decreasing sales and market shares
The problem Avellin is facing is the decreasing sales and market shares. So the objective is bringing the sales and market shares back by launching Eco7. Couples of alternatives for Eco 7’s pricing strategy and distribution strategy are whether launching Eco 7 through independent DIFM customers and AvellinAuto Stores or launching Eco 7 through AvellinAuto Stores and independent DIFM customers within Aventage program only, as well as whether sell Eco 7 at full price or discounted price. Analysis concludes the alternative that launch Eco 7 through independent DIFM customers and AvellinAuto Stores at the discounted prices should be taken as the recommendation.
Since Avellin’s performance has been mediocre in the market that is increasingly commoditized, it faces increasing pressures from shareholder, innovative competitors, price-sensitive customers as well as the declining independent oil change outlet partners. To ensure the success of the launch of Eco 7, Avellin must make marketing mix decisions for the best pricing strategy and distribution strategy.
Avellin’s objective is to design the best pricing strategy and distribution strategy for Eco 7 in order to acquire more market share and bring the sales back on track.
Situation Analysis (5C)
Consumers play an important role in choosing the channel to mainly launch Eco7, and research shows do-it-for-me (DIFM) consumers are more likely to choose recycle and environmental friendly motor oils like Eco7. Recent social trend is that consumers tend to choose environmentally friendly products. Eco7 totally fits with the trend but different consumer segments have different attitudes toward Eco7. Do-it-yourself (DIY) segment consists of younger consumers who are normally brand loyal and price conscious. Since Avellin is trying to launch Eco 7 as a premium conventional oil, it may potentially turn the DIY customers away. It is critical to know that DIY only accounted for 25% of all oil changes. Within the segment, only 16% DIY customers are intending to choose Avellin. Hence DIY consumers represent just a small portion of potential customer group of Eco7. Avellin may consider ignore this segment during the launch of Eco 7.
DIFM segment contributes to about 75% of total oil change sales. DIFM consumers will ask professional service providers to take over their car in the process of change motor oils because they have no idea of the categories and brands of oils they are using. That is to say, they may highly rely on service providers’ recommendation. Nevertheless, 67% of consumers acquire knowledge on motor oil from professional service providers or installers. Promote Eco7 by professional service providers will be an effective way to increase consumer awareness and accessibility. Additionally, it is important to understand that most of DIFM consumers are almost older people who have both high education level and high income level, hence they are not very price sensitive. They are more like to try Eco 7 when service providers convince them that Eco 7 is a environmental-friendly product. Compared with DIY consumers, DIFM customers are more likely to try Eco7.
The objective of Avellin is bring the decrease market share and sales back by launching Eco7. Avellin acquired by SinoPLE, which offers strong financial backup to launch high-tech and in trend recycle motor oils, at the same time follow up the promotion and advertising. The DIFM channel that Avellin has paid more attention on contributed most of its revenues. It is a better platter to launch innovation products than Avellin’s DIY channel. The company has three strengths; firstly, Avellin could take advantages from its huge consumer base. It is nearly possible for Eco7 to fail due to the large potential customers.
Secondly, AvellinAuto stores, which includes company-operated stores and some franchises that sell Avellin products exclusively，accounted for 7% of PCMO sales. Due to the direct sales from its own distribution center, Avellin is able to improve its operational efficiency and to increase its profit margin by $0.75 per five quarts. As Avellin continuously build or licence new AvellinAuto stores and improving existing AvallinAuto stores, mainly offer Eco7 through AvellinAuto stores will lead to higher net profit.
The third strength is Avellin’s cost leadership strategy. This strategy holds most of DIY consumers who are very sensitive, and at the same time, the good quality of its products are favored by DIFM consumers. Weakness of Avellin could hinder Eco7 launch. The cost leadership strategy could also be the weakness. Innovative high-tech products’ prices will higher than regular motor oils, then Avellin may lost its advantage of being the cost leader in the industry. DIY consumers who are very prices sensitive may tend to choose products from Avellin’s competitors selling with lower prices. Avellin need to save its dropping sales and market shares, and it has environment to save them by launching high-tech environmentally friendly products.
