Prabhar Oil Company, and Distribution Challenges in the Indian Lubricants Industry

Abstract A 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 (PS s! such as I"#, $P#% and &P#% which en'oy well(established brand presence, and distribution network in India)s near(stagnant automotive lubricants market. #reating 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. $owever, few private companies such as #astrol 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. *his case highlights the problems faced by Izo in managing one of its distributors, P"#, in its +uest to +uickly 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. *his case can be covered while teaching any of these courses( strategic marketing, distribution management, or sales management. *he students can be either at undergraduate level or graduate level, but given the conte,t of the case, graduate students would be more adept in learning from the case, and appreciate finer nuances in the case study. -ew 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.

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. ll names i.e, of the case characters and the case company have been disguised to protect identities.

"n a cold #ovember morning in $%%&, *elhi regional office.

lok was called for a closed door meeting in '(o)s #ew

lok had recently joined as the area sales manager in '(o, which was a

leading +#, oil company marketing lubricants in 'ndia since !--.. The people present in the meeting included, the financial controller office of '(o, the regional manager to whom lok

reported, /ineet, and a representative from '(o)s Singapore office. lok was told that Prabhar oil company 0P",1 had filed a complaint against him for cheating and financial embe((lement, and the evidence suggested that he was guilty. Prabhar "il ,ompany was one of the distributors in lok)s sales territory. 2owever, within !% minutes of the start of the meeting, lok was left

aghast. 2e was forced to sign false declarations, and beg for mercy for reducing the future penal action against him, although he refused. ll the while, lok kept telling the investigators that it

was a fabricated case based on false evidence since P", was terminated as '(o) distributor based on his recommendation. lok felt cheated and betrayed by '(o given his painful toil to ensure

high performance from the distributors in the hyper3competitive auto lubricants) market. Indian Automotive Lubricants Industry

The scenario of 'ndian lubricant 0lube, for short1 industry has changed after the liberali(ation of 'ndian economy in the early !--%s. Prior to !--$, the 'ndian lube industry was dominated by four major public sector companies including, 'ndian "il ,orporation 0'",1, 2industan Petroleum ,orporation Limited 02P,L1, 4harat Petroleum ,orporation Limited 04P,L1, and

'ndian 4ritish Petroleum 0'4P1. There were a few private sector companies too such as ,astrol, 5ulf, Tidewater, etc. bout -%6 of the 'ndian lube market was controlled by public sector

undertakings 0PS7s1, while the remaining !%6 was held by private sector players !. *uring !--$3 -8, as a part of liberali(ation and policy deregulation, government decided to open the market, and allowed foreign players to enter 'ndian lubricant industry. 9ollowing that, there was also substantial reduction of import duties on lube base oil from .:6 to $:6 $ that accelerated the growth in the market. dministered pricing regime was subse;uently eliminated, and free pricing was permitted in lubricants. *eregulation encouraged all the major multinationals 0+#,s1 such as Shell, +obil, <==on, ,alte=, <sso, <lf, Penn(oil, 5ulf "il, 4P among others to venture their operations in the country with their foreign brand. <ntry of +#, players led to increased competition, and considerable reduction in the market share of PS7s, which declined from around ::6 in !-->3-., to ?.6 in !---3$%%%8.

ro!th 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. *ecline in automotive sales and rising crude prices caused severe base oil supply imbalances in the country. *ue to shortage of raw materials, many players were forced to bring in multiple price hikes.

5upta Sudeb and +ondal Subimal, @L74< '#*7STRA 3 B9"RT7#<B favors the 4<STC, httpDEEwww.shilpabichitra.comEShilpa$%%%Eindart8$.htm 2 'bid. 3 Salahudeen <, @ ction)s ction cclaimedC, httpDEEwww.keralaindustry.orgEeFmaga(ineE ctions.htm

2owever, 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 e=pected to drive demand for cars and two3wheelers in future. 4eing the second largest producer of two3wheelers, and fourth largest in terms of commercial vehicles market globally, the 'ndian automotive market is one of the fastest growing markets in the world ?, and is e=pected to grow at a , 5R of -.:6 till $%!%:. The automobile industry also e=pects customer migration from two to four3wheeler vehicles, which will further fuel demand growth. +oreover, the introduction of Tata)s #ano car will further boost the future of automotive lubricant market in the country.

