1) How do consumer's purchase motor oil?

Many consumers viewed motor oil as commodity product. Consumer of motor oil
fell into 2 broad segments- Do-it-yourself(DIY) and Do-it-for-me (DIFM).

DIY: Consumers who changed their own motor oil. These consumers purchased
PCMO in bottles from mass merchandisers or online. Tis segment was younger
overall than DIFN. They were most likely to purchase their motor oil from mass
merchandiser, such as wallmart, or an automotive parts store, such as AutoZone
or Advance Auto Parts.

DIFM: They used professional service providers. This segment was usually older
and had higher income.

2) Assess Avellin's position in PCMO industry in terms of consumer

perceptions. Describe its distribution strategy.
Position in PCMO industry:
o Avellin remains a well-respected, innovative company that customers trust.
o Avellin remain number 3 player in branded motor oil.
o Avellin is the leading PCMO brand among independent DIFM customers.
o Among DIFM consumers seeking the best price, Avellin held the strongest
position.
Distribution Strategy:
Revenue for Avellin came from 3 key customer types:

a) Independent DIFM: They are the key features in Avellin’s distribution

channels and accounted for 68% of it’s sales. 4400 out of 6000 customers,
which accounts for more than 70% of them joined the Aventage
program(loyalty program).

b) National Retailers: They accounted for 9% of Avellin’s PCMO sales. In order

to build loyalty among it’s base of DIFM customers, Avellin had been satisfied
to put products on the shelf for the DIY segment.

c) AvellinAuto: With 436 stores open as of 2014, AvellinAuto chain generated

approximately 7% of PCMO sales. AvellinAuto stores were serviced directly
through the company’s regional distribution centers, rather than through a
wholesaler, that’s why the effective manufacturer gross profit was about $0.75
higher per five quarts.

3) What is the importance of Eco 7? How should Avellin weight consumer

interest in, and willingness to pay for a green motor oil? Is it the right
product at the right time?
Importance of Eco7:
 It was made of 65% recycled oil, manufactured using 45% less energy than was
typically used to produce conventional PCMO. Avellin’s refining process and
additives gave Eco7 a longevity and performance comparable to a synthetic
blend, making it superior to conventional oil. The product performed better at
extreme temperatures without breaking down and, for most vehicles, would
require replacement only after 7500 miles.

The challenge for Avellin was to make sure customers see the premium paid for
Eco7 is not only an environmentally friendly product, but also for better driving
performance and the pricing of the product. Introducing Eco7 at $6.75 per quart
would provide Aventage program stores with higher margin. Overall, this would
increase loyalty and limit the encroachment of private labels.

Yes, it is the right product at the right time. Reason being, there was atrend
towards more fuel-efficient, environmentally friendly vehicles. Surveys indicated
that increasing numbers of consumer valued environmentally friendly options and
would pay a premium to be green. Also, there was only one competitor (sevoline)
that produce a recycled oil.

4) What is the right launch strategy for Eco 7? How it should be priced? What are
the profit implications for wholesalers and DIFM stores?

Launch Strategy: Eco7 should be launched through the AvellinAuto stores and
independent DIFM customers in the Aventage program. This launch program will reach
the DIFM customer base and since independent DIFM generate a large percentage of
revenue, they are key to reach a significant portion of the market. Also, Avellin is
already a leading PCMO brand among independent DIFM customers, so this target
audience is more likely to be receptive to a new product from a brand they already trust.

Pricing: Market is very sensitive to price, and 17% of Avellin’s consumers are price-
oriented (Exhibit 4) so, penetration and sales performance of new oil is dependent on
price point. The company also estimated different levels of adoption and number of
sales for each type of distributor (Exhibit 6). Also, Eco7 is a conventional motor oil, it is
estimated that consumer of this type of oil would be first to switch.
By choosing the price for Eco7 at $6.75 per quart the company would have a fewer
number of oil changes and lower level of penetration, than it would have at price $5.25.
Also a lower price might provide independent DIFM customers a higher margin.
The difference in Avellin’s revenue selling Eco7 instead of Avellin Conventional would
be higher for $6.75 despite lower number of changes and lower level of adoption.

Profit implications for wholesalers and DIFM stores:

In the markets where Eco7 was set at the full price, the DIFM installers who understood
how to pitch Eco7 had no problem selling it. They reported that emphasizing the
significant green factor, with no sacrifice in quality, was most important.
5) How should Eco 7 be distributed? What is your recommendation
regarding exclusivity for Aventage stores?

Distribution Strategy:
Independent DIFM: Fast lubes, oil change –plus stores and repair stores generate
53% of DIFM purchases(Exhibit 1- combined fast lube- 32%, oilchange-plus 12% and
repair shop 9%) and by selling Eco7 through a wide chain of distributors, the company
will reach more final customers and will have higher revenue.
Moreover, the fast lube model helps to drive the consumer shift from DIY to DIFM, often
being the first place DIY customers choose among other DIFM installers. Avellin might
attract new customers of the growing DIFM segment by offering Eco7 in these stores.

AvellinAuto stores: Penetration of Eco7 will be 95% through these stores, proponent
of this approach suggested that working with fewer, but more engaged, stores already
in the Aventage program would improve the odds that Eco7 rollout would be executed
effectively, but the company still has to be careful and perform less aggressively due to
fear of competing with other DIFM chains.

Exclusitivity of Aventage stores suggests that working with fewer, but more engaged,
stores already in the Aventage program would improve the odds that Eco7 rollout would
be executed effectively. Also with prior experience the penetration would grow to 95%
with this approach among Aventage stores, which valued exclusivity over a discount.