Avellin is the weak in the competition. Two main competitor of Avellin are Baud and Motoline. Baud has the largest fast-lube chains in the country and more shelf spaces in retailers to compete with other companies and make profits. Not only that, Baud is stronger on DIY segments and it’s DIFM segments consider more on oil’s quality, so the the oil price of DIFM segments are higher than Avellin’s. For Motoline’s strength, it is long-term corporate with major chains for brakes and mufflers and national tire dealers, so Motoline has other products lines and international trade to strong its company and compete with others.
Compared sales with its two main competitor from 2000 to 2012. Only the sales of Avellin is dropping average 1% every two years, but sales of Baud and Motoline are increasing steadily. Baud’s sales were increased from 16% to 23%; Motoline’s are increased from 13% to 15%. Avellin’s opportunity is, for PCMO consumer segments, Avellin is takes advantage of its cost leadership strategy, so it earned most of DIFM price-focused consumers. Avellin is the leader in this consumer segments. But threat is Avellin is too much fall behind on quality compared with its two competitors. So it’s overall percentage of PCMO consumer segments is still on the third position. Also, fast-lube channel is the most popular one among consumers. Most of DIFM consumers are loyal to fast and convenient oil change service. Baud and Motoline has been invested much on fast-lube channel since 1990s, which Avellin didn’t pay much attention on. Avellin should increasing consumers’ royalty, it should start to invest on fast-lube channel. If not, that will be a threat of the company.
Expect Avellin’s two main competitors, private label could be strong competitors in offering lower prices products. Avellin could beat Baud and Motorline on price, but compared with private labels, the cost leaders are private labels not Avellin. So private labels could be the threat in the price war.
Among all marketing sales channels, Avellin generates most of its sales from the following three: independent DIFM customers, National retailers, and AvellinAuto. Firstly, Avellin’s large independent DIFM collaborator base includes a total of 12,500 fast lubes, oil change-plus stores, and repair shops, contributed to 68% of Avellin’s revenue. Avellin’s Aventage program to track customer behavior and trend as well as to ensure in-store service match the standard in 74% of its independent fast-lube collaborators’ stores would help to build a more loyal and effective supplier-distributor relationships between Avellin and fast-lube collaborators. That is to say Avellin have more control over its product in terms of displaying, sales, services & supports, and promotions, which would lay the foundation for the launch of Eco 7 in the independent DIFM channel. Secondly, Avellin’s partnerships with national retailers such as large mass merchandisers, warehouse clubs, and auto parts stores are mainly focusing on motor oil sales to DIY segment to satisfy its base of loyal DIFM customers. As major retailers increasing efforts on promoting their private-labeled products, Avellin need to consider whether it is still going to offer Eco 7 through the national retailers that only generated 9% of Avellin’s annual revenue from PCMO sales. Thirdly, there are price and sales tensions exist between independent DIFM installers and mass merchandisers and clubs. If Avellin is going to launch Eco 7 through both independent DIFM channel and national retailer channel, it may need to consider how to deal with complaints from independent DIFM installers about the low-cost oil changes at mass merchandisers without cannibalized existing Avellin’s sales.
The macro-environment could be a good platform to launch environmentally friendly products. The same social conscious shared currently is protect the environment. People realized that even normal and small things they do could save the planet. For example, using green and recycle oils instead of regular motor oils. More and more people tend to choose green products, because this is what they could afford to protecting the environment. In the motor oil industry, Sevoline is the first and the only company launched a green product line, which name is SevoGreen. Therefore, that kind of products in the industry still in progress and needed improvement. Social conscious and current environmental situation offer Avellin opportunity to successful launching Eco7. But the challenge is the Avellin could only take experiences from SevoGreen, few data and information about launching environmentally friendly products in the industry for Avellin to analyze and predict.
· Option 1: Offer Eco 7 exclusively through independent DIFM customer base and AvellinAuto stores at full price. This alternative will help to increase both sales and market share for independent DIFM outlet partners, AvellinAuto Stores, and the Avellin company as a whole. However, the total monthly sales revenue of simply launching Eco7 at AvellinAuto stores with full price is lower than that of discounted price (see Figure 1). In addition, Although this full price strategy gives independent DIFM oil change outlets the highest monthly sales, it would not be the best option because it does not contribute to the highest total revenue for Avellin. Besides, this option gives Eco 7 a pricing advantage over SevoGreen (which is priced at $7.5 per quart.) However, the estimated market penetration rates for Aventage stores and other stores are only 75% and 45% accordingly. It is important to understand that customers may still be least willingly to buy synthetic oil under the full pricing strategy compared to other options because the full price is higher than the current price of PCMO that with similar quality and performance.