't was e=pected that the global lubricant demand would grow about $.86 per annum to reach ?!.> million metric tonnes by $%!%, while 'ndia is likely to see a growth of over 86 during the same period& 0 nne=ure '1. The demand of automotive lubricants in 'ndia was also e=pected to increase to !.-$ ++T by $%!?3!: 0 nne=ure ''1.

'ncreasing demand for four3stroke motorcycles, tie3up with "<+s, and tightening of pollution norms are the key demand drivers of engine oil segment in 'ndia. 4rake oil and coolants oil segment are another large segment. 'ntroduction 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.
4 5

@'ndustry ScenarioC, httpDEEwww.mdi3mar;uity.comEcbEinde=.phpEindustry3scenario.html @'ndia e=pects to lead global auto industry by $%!$C, httpDEEwww.thefinanciale=press3 bd.comE$%%.E%-E$%E?:-.%.html, September $%th $%%.. 6 @,astrol 'ndian LimitedC, httpDEEwww.ppfas.comEpdf3docsEresearchEresearch3reportsE$%%.Ecastrol3india3ppfas.pdf, *ecember ?th $%%.

Similarly, advanced gear system technologies, and automatic transmission system have boosted the demand of gear oil. "verall market is growing and there would be huge growth opportunities in e=port market and yet untapped rural markets.

"uture Challenges

't was e=pected that 'ndian market would become highly competitive, given that major international players identified 'ndia 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 cross3subsidi(ation, which would get dismantled in the coming years. PS7s were placed in a comparatively competitive position since they had integrated operations 0own their refineries1 which helped them to depend less on buying base oil from other companies, and could also resort to cross subsidi(ation across different petroleum products, if the need arose. +oreover, they had bigger balance sheets, larger resources and the most needed government support. ll these posed big challenges for private players. To add to

the challenges, with the developments in RG*, new generation lubricants with longer drain periods had eaten into the replacement demand, impacting volume growth in the market significantly. +r #aveen Hshatriya, ,hief <=ecutive and +anaging *irector of ,astrol 'ndia, mentionsD @ bout ten years ago, a truck needed about $%% liters of lubricants every year, but today it has come down to about >:3.% liters.C > ,ustomer preferences, differentiation of ;uality and price, e=panding product basket, +#, "<+ endorsement, and "<+ product specification were crucial factors for future growth in the industry 0 nne=ure '''1. Then, low product

+itra mit, .9all in crude ratesD ,astrol 'ndia cuts pricesC, httpDEEwww.blonnet.comE$%%-E%$E%8EstoriesE $%%-%$%8:%-%%$%%.htm, 9ebruary 8rd $%%-

awareness and involvement, especially in rural market also pose a big challenge for the 'ndian lubricant companies. To survive in the market, continuous product innovation would be necessary for players in terms of new products, brands, ;uality, services, performance, and pricing to reward value3for3money to the customers. 't is essential for companies to focus on consumer, channel3partners, and "<+ relationships using brands as the primary drivers of their business. 'n this game, market players are re;uired to maintain good relationships with their stakeholders, especially the channel partners, and customers.

#ar$et %i&e

The 'ndian lubricants market is the fifth largest market in the world in terms of volume after 7S, ,hina, Russia and Iapan, valued at Rs.!>%%% crores J! crore K !% millionL in $%%- .. The 'ndian market contributes 83?6 of the global demand of 8..: million tonnes per annum, growing at close to &6 annually-. 't has been broadly divided into three major categories including utomotive, 'ndustrial and +arine G <nergy applications 0 nne=ure '/1. mong them,

automotive segment comprised about &>6 0-:% million liters1 of total lubricant market !%, or about .63!%6 of global lube production!!. utomotive lubes are further classified into diesel

engine 0classified as ,' engines1 lubes and petrol engine 0classified as S' engines1 lubes, with >%6 and 8%6 market share respectively. ccounting for about >%6 of the market share, engine

oil is a key segment in the 'ndian automotive lubricants market, playing a critical role in
8

