisement with a popular brand ambassador and promotional
strategies would helps to attract a larger target audience.
Talented Manpower Acquiring and retaining a talented manpower would
be another critical success factor Indian auto lube sector. The
required level of skilled persons is necessary at all level. The
dynamic manpower is must in the sales team of the company.
Wider Distribution Network The stiff competition has made it
important for rivals to spread their distribution and retail chain
network in the country. This will not only to ensure lower freight
costs but also to ensure a faster response time. Securing the
backing of retail distribution channel is critical for market
share. Pricing The consumer sought value for money what they
spending for buying an auto lube products. The cost of lubes is
insignificant as compared to the cost of buying and maintaining a
vehicle. Price competitiveness is must to stay in a market.
Quality Brand recall of any products generally depends upon the
quality and performance of the products. Though, the quality of
auto lube products is required to be a good, with an extensive
performance will be succeed in the market.In addition to the above
mentioned factors, other factors for success in Indian auto lube
market include good financial strength to support extended credit
facilities, technology and R&D backup, and distributed
manufacturing facilities are the key factors for Izo and other new
entrance in India. What sales management controls if present, may
have prevented Alok and Izo from getting into trouble?
The following are the suggested alternatives solutions for Izos
sale management, to prevent Alok and Izo from getting into a
trouble.
All the new and fresh recruited sales person like Alok first
requires a training for product knowledge, sales training, how to
handle and convenience a different clients, how to increase a sales
volume of the company and achieve an individual sales target, etc.
which was not provided by the Izo.
Izos sale management has to re-organize the territory of sales
persons as per their market familiarity, past experience and
relationship with customers. I.e. Rajesh required to assigned Aloks
territory and vice-versa because Rajesh has previously worked with
this territory and familiar with POCs working style and knowing
very-well about how to handle POC.
As the working style of POC is different than that of other
distributors of the same territory, interested more towards the
profitability; though Izo have to give more profit margins to the
POC in special case and also think on POCs appeal to extend credit
to retailers. Izo does also need to think on pricing of products,
which is almost 30% higher than that of competing brands. Izo has
to charge somewhat lower price of its product from POC, which is
now granted to MOC.
Izo has to think about the revision of sales target of sales
persons in a specific territory like in Muzaffarnagar district,
Alok is facing a trouble to expand sales volume from its
distributors like POC. To achieve a sales target is must for Alok
to stay with Izo. Izos sales management has no standard style for
business communication. Officially, Izo has not given a single
notice to POC about its poor performance. Even after terminating
the POCs dealership from Izo, company has not done any official
communication with POC. Though, Izo need to follow a standard
business communication system.
Izo has been facing a problem of sales management control in its
sale management process. Because Rajesh has given the detailed
information to the POC that, Alok was the key decision maker for
terminating its dealership. If Rajesh was silent at this point,
than there would be no any trouble in between POC, Alok and Izo.
Again Izo has not informed Alok, that POC has filed a bribery case
against him and not given a sufficient time to prove himself an
ethical person. Before terminating Alok, management has to check in
detail whether Alok is loyal employee of the company or really a
bribe.
To prevent such kind of issues in future Izo have to focus more
on establishment of organisational competencies using stakeholders
of the company. How sales management practices should be aligned
with distribution level challenges for seamless marketing in
saturated market such as lubes.The sales management practices of
any company are used to expand the sales volume and achieve an
overall goal of the organisation. It is necessary that information
flows move from guarded secrecy to open, honest, and frequent
communications. Most importantly, the points of contact in the
relationship expand from one-on-one at the salesperson-buyer level
to multiple interfaces at all levels and in all functional area of
each firm. The objective of sales management practice is to
synergize supply chains to reduce cost, and waste in the entire
marketing channel in order to satisfy end customers. Sometimes the
high levels of sales management practices creates conflicts in the
organisation, which ultimately manifests as distribution level
challenges. In the seamless marketing in saturated markets such as
Indian automotive lubricants market, Izo have been facing same
distribution level challenges due to lack of appropriate sales
management practices. There is also a conflict between salespersons
(Alok)-buyer (POC) & Izos sales department (company officials),
due to lack of transparency in the company including sharing of
information. Izo has also committed few marketing mistakes in terms
of pricing, branding, and market reach to fight with its rivals.
Automotive Lubricants Market
The Channel of Distribution
Original Equipment Segment (OEMs Segment)
Retail Segment
70% (Market Share)
30% (Market Share)
Petrol Pumps / Retail Outlets
Bazaar Trade
60% (Market Share)
40% (Market Share)
Advertising
Print
Broadcast
Interactive
Outdoor
Threat of Substitute Products
No product substitute
Possible threat of demand-side substitute such as synthetic
motor oils in the foreseeable future
Threat of supply side substitutability in future will influence
suppliers willingness to provide base oil
Bargaining Power of Suppliers
Bargaining power of suppliers mainly depends upon the
availability distribution network, brand image, pricing,
performance and technology based product innovation.