· Option 2: Offer Eco 7 exclusively through independent DIFM customer base and AvellinAuto stores at discount price. This alternative could also help to bring Avellin’s sales and market shares back. Offering Eco7 at discounted prices satisfied the demand of price-sensitive consumers. Hence the sales are much higher than selling Eco7 at full price. Additionally, the discounted price strategy help both AvellinAuto stores and independent DIFM outlet partners achieve the highest monthly store revenue and total monthly revenue compared to the other three options. Moreover, the estimated market penetration rates of this option is moderate compared to option 3 and option 4, with 90% at Aventage stores and 60% at other DIFM stores. Avellin can still retain confident about the sales due to its price advantage over similar products like SevoGreen, which will capture more customer purchase interest.
· Option 3: Offer Eco 7 exclusively through AvellinAuto stores and independent DIFM customers within the Aventage program at full price.
Similar to option 1, this option will also increase sales for independent DIFM outlet partners, AvellinAuto Stores, and the Avellin company as a whole. However, the total monthly sales revenue of launching Eco7 at AvellinAuto stores and independent DIFM customers within the Aventage program with full price is also lower than that of discounted price (see Figure 2). Compare to option 1 and option 2, this option will not be able to generate the same sales revenue for DIFM installers because the number of independent DIFM stores in the Aventage program is fewer the the total number of all DIFM stores. Hence, in terms of total revenue from both AvellinAuto stores and DIFM stores in the Aventage program, this option is least profitable among all options. Similarly, as the price becomes a lot higher than the price of current PCMO, customers are less likely to buy the green motor oil. Therefore, the full price strategy of this option will not be favorable for customers. It seems like the only thing that make this option favorable is associating with the highest penetration rate (which is 95%.)
· Option 4: Offer Eco 7 exclusively through AvellinAuto stores and independent DIFM customers within the Aventage program at discount price. This option is also going bring Avellin’s sales and market shares back. Similar to option 2, discounted price strategy will increase sales for AvellinAuto stores. However, as mentioned in option 3, the fewer number of independent DIFM stores will generate fewer sales revenue for independent DIFM customers and Avellin company as a whole. In addition, Option 4 share the same strength on the high penetration rate as option 3. Its pricing advantage also make it more favorable for customers when making purchasing decisions.
· Option 5: Do nothing. Launch Eco7 without planning a specific strategy for that.
That alternative does not bring sales and market shares back and will make the situation even worse. Just launch Eco7 without planning a specific strategy for that may waste promotion budgets in the wrong customer segments or channels. Also, wrong promotion and advertising will affect consumers awareness and accessibility. Avellin’s market shares and sales will decrease which are opposite to the company’s objectives. Profits will also decrease due to that.
· Option 6: Exit. Do not launch Eco7 and give up environmentally friendly product line.
This alternative not only decrease sales and market shares, but also give up huge potential revenues. If the Eco7 do not launch. Avellin’s market shares and sales will keep decreasing. The only advantage of Avellin that could beat its competitors is the low price. Consumers will aware that Avellin is not very concern about the environment, so consumers who are environmentally friendly will tend to choose other brands in the industry.
Alternative Analysis (3V):
1. Consumers tend to choose environmentally friendly products, their conscious about environmental protection are increasing.
2. DIY Consumer would like to choose products selling with lower prices because they are price-sensitive customers. DIY consumers have higher purchase interest with Eco7 selling at discounted prices.
3. DIFM consumers are high income population, they are looking for products with high-tech and high quality.
2. Gaining more profit. Eco7 selling with discounted prices bring the highest revenues to the company.
3. Consumer purchase interest is very important. Avellin needs to satisfying consumers’ demand.
4. Beat competitor and become the category leader in the industry.
1. Gaining more profit. Discounted price of Eco7 is the most profitable.
2. Satisfying consumers’ demand to increasing sales.
Analysis indicates that consumer, company and collaborator hold the same value, which is high quality environmentally friendly products selling with lower prices. According to the decision matrix (see Figure 3), alternative that Offer Eco 7 exclusively through independent DIFM customer base and AvellinAuto stores with the discounted price strategy is recommended.