Philip Lijee and Pandey Piyush, @,hevron pulls out of 'ndian lube marketC, httpDEEeconomictimes.indiatimes.comE#ewsE#ews34y3'ndustryE utoE uto3,omponentsE,hevron3pulls3out3of3 'ndian3lube 3marketEarticleshowE:%%>$??.cms, September !?th $%%-. 9 4haskar 7tpal, @Shell Lubricants to invest Rs ?&- crore double its capacityC, httpDEEwww.livemint.comE$%%-E!%E%>$$?>::EShell3Lubricants3to3invest3Rs?.html, "ctober > th $%%10 @L74< '#*7STRA 3 B9"RT7#<B favors the 4<STC, op.cit. 11 /arma Pooja, @The 'ndian Lubricant +arketD Survival of the SlickestC, httpDEEwww.frost.comEprodEservletEmarket3 insight3top.pagMdocidK?-&.:$%, Iuly $:th $%%8

&

determining the market share of industry players !$. "ther 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 $$ big and small manufacturers with over 8% lubricant brands !8. 2owever, the industry is led by four largest players N '",, ,astrol, 2P,L and 4P,L N commanding more than >%6 of the market, and the remaining 8%6 is shared by several players including +#,s, and unorgani(ed sector. This leads to an e=tremely competitive market scenario!? 0 nne=ure /1. ccounting for about :%6 market,

the public sector firms still dominate the lube market !:. '", has been the leader in terms of profitability, with its Servo brand 0 nne=ure /'1. 'n the private sector, ,astrol has been the single largest player, accounting for about $%6 of the domestic market share !&. The other +#, competitors such as Tidewater "il, <lf, Shell, +obil, <==on, Penn(oil, ,alte=, 5ulf, 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. 'ndustry e=perts believe that consolidation will continue to have a major impact on market share, positioning, business ranking, manufacturing and on the competitive environment. 'ndustry analysts have also predicted that, those oil companies owning refineries, sound research and development 0RG*1 facilities, innovative business plan, wide distribution network, strong brand, wide infrastructure and professionali(ed technical services would continue to survive in the market.

12

@ utomotive Lubricants +arkets in 'ndiaC, httpDEEwww.researchandmarkets.comE reportsE 8&?8-$E automotive FlubricantsFmarketsFinFindia, Iuly $%%: 13 'bid. 14 @,ompany Report N ,astrol 'ndian Ltd.C, httpDEEwww.valuenotes.comEhemEhemFcastrolF%: ug%..pdf, ugust : th $%%. 15 Pathak Halpana, @,astrol in top gearC, httpDEEwww.business3standard.comEindiaEnewsEcastrol3in3top3gearE8>8$.8E, "ctober !:th $%%16 'bid.

>

'n 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 'uying 'ehavior

'n the 'ndian automotive lubricants market, there are generally two types of customers, the ;uality conscious customer, and the price conscious customer. 2owever, 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.

5enerally, 'ndian consumers have little knowledge about price competitiveness, performance, or ;uality of the different lubricant brands. 7nlike in developed markets which are characteri(ed by high level of involvement and the O*o3't3Aourself) markets, 'ndian consumers have very low involvement with lube consumption. "il change in auto engines is a job best left to service stations, or even unorgani(ed roadside mechanics, due to the messy nature of the job, high perceived e=pertise of these oil changers, and sometimes old relationships with these intermediaries. +any customers also send their driversEchauffeurs or localEcontract mechanics to change lubricants in their vehicles. 'n 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 ownerBs decision to purchase a lube brand. 2owever, for selling lube to corporate

customers

0"<+s

tie3up1,

technology

based

product

specification,

;uality,

price

competitiveness, brand recall, and negotiation skill are much more important.

'n rural areas, consumers generally take decision based on availability of lubricant brands and the suggestion from the local garage ownerEretailer, mechanics or key decision makers in the family. 9or e=ample 4him Rao, tractor driver said, @' have been using ,astrol for the last !%3!: years, ' use it because it was suggested by my mechanic and it is of good ;uality. ' will switch the brand if other company offers a lower price or when ,astrol will stop offering promotions and discounts. 5ood oil is one that is long lasting and gives a powerful sound.C !> utomotive

lubricants companies tried to create consumer awareness about the product ;uality, pricing and performance of lubricants using different advertisement mediaP and promotional strategies such as trade shows, discounts, gifts, and freebies. Sachin, tempo driver saidD @' have just bought this tempo and ' don)t know which oil has been used. ' plan to buy Servo in future because passenger cars use it. ' remember Rahul *ravid in the Servo advertisement though that is not the reason for purchase. ' hope companies offer promotions and discounts and reduce prices. good oil is one

which gives good engine power.C!. ,onsumers sought Ovalue3for3money) in the lube that they have been buying from the market. They have been also migrating to better ;uality vehicles, leading to use of higher grade lubricants. ,onsumers take decision to buy a lube brand based on their past e=perience 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. 2owever, some consumers were
17

