Joshua Chicorelli

Marketing High Technology Products

MGMT-60 | Spring 2017

3/27/2017

Eco7: Launching a New Motor Oil

Summary and Background

Avellin, (also referred to as the firm or the company) was founded in 1936 as an oil refiner and later
diversified into industrial and specialty chemical manufacturing (Quelch, Yong, 2015, Pg. 2). After
dropping their petroleum division in 1995, the firm began to focus on their two-remaining divisions
called Industrial Materials and Automotive (Quelch, Yong, 2015, Pg. 2). The automotive division sold
lubricants and other products to commercial and consumer markets and produced 60% of the firm’s
overall revenues (Quelch, Yong, 2015, Pg. 2).

In 2012, the firm began research and development on a new environmentally friendly motor oil called
Eco7 (Quelch, Yong, 2015, Pg. 1). This “green” product was created from 65% recycled oil and used 45%
less energy during the manufacturing process (Quelch, Yong, 2015, Pg. 7). Two years later, Aaron
Jonnerson, VP of Marketing for the Automotive Division was preparing his launch strategy for the new
product but still had questions as to the best way to distribute and market the product, as well as the
initial asking price (Quelch, Yong, 2015, Pg. 1).

Motor Oil Market and Consumers

For this case, we will focus our discussions around the Passenger-Car Motor Oil (PCMO) market.

PCMO consumers mainly fell in two categories: do-it-yourself (DIY) and do-it-for-me (DIFM) (Quelch,
Yong, 2015, Pg. 3). The DIY market was made up of consumers who changed their own oil and
purchased the PCMO from mass merchandisers, convenient stores, automotive specialty stores, or
online (Quelch, Yong, 2015, Pg. 3). The DIFM consumer segment mainly relies on professional service
providers for oil changes (Quelch, Yong, 2015, Pg. 3). Through the 1980’s, U.S was predominantly a DIY
market (Quelch, Yong, 2015, Pg. 3). However, the market began to shift towards the DIFM as the
growth of more low-cost options became available (Quelch, Yong, 2015, Pg. 3). Table one in the
appendix highlights the characteristics of each consumer segment.

The DIY and DIFM segments had differing views dealing with brand loyalty as the DIY group were more
likely to research the characteristics and performance benefits of different types of motor oils (Quelch,
Yong, 2015, Pg. 5). In contrast, the DIFM group was more focused on convenience of location and speed
of service relating to their oil changes (Quelch, Yong, 2015, Pg. 5).
Avellin’s Position in the PCMO Industry

In the United States, Avellin ranked third in PCMO sales with an 11% market share in 2012. Baud and
Motoline were first and second with 23% and 15% of industry sales (Quelch, Yong, 2015, Pg. 5). Due to
the DIFM consumer loyalty regarding convenience and service quality, Baud and Motoline invested
profoundly in expanding their fast-tube chains throughout the 1990’s (Quelch, Yong, 2015, Pg. 5). These
two market leaders made themselves the easy, obvious choice for consumers in most metropolitan
markets (Quelch, Yong, 2015, Pg. 5).

Baud had almost 2,000 stores that exclusively sold their products and had the largest fast-lube chain in
the United States. The firm also held a strong presence with mass merchandisers and clubs, where it
was the preferred brand for oil changes at Wal-Mart and held considerable shelf space within the store.

Motoline had more than 1,200 stores in its fast-lube chain and long-term relationships with major chains
for brakes, mufflers, and tire dealers.

Avellin had historically been favored by independent fast-lube stores, oil change-plus stores, and repair
shops (Quelch, Yong, 2015, Pg. 5). The company also consistently surveyed consumers to gauge brand
perception and intent to buy at their next oil change (Quelch, Yong, 2015, Pg. 5). Baud held a strong
presence with DIY consumers and among some DIFM groups which held quality as one of their key
decision factors.

DIFM consumers who were more seeking the best priced tended to select Avellin as their brand of
choice. Exhibit three highlights the difference in views for DIFM consumers when it comes to weighing
price and quality for various PCMO brands.

