Write a report on the following for the organization where you are

employed. The potential of profitability of the industry for the most

important line of business in the organization, using a Porter’s Five Force
Framework. It is important to describe the product and define the
industry clearly.
Industry

The Indian automotive lubricants market is largely price sensitive and volume
growth is stagnating due to longer lasting lubricants. The market is
fragmented with over 22 big and small manufacturers and with the spate of
mergers and acquisitions (M&A), only a handful of big companies like
Castrol and Servo. enjoy a major market share.

The original equipment segment and retail trade are the two major marketing
channels in the Indian automotive lubricants market. Due to the growing
competition, tie-ups with original equipment manufacturers (OEM) are
becoming important as they reinforce the value proposition of a particular
brand. Petrol pumps form a major distribution channel in retail trade, however
sales of lubricants through retail outlets (also called ‘the bazaar trade’) has
transformed the Indian automotive lubricants market into a fast moving
consumer goods (FMCG) sector. The other marketing channels are authorized
service stations, garages, rural and agricultural dealers, super markets, and
wholesale distributor.

Public sector unit (PSU) companies, that manufacture their own base oil,
follow different distribution strategies as compared to private participants that
solely dependent on imports. While PSUs sell through their own wide spread
network of petrol stations private manufacturers prefer retail outlets.

Product

Engine oil, which accounted for over 70.0 percent market share in the Indian
automotive lubricants market, plays the most crucial role in deciding the
market share of manufacturers. Increase in demand for four stroke
motorcycles, tie ups with original equipment manufacturers, and
implementation of new pollution norms are just some of the key drivers of the
engine oil segment.

In the long term, the overall outlook for the automotive lubricants market is
expected to be positive due to the growing Indian economy along with the
increased purchasing power of consumers.

Application of Porter’s 5 Force Model on Castrol

Threat of New entrants

For Castrol the threat of new entrants is not high because it enjoys a dominant
position in the Indian market. Castrol has created brands like CRB, GTX and
Activ which enjoy a significant consumer pull. Castrol has created
differentiation by having key tie ups with OE’s like Maruti ,BMW, Ford,
Mahindra & Mahindra & Suzuki by having tailor made products as per there
specifications.Castrol has great command on the distribution channel and
there is uniform pricing across India form Ladakh –kanyakumari. On an
average Castrol is present on 50000 outlets across India.

Bargaining Power of Supplier

The suppliers enjoy a dominant position in this sector because barring PSU’s
all the private players need to buy products from refineries or they need to
import the same. The prices are highly volatile as it is affected by global base
oil prices movement. The profitability of the industry is highly depended on
base oil prices. How ever Castrol being a dominant force in Lubricants enjoy a
privileged customer status.

Bargaining Power of Buyer

Castrol enjoys some bargaining power as a buyer as it has multiple suppliers

and safeguards itself by having forward contracts for 3 months on a similar
price band with agreed dollar conversion rates. However on the consumer
front the consumer enjoys a commanding position as all the companies are
giving lucrative offers to persuade the consumers . Castrol works differently
on the ground level by reaching to farmers houses and offering free service.

Threat of Substitutes

There are no substitutes to engine oil however a consumer can switch over
from one brand to another. Castrol faces a considerable threat from the
products of competition because other competitors are available at a cheaper
rate with same specifications. The consumer can upgrade itself to semi-
synthetic or synthetic oils or can degrade himself to unorganized player.

Intensity of rivalry among competitors

This industry is highly competitive as it has more than 22 Mnc’s operating in

India. Castrol‘s strategy revolves around the consumers while all others
companies strategy is inclined towards dealers and mechanics. Castrol
believes in upgrading the mechanics while competitors work on giving instant
benefits to mechanics. The industry is growing at slow pace growing rapidly
in Car oils and motorcycle oils and de-growing in tractors .There is lack of
differentiation in the products as all the players are present in all the segments.