4ragan(a #icole and +ehra Swati, @<ngine "ilD ,astrol G Servo N Rural +arketing +anagementC, www.ruralrelations.comEpptsE5roup6$%>.ppt. 18 @<ngine "ilD ,astrol G Servo N Rural +arketing +anagementC, op.cit.

brand3conscious and were strongly brand loyal, a segment that is a stronghold of ,astrol. The other segments were more value3conscious where price and word of mouth of the influencers 0especially mechanics1 played a critical role in decision making.

'randing %trategies

'n the highly price sensitive 'ndian 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. +any companies appointed famous celebrities as brand ambassador to attract larger target audience towards their lubricant brands. e.g. 'ndian cricketer Rahul *ravid, and 4ollywood actor Iohn braham are the

brand ambassadors of ,astrol. 'ndian cricketer, + S *honi is the brand ambassador of 4P,L)s + H brand, and Tennis star Sania +ir(a is engaged with 2P,L as a brand ambassador of its *urbo brand. The leading market players aired a series of eye3catching advertisements, promotional campaigns and sponsorships to strengthen their brand propositions. ,astrol has been spending about Rs. !%% crore on advertisements every year to encourage its customers who were ready to pay premium for world class lubricants. !- 5iriraj 4agri, /ice President3+arketing, ,astrol 'ndia, mentions, @Qhen the automotive industry was still in a nascent stage in 'ndia, ,astrol took on the role of educating consumers on the need to use good ;uality oil and the role it played in the maintenance of vehicles. "ver the years, the company has created several path3 breaking advertising campaigns such as ,astrol Power! Passion 2unt and ,astrol 5olden Spanner +echanic aimed at building brand loyalty and long3term relationships with

19

@,astrol in top gearC, op.cit.

!%

consumers.C$% ,astrol 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 ,astrol becoming among 'ndia)s 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. 4P,L using its + H Lubricants has also adopted different promotional campaign such as @I<<T H' H27S2'C, @5 *' +<'# *2 + H 2 S' +<'# ,2 + HC, and @H'S+ T H' 4 LT' H2"L"C. "ther leading companies such as T T 4P, Shell, 2P,L, +obil, <lf, and 5ulf "il too have adopted

different promotional campaigns to garner higher market share.

Distribution and (etailing

The 'ndian automotive lubricant market has mainly two major channels for distribution and retailing, the original e;uipment segment that comprised about >%6 of the automotive lubricants market, and the retail segment accounting for the remaining 0<=hibit '1.

"riginal <;uipment Segment N Qith growing competition, automotive lubricants manufactures have sought collaboration with original e;uipment manufacturers 0"<+s1 to strengthen value proposition of a particular brand. +any companies such as ,astrol have made strong partnership with major 'ndian and global "<+s including Tata +otors, +ahindra and +ahindra, /olvo, udi, 9ord for participating in their workshops for high ;uality lubricants. + H Lubricants from 4P,L also tied3up with ,hevron, 2ero 2onda +otors, 5+ and T/S to supply its automotive lubricants.
20

@,astrol in top gearC, op.cit.

!!

)*hibit I +he Indian Automotive Lubricants #ar$et, Distribution Channel and #ar$et %hare

utomotive Lubricants +arket The ,hannel of *istribution "riginal <;uipment Segment 0"<+s Segment1 >%6 0+arket Share1 Retail Segment

8%6 0+arket Share1

Petrol Pumps E Retail "utlets

4a(aar Trade ?%6 0+arket Share1

&%6 0+arket Share1

%ource: Compiled by the Case Writers

Retail Segment N 'n the retail segment, petrol pumps or retail outlets and retailers 0also known as Othe ba(aar trade)1 are the two major channels of distribution. "ver the last few years, sales of lubricants through ba(aar trade has become more popular in the market and positioned lubricants as high involvement consumer goods, transforming the lubricant products from non3durable to fast moving consumer goods 09+,51. 4a(aar trade now comprised about !$6 market share of total automotive lubricants sales in 'ndia.$! ccounting for about !.6 market share, petrol

pumps remained the major channel of distribution in the retail trade. The other marketing channel includes authori(ed service stations, wholesale distributors, garages, lube oil shops, auto spare shops, super3markets, rural and agricultural dealers.