Large number of suppliers have a lesser bargaining power
Price of the product is very competitive in nature
Bargaining Power of Buyers
Number of business buyers relative to seller is too high but
still the bargaining power of buyer is high due to intensified
competition
Buyers have a more interest on margin of profitability rather
than product quality
Price performance and value proposition of different brands
makes informed decision of buyers
Rivalry Among Existing Firms
Cut-throat Competition
About 22 big & small players with more than 30 lubricant
brands
PSUs hold about 50% market share & private firm Castrol is
the market leader
Product differentiation through innovation, new products,
quality, services, performance, pricing and branding.
Foreign firms have a strategic partnership with PSUs to access
their distribution channels.
Threat of New Entrants
Market attractiveness generates the interest for new
entrants
Industry growing at close to 6% annually
Less entry barriers in terms of regulatory regime
Huge capital investment the major components of costs are base
oil cost, marketing, sales, and distribution costs.
Moderate Industry average profitability provides the entry
threats
The threat of existing players having strong distribution
system, brand loyalty and economies of scale in sourcing the base
oil
Technology-based innovations to differentiate
Competition is very high
Public Relations
Publicity
Press Release
Newsletters
Broadcast
Indian Auto Lube Industry: Integrated Marketing
Communication
Sales Promotion
Consumer Promotion
Trade Promotion
Personnel Selling
Account Management
Prospecting
Retail Sales
( This teaching case has been prepared by Ramendra Singh, Pramod
Paliwal and Sanjay Sakariya solely for the purpose of classroom
discussion and not to highlight either effective or ineffective
handling of the case situation by any company or persons. All names
i.e, of the case characters and the case company have been
disguised to protect identities.
Gupta Sudeb and Mondal Subimal, LUBE INDUSTRY - 'FORTUNE' favors
the BEST, http://www.shilpabichitra.com/Shilpa2000/indart32.htm
Ibid.
Salahudeen E, Actions Action Acclaimed,
http://www.keralaindustry.org/e_magazine/Actions.htm
Industry Scenario,
http://www.mdi-marquity.com/cb/index.php/industry-scenario.html
India expects to lead global auto industry by 2012,
http://www.thefinancialexpress-bd.com/2008/09/20/45980.html,
September 20th 2008.
Castrol Indian Limited,
http://www.ppfas.com/pdf-docs/research/research-reports/2008/castrol-india-ppfas.pdf,
December 4th 2008
Mitra Amit, Fall in crude rates: Castrol India cuts prices,
http://www.blonnet.com/2009/02/03/stories/ 2009020350900200.htm,
February 3rd 2009
Philip Lijee and Pandey Piyush, Chevron pulls out of Indian lube
market,
http://economictimes.indiatimes.com/News/News-By-Industry/Auto/Auto-Components/Chevron-pulls-out-of-Indian-lube
-market/articleshow/5007244.cms, September 14th 2009.
Bhaskar Utpal, Shell Lubricants to invest Rs 469 crore double
its capacity,
http://www.livemint.com/2009/10/07224755/Shell-Lubricants-to-invest-Rs4.html,
October 7th 2009
LUBE INDUSTRY - 'FORTUNE' favors the BEST, op.cit.
Varma Pooja, The Indian Lubricant Market: Survival of the
Slickest,
http://www.frost.com/prod/servlet/market-insight-top.pag?docid=4968520,
July 25th 2003
Automotive Lubricants Markets in India,
http://www.researchandmarkets.com/ reports/ 364392/ automotive
_lubricants_markets_in_india, July 2005
Ibid.
Company Report Castrol Indian Ltd.,
http://www.valuenotes.com/hem/hem_castrol_05Aug08.pdf, August 5th
2008
Pathak Kalpana, Castrol in top gear,
http://www.business-standard.com/india/news/castrol-in-top-gear/373283/,
October 15th 2009
Ibid.
Braganza Nicole and Mehra Swati, Engine Oil: Castrol & Servo
Rural Marketing Management,
www.ruralrelations.com/ppts/Group%207.ppt.
Engine Oil: Castrol & Servo Rural Marketing Management,
op.cit.
Castrol in top gear, op.cit.
Castrol in top gear, op.cit.
LUBE INDUSTRY - 'FORTUNE' favors the BEST, op.cit.
Shell Lubricants to invest Rs469 crore double its capacity,
op.cit.
Chevron pulls out of Indian lube market, op.cit.
Castrol in top gear, op.cit.
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