Distribution Strategy

During the 1980’s Avellin became focused on becoming the preferred brand for the DIFM consumers
(Quelch, Yong, 2015, Pg. 5). Due to the ease of fast-lube stores and other independent installers to
switch PCMO brands, Avellin worked hard to provide the best service and promotional programs to
wholesale distributors and their DIFM customers (Quelch, Yong, 2015, Pg. 5). By 2013, its revenues
came from three key customer types and distribution channels. From table two (in the appendix), we
can see that 68% of the firm’s sales came from independent DIFM segments consisted of fast-lube, oil
change-plus stores, and repair shops. Another 9% of sales came from national retailers of mass
merchandisers, warehouse clubs, and auto parts stores. The AvellinAuto stores accounted for nearly 7%
of sales and the remaining 16% came from a mix of national DIFM chains, car dealers, convenience
stores, and online sales (Quelch, Yong, 2015, Pg. 6).

Using these various distribution channels, one can conclude Avellin uses a hybrid channel approach
which consists of direct and indirect distribution methods (Mohr, Sengupta, Stanley, 2010, Pg. 321). A
direct approach is when a firm sells directly to its customer and an indirect strategy revolves around a
company using intermediaries to market, sell, and deliver their products (Mohr, Sengupta, Stanley,
2010, Pg. 321). Since Avellin does both they would be considered to use the hybrid channel approach
(Mohr, Sengupta, Stanley, 2010, Pg. 321).
What is the strategic role of Eco7? How should Avellin weigh consumer interest in, and willingness to
pay for, a green motor oil? Is it the right product at the right time?

In 2014, Avellin was ready to launch their new product, Eco7 (Quelch, Yong, 2015, Pg. 1). Eco7 was
dubbed as an environmentally friendly motor oil (Quelch, Yong, 2015, Pg. 1).

Consumer interest in “green” automobile technology, such as hybrids or electric vehicles had steadily
increased (Quelch, Yong, 2015, Pg. 1). Most new innovations for the green automobile industry
revolved around improving fuel efficiency, alternative energy sources, and reducing emissions, however
not much research was being centered around motor oil (Quelch, Yong, 2015, Pg. 1).

Avellin is in good position to launch this product as this is a relatively new area in the industry and there
is only one company in the field that would be a competitor, Sevoline. From exhibit one and two in the
appendix we can see the sales of plug-in electric and hybrid electric sales in the U.S. in recent years.
From these graphs, we can conclude that Avellin was on the right track when it came to researching and
divesting their efforts into a green motor oil.

Launching Strategy for Eco7, Price and Distribution

Given all the information in the case, I recommend a price point of $6.10 for the Eco7 PCMO. I choose
this because the price of the product was a big factor for the DIFM consumers when it came time to get
an oil change or buy a specific brand of motor oil. From exhibit three in the appendix we can see that
DIFM consumers who purchased Avellin’s products did so because of the competitive price.

Using $6.10 as my price point we can come up with some simple calculations to express the effects of
revenues. For this I will use gross profit margin as this is a good statistic to measure a company’s health
(Gross Profit Margin, Investopedia). The final percentage at the bottom of table three reveals Avellin will
earn 67 cents for every dollar worth of sales. As one can see from table three, one can see that if we
used the price I stated above, the gross margin percentage is only three percent lower than that of the
suggested full price. I think this would be a good starting point as the firm will have some wiggle room
when it comes to negotiating prices with wholesalers. The slightly discounted price would yield a gross
profit margin of around 11.3% for wholesalers so I am sure they would be happy compared to the 10%
they would have received from the full discounted price.

In my opinion, Avellin should distribute the Eco7 product in much of the same way as their other
PCMO’s except with an added emphasis for their Independent DIFM customers. I would focus around
the major metropolitan areas first and dedicate a little more effort for those stores that see more traffic.
From here I would envision the word-of-mouth taking over and spreading from the bigger cities out to
the smaller, more rural communities. Around 68% of the firm’s sales were derived from these channels
such as fast-lube, oil change-plus shops, and repair stores (Quelch, Yong, 2015, Pg. 6). With over 6,000
fast-lube customers, 4,400 of those are members of their Adventage program. It was noted that 83% of
DIFM consumers would be willing to accept a professional installer’s recommended product if it met
their price expectations (Quelch, Yong, 2015, Pg. 5). With the $6.10 price I used above, it would be
valued at 94% above Avellin’s conventional motor oil but the performance is closer to that of the
synthetic blend, which is valued at $7.00. Professional installers could easily outline the benefits of a
green product that not only saves on earth’s natural resources and cuts down pollution levels, but also
increases the mileage range that the consumer would have to get an oil change. Avellin discovered the
Eco7 oil was still useable around up to 7,500 miles as opposed to the 3,000 to 4,500 miles that most
PCMO performed for (Quelch, Yong, 2015, Pg. 7).