21

@L74< '#*7STRA 3 B9"RT7#<B favors the 4<STC, op.cit.

!$

new retailing concept called O7ser "utlet) has also been developed by many +#,s, such as ,astrol 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 one3stop for ;uick, easy and convenient auto care with a refreshing e=perience in different aspects of auto care such as engine oil change, and maintenance checkups of both four and two wheelers. ,onvenient stores and highway shops have been also developed to retail lubricants.

Qith 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 0being integrated oil companies1 manufactured their own base oil and followed different distribution strategies as compared to private sector firms which were dependent on import of base oil 0strictly regulated by the government, till recently1. PS7s 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 ba(aar trade. lthough few +#, entrants such as Shell,

+obil among others did strike joint ventures with PS7 majors that were more for strategic and regulatory re;uirements guiding market entry into 'ndia, 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 PS7s in ba(aar trade. +anish 4agla, Senior +anager, PriceQaterhouse,oopers mentioned that, @the lubricant market in 'ndia has largely been an oligopoly business with large share controlled by the government3owned oil marketing companies 0"+,s1. "ne needs to have lube oil base stock, which is produced by refineries,

!8

which in turn are largely owned by the "+,sC$$. 9or ready3made access of the distribution centers, multinational companies had taken initiatives to make strategic tie3up with "+,s to sell their lube brands. Sometimes +#,s fail to read the cultural background 0or cultural differences1 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. 4ut in many cases this assumption was wrong. ,hevron, one such +#,, is planning to shut their automotive lubricant shop in the country due to fierce competition and faulty business model $8. <nergy analysts also felt that ,hevron did not manage to garner a si(able market share in 'ndia because of its dependence on third party for sale of lubricant products. Qith a strong market share in 7S, the company has intended to focus in ,hina and other emerging markets for its lubricants business. 4uilding a strong retail chain and distribution network would be among the key challenging tasks for the industry players.

'n the distribution channel for lubricants, the salesperson does play a strategic role to access the customers E distributors E dealers as a means of achieving a competitive advantage for the organi(ation. The salespersons have an obligation to the customers as well as his organi(ation too. 4y improving the buyer)s motivation to continue the relationship, the sales professional can secure the continuity of the buyer3seller relationship. The salesperson also affects the perceived value of supplier services, which differentiates the suppliers from their competing suppliers. Skilled salespeople have an e=pertise to manage conflict well and mediate information between the two organi(ations N buyers and sellers. c;uiring and retaining dynamic salespersons have

22 23

@Shell Lubricants to invest Rs?&- crore double its capacityC, op.cit. @,hevron pulls out of 'ndian lube marketC, op.cit.

!?

been a daunting task for 'ndian lubricants firms. The 'ndian lubricants players have been concentrating to redefine the sales function as a long3term marketing mi= element.

I&o-s mar$et entry into India

leading multinational oil giant, '(o, as part of its 'ndia entry strategy was actively looking to e=pand its distribution network for automotive lubricants on a pan3'ndia basis. '(o was forced to e=it the 'ndian market in the late !->%s when a few socialistic thinkers compelled several +#,s to shut shop and e=it the 'ndian market. fter a gap of more than $% years, it was time to look at

re3entry strategy for the 'ndian lubricant market, which by !--> had already become saturated. Qhile '(o was among the top !% 9ortune !%% companies, it was also considered to be was an old and conservative company by its competitors.

4eing a late entrant in the 'ndian auto lube market, '(o had to face intense competition in the Oba(aar) trade of automotive lubricants where nearly 8: +#,s were present with its well known brands including, Shell, ,astrol, ,alte=, and the well3established 'ndian PS7 brands such as 'ndian "il)s Servo, 4P,L)s /A0 and 2P,L)s *urbo. 4esides the well3known brands, there were also several local brands, including the recycled and crudely refined used Oblack) oil which either sold under some unknown label or as a spurious counterpart of well3known brands such as ,astrol, and other premium brands. 5iven the nature of the competitive market conditions, '(o unveiled its ambitious plans of establishing its all 'ndia distribution network for automotive lubricants by appointing new distributors in all important locations, to fuel its growth plans in 'ndia.

!:

The 'ndian automotive lubricant market has been going through a challenging environmental turbulence due to global financial meltdown, and decline in automotive vehicle sales volume in 'ndia. multitude of new private players have been facing stiff competition to grab a small share nticipating future opportunities, many e=isting players

of the increasingly fragmented market.

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 0also called retail outlets1. #ationali(ed PS7 oil companies combined held about :%6 of market share.$? 't was also e=pected that monopoly of public sector holdings would no longer e=ist. 4ut late entrants such as '(o, faced greater competition for market share, branding, positioning, establishing distribution network, and building a strong relationship with distributors, and customers in 'ndia.

Prabhar Oil Company

Prabhar "il ,ompany 0P",1 was a well3known distributor of automotive lubricants in +u(affarnagar district in western 7ttar Pradesh 07P1. The proprietor, +r. Prabhar Singh was an outspoken and aggressive person, and a distributor of lubricants for several +#, and 'ndian oil companies such as /eedol, +',", and 5ulf "il. 2aving worked for the previous !% years in the lube trade, popularly known as Oba(aar) 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 e=panded into a larger
24

@,astrol in top gearC, op.cit.

!&

showroom3cum3office with godown space. This office3cum3showroom served to showcase several brands that P", sold as their company)s distributor. P", had different territorial rights for distribution of different companies) brands. 9or +',", P", sold to small retail shops, garages and small3si(ed firms in western 7P, while for 5ulf "il, P",)s territory was confined to few districts such as +u(affarnagar, +eerut, and nearby areas. P", was a growing enterprise and served to feed the entrepreneurial spirit of +r. Prabhar who was well educated, being a LL4, with a Ph*. in 2istory. 2e entered this business mainly for financial reasons, and also due to his brother3in3law)s influence who being in this trade convinced Prabhar of the underlying opportunities in this trade.

Alo$-s %aga

lok was a newly appointed area sales e=ecutive in '(o, with sales responsibility for western 7ttar Pradesh 07P1. This being his first job in a +#,, lok was pretty e=cited, and eager to do

good work. Qhen lok met /ineet in ugust $%%: for the first time in #ew *elhi office, he had many ;uestions to ask, including those related to sales ;uotas for his distributors, and the kind of distributor profiles that best suited the company e=pectations. lok 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. lok was also very

apprehensive whether /ineet would allow him to take his own time in learning the sales processes, appointing distributors, and achieving the steep sales ;uotas given to his distributors. 4ut /ineet reassured lok that soon he would learn the tricks of the trade, and catch up with his lok believed that his performance

colleagues with previous industry e=perience. #evertheless,

!>

was of utmost concern for '(o, and if it was not up to e=pectations, then he may have difficulties in justifying it. lok was also asked to meet Rajesh, who was till recently handling P",, just

before he left 5ulf "il to join '(o, and who was instrumental in appointing P", as '(o)s distributor for +u((afarnagar.

lok started off well in his new responsibilities by appointing new distributors for many districts in his territory, including *ehra *un, +eerut, 4ijnor and 2aldwani. Qith P", as a distributor, he had his task cut out for him in terms of motivating him to achieve the given sales ;uotas. 2e understood from the very beginning that his own performance depended on the success of his distributors. lok reali(ed that his responsibility lay in keeping the distributors motivated at all lok

times, and showing them the value in their activities as a distributor of a +#, company.

started off with his enthusiasm and began to strengthen the distributor network in his sales territory, build a long3lasting relationship with them, which helped him to achieve the sales ;uotas. lok 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 '(o)s products.