Numerous marketing activities such as brochure, value propositions and various sell sheets would be
included in the stores to further outline the benefits of the Eco7 oil. From a customer standpoint, you
could break the savings down into a few categories; one being environmental effects and the other
being the benefits to the customer. I imagine there would be some customers that would simply buy
the product knowing 80% of the Eco7 oil came from recycled matter. As the case stated, the simply
equates to that much less oil that must be extracted to yield the same results. The mileage and
performance standpoint could be outlined by the more miles one could drive in between oil changes
and how the Eco7 products distributes itself more efficiently to other parts of the engine more quickly.
This point would be a nice selling point for the DIFM consumers which drive the more luxury-sports
based model vehicles. Exhibit four highlights a creative piece by Valvoline when they released their Next
Gen PCMO which would be like the Eco7 product.
Appendices

Table 1: Characteristics of PCMO Consumer Segments

Characteristics of PCMO Consumer Segments

DIY DIFM
Changes their own oil Mainly used professional service providers.

Purchase PCMO in bottles from mass merchandisers, Tended to be older and more educated with a higher
convenience stores, automotive specialty stores, or income.
online.
More likely to live in metropolitan areas.
Comprised of younger individuals and more likely to
live in smaller towns or rural areas. DIFM preferred foreign cars and luxury vehicles and
were more likely to drive fuel-efficient diesel or hybrid
DIY consumers tended to favor trucks and sports cars.
utility vehicles (Ex: Four-wheelers & Snowmobiles).
Less likely than their DIY counterparts to perform any
More cost-conscious when it came to automotive maintenance on their vehicles.
maintenance.
Relied more on professionals for routine maintenance
More likely to purchase motor oil from a mass such as tire rotations, brake service, and tune-ups.
merchandiser such as Wal-Mart, or an automotive
parts store such as AutoZone or Advanced Auto Parts. Most DIFM consumers could not explain product
classifications and could not recall what brand of
Tended to know more about their vehicles and held a motor oil they had last purchased.
better understanding of the differences between
motor oils. Convenience of installer’s location and speed of
service were key factors for DIFM consumers
regarding their purchasing decisions.
DIY consumers more likely to research characteristics
and performance benefits of different types of motor 56% of DIFM consumers sought a specific PCMO
oils. product and 83% were willing to accept a professional
installer’s recommended PCMO brand.
Nearly 70% of DIY consumers reported purchasing one
brand consistently due to trust and familiarity with a
brand.

(Quelch, Yong, 2015, Pg. 3, 5).

Table 2: Avellin’s Three Key Customer Types by Distribution

Avellin’s Three Key Customer Types by Distribution

Independent DIFM National Retailers AvellinAuto
Leading PCMO brand for fast- Consisted of large mass The company also sold products
lubes, oil change-plus stores, merchandisers, warehouse by their own AvellinAuto stores,
and repair shops. clubs, and auto parts stores. comprised mostly of company-
owned and some franchised
Order fulfillment was handled Sales to these customers were outlets.
through a network of for the DIY segment only.
independent wholesale Not wanting to anger their
distributors. Major retailers that also offered DIFM customers, Avellin had
DIFM services, such as Wal- been less aggressive than its
Aventage Program – Included Mart, usually promoted their competitors in expanding its
dedicated sales managers, own private label, Baud or fast-lube chain.
management of in-store Motoline.
displays, provision of consumer Regarding selecting sites for
education and support, and To build loyalty among its DIFM new stores, the firm targeted
bulk-discounts. customers, Avellin had been locations that would minimize
satisfied to put products on the the impact on existing
In 2013, Avellin had around shelf for the DIY segment. customers.
6,000 independent fast-lube
customers. National retailers accounted for AvellinAuto stores were
9% of Avellin’s PCMO sales. serviced directly through the
4,400 of which were in the firm’s regional distribution
Adventage Program. centers, rather than a
wholesaler. Due to this,
Sold to 6,500 oil change-plus Avellin’s gross profit was $.75
stores and repair shops. higher in channel.