Alo$.s (elationship !ith POC

Rajesh was familiar with Prabhar)s working style and mannerisms, and had previously cautioned lok about using tact when working with Prabhar. lok)s relationship saga with P", began on a bad note, which soon became his chilles) heel. Qhile other distributors were showing growth

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in terms of volume and value, P", was a non3starter from the beginning.

lok failed to

understand the reasons there of. 2is numerous conversations with Prabhar always gave him some confidence that P", would take3off slowly yet steadily, and that the competing brands sold by P", wouldnBt really affect '(o. 4ut lok did anticipate that initial sales for '(o would happen at

the e=pense of other brands sold by P",. To that e=tent Prabhar would really need to be Bshown the moneyB in being an '(o distributor. showroom dedicated to '(o was inaugurated. lok clearly remembered the day when the P", lok with help of Rajesh had pulled up a good job

in making a good showcase of P", being a potential star distributor of '(o, and a future feather in the cap of '(o. 4ut little did he know that things would take a 7 turn soon.

I&o/POC Channel (elationship: )arly Warning %ignals

The early warning signals started coming when the /P 0Sales1 of '(o remarked in private conversation to /ineet and lok, that P", may prove to be a Otough nut to crackB, by which he

meant that P", could prove to be a challenge larger than what '(o could handle. P", met less than :%6 of its targets in the first three consecutive months and have a straight talk with Prabhar. lok thought that it was time to

lok tried to find the reasons of the disappointing results from

P",, and he was told that there were several issues which were re;uired to be tackled with '(o, before he could commit more resources to '(o, in terms of his time and capital. P", had a sales turnover of over Rs !% million per annum from products other than '(o, which only contributed less than :6 of itP the lionBs share being that of +'," lubricants, and other auto accessories. ppealing to P", to e=tend credit to retailers was becoming difficult proposition for lok, and

Prabhar deliberately kept the working capital re;uirements low. +oreover, P", also priced the

!-

retailer cost price for '(o products about 8%6 higher than competing brands despite '(o)s lower brand recall and low market penetration. 'n such a scenario, competing with entrenched brands such as ,astrol, and Servo seemed almost an impossible task for lok. Since P", earned lower

margins by selling '(o products, its return on investment 0R"'1 was lower 0about $%61 compared to that earned from selling other companiesB products 0which ranged between 8%6 to ?:61. 2owever, while on one hand, lok)s other distributors in the territory made headway into eating the competitorsB market share, P", was still stagnating, given the low levels of motivation and efforts put by Prabhar in the market.

lok was left wondering if '(o)s relationship with P", was driven only by the economics of the business, or if other factors too were important. 'f other distributors could manage with same overheads, profit margins, and R"', why was P", finding it difficult to performM The answer probably lay in P",)s lack of motivation to sell '(o)s products, and the lack of rapport and camaraderie between Prabhar and territory in a different company. lok, unlike what Rajesh enjoyed with Prabhar in the same lok 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 ;uarter also went by, without any improvement in P",)s performance on meeting sales ;uotas or even market penetration. lok knew his time was running outR 't was time for

action before it was too lateP it was time to take some hard decisions. lokBs pleas to the regional office asking for more time for P", to show performance was proving to be futile. /ineet wanted performance from '(o distributors, and its sales managers. +oreover, lok also knew

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that his dismal performance may also lead to an e=tension of his probation period, which may eventually lead to his e=it from the company.

Prabhar was ;uite well3known in the trade, but as

lok reali(ed that retailers were not sure

whether they were getting a fair price from P",. 2owever, after discussing this issue with Prabhar, lok found that he had a business ideology of working with low volumes, and higher

margins. Since '(o products were already priced higher than competitor products, taking high margins increased the retailerBs cost price such that '(o)s prices beat that of ,astrol)s well known brands. lok also knew that his interference with deciding the retailer cost price may become a lok did manage to broach this topic with Prabhar, but in vain.

bone of contention with P",.

Prabhar was a man of predetermined ideas and ideologies, and didn)t tolerate any interference in his working style. lok clearly remembered situations where Prabhar would ask lok to plead to his boss to provide P", a status of star distributor before he could commit himself to '(o. knew that only performance could lead to rewards, but not vice3versa. lok

The results of third ;uarter again showed no improvement, like the previous two. lok discussed the issue of non3performance in detail with Prabhar, and decided that he had to take a final decision because of P",Bs lack of commitment towards '(o. 4ut when detailed discussions with Prabhar yielded no results, their distributor. lok re;uested Prabhar to end the association with '(o, and ;uit as

lok also suggested that the company would need another distributor who

would show higher commitment towards the company)s objectives, and higher performance in the territory. Prabhar flatly refused to e=it as an '(o distributor. 't was the last straw for lok, and his patience gave in finally, and he became determined to show that Prabhar was not

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indispensable, who could take '(o or himself as his hostage. "n the ne=t +onday morning at am, lok fa=ed a letter to /ineet, recommending P",)s termination as a distributor, and

restating his intention to appoint a new distributor in that territory within a month.

+erminating the (elationship !ith POC

Qhen /ineet received the fa= message, he was perple=ed. Rajesh was sitting before him along with another sales manager. Rajesh only shrugged his shoulders in vain, and said, @ lok is probably acting hastilySPrabhar probably wants more attention and time to develop into a high volume distributor.C /ineet wasn)t sure if waiting more would lead to any better results, since lok was getting ;uite desperate to make things change for better. +oreover, the time for annual performance appraisal of all sales managers was also due in this ;uarter. 'f /ineet rejected the recommendation to terminate P",, it may have a detrimental effect on lok)s motivation. 4ut

terminating a distributor also implied bearing its related conse;uences, including a possible backlash from Prabhar. 4ased on suggestions of few sales managers, who perked him into taking bold decisions to Oteach distributors such as P",, that '(o cannot be held hostage for long by likes of him), /ineet decided to go along with distributor, in the shortest possible time. 2owever, P", was not sent any official communication about its termination as an '(o distributor. "n +onday, lok met Prabhar to inform him that P", and '(o would not be able to lok also e=plicitly lok, and asked him to replace P", with a new

work together since P", failed to perform, and meet O'(o)s standards).

mentioned that he would be on look out for a new distributor in the territory. Prabhar)s reaction was that of silent shrug of his shoulders, after which lok left his office.

$$

fter this incidence,

lok never met Prabhar, and got going with other distributors, including

+yrut "il ,ompany 0+",1 which was run by two partners, young, ambitious, and hungry for grow. +",)s performance was often proudly cited in sales meetings by /ineet, as a role model for other distributors to follow. ll sales managers in #orth 'ndia were advised to meet +",)s nother advantage of having +",

partners, and appoint new distributors with similar profiles.

as a distributor of the company for +u(affarnagar, from '(o)s perspective, was that both partners, Sarish and Sandy looked at '(o)s distributorship as their core business, unlike P", which sidelined business with '(o. lok)s rapport with +", and Sandy was especially good,

and when he could not locate a better distributor for +u(affarnagar district, he asked Sandy to e=pand his territory to include P",)s territory. 't didn)t take much time for this news to spread across the trade that P", was no longer a distributor, and +", 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 P", was still the distributor for '(o.

't did not take more than 8 months for +", to start business with retailers in the new territory, and with much lower prices than that of P",. The retailers happily accepted the products, and the sales in the territory increased. 4oth +", and the sales performance. lok were happy for being able to increase

lok thought that past worries were over, and the story of P",)s

engagement with '(o had happily ended.

+he +ipping Point

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Qhile the saga with

lok 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 reali(e that Rajesh would say that, @it was lok)s decisionC, and wash his hands off the whole situation.

Prabhar was left high a dry, and lok 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 backR 2e cooked his accounts books to show that lok had taken money from him on several occasions lok that he took a bribe from P", and

but never returned. This was to make a case against

indulged in several unethical practices, including putting up a 4illboard for which P", was paid in advance, trusting that the billboard would be put, but never was. lok)s repeated reminders to Prabhar to put up the billboard only resulted in replies such as, O' will do it, don)t worry). Prabhar reali(ed that not having installed a billboard, for which P", was already paid in advance, could be cooked as an evidence of bribe taking by several such evidences including small gifts that he forced such as *iwali and #ew Aear. lok from P",. Prabhar cooked

lok to take during festive occasions

lok did not refuse those gifts that time, as '(o 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 :%% in value. /ineet about the gift3taking incidence. case made against lok had already informed

fter several such false evidences were cooked up and lok to /P of '(o,

lok, Prabhar lodged a formal written complaint against

and re;uested him to take action against lok, citing his own helplessness. 2e also promised that he would co3operate to make sure that justice was delivered to him. The onus to prove the charges against lok was that of '(o, which decided to initiate the investigation