Independent DIFM customers AvellinAuto generated

accounted for 68% of Avellin approximately 7% of PCMO
sales. sales.

(Quelch, Yong, 2015, Pg. 6).

Table 3: Gross Margin Percentage via Price Breakdown

Gross Margin Percentage via Price Breakdown

Eco7 (Full Price) Eco7 (Discounted Price) Eco7 (My Price)
Avg. Retail Price per Quart = $6.75 Avg. Retail Price per Quart = $5.25 Avg. Retail Price per Quart = $6.10

Avg. Revenue Per Oil Change (5 Avg. Revenue Per Oil Change (5 Avg. Revenue Per Oil Change (5
Quarts) $6.75 x 5 = $33.75 Quarts) = $5.25 x 5 = $26.25 Quarts) = $6.10 x 5 = $30.50

Net Income = (Revenue – Cost) Net Income = (Revenue – Cost) Net Income = (Revenue – Cost)
$33.75 – ($2.01 x 5) = $23.70 $26.25 – ($2.01 x 5) = $16.2 $30.50 – ($2.01 x 5) = $20.45

Gross Margin Percentage = Gross Margin Percentage = Gross Margin Percentage =

(Revenue – COGS) / Revenue (Revenue – COGS) / Revenue (Revenue – COGS) / Revenue

$33.75 - $10.05 = $23.7 / $33.70 = $26.25 - $10.05 = $16.20 / $26.25 = $30.50 - $10.05 = $20.45 / $30.50 =
70% 62% 67%

Table 4: PCMO Distribution Chain

PCMO Distribution Chain

Large Retailer Other Retail and DIFM Service Outlets
25% of sales went directly to large retail accounts 75% of sales through wholesale distributors to
such as national tire dealer chains and mass local fast lubes, car dealers, repair shops, and
merchandisers. specialty stores.

This helped manufacturers by maintaining strong

relationships with their customers.
Figure 1: U.S. Plug-in Electric Vehicle Sales by Model

(Source: U.S. Plug-in Electric Vehicle Sales by Model, Hybridcars.com, http://www.afdc.energy.gov/data/)

Figure 2: U.S. HEV Sales by Model

(Source: U.S. HEV Sales by Model, Hybridcars.com, http://www.afdc.energy.gov/data/)

Figure 3: Intent to Buy Branded PCMO by Consumer Segment

Figure 4: Valvoline Next Gen Creative

(Valvoline Introduces NextGen Recycled Motor Oil; now, Who Wants it? Blanco, 2011,
http://www.autoblog.com/2011/03/16/valvoline-nextgen-recycled-motor-oil/)
(Valvoline Introduces NextGen Recycled Motor Oil; now, Who Wants it? Blanco, 2011,
http://www.autoblog.com/2011/03/16/valvoline-nextgen-recycled-motor-oil/)
 Sources

Blanco, S. (2011, March 16). Valvoline introduces NextGen recycled motor oil; now, who wants it?

Retrieved March 29, 2017, from http://www.autoblog.com/2011/03/16/valvoline-nextgen-

recycled-motor-oil/

Mohr, J., Sengupta, S., Stanley, S., (2010). Marketing of High-Technology Products and Innovations.

Upper Saddle River, New Jersey: Pearson Education Inc.

Quelch, J., Yong, S. (2015). Eco7: Launching a New Motor Oil. 9-916-507. Boston, MA: Harvard Business

School Publishing

Staff, I. (2014, September 16). Gross Profit Margin. Retrieved March 29, 2017, from

http://www.investopedia.com/terms/g/gross_profit_margin.asp

U.S. Plug-in Electric Vehicle Sales by Model. Hybridcars.com (n.d.). Retrieved March 29, 2017, from

http://www.afdc.energy.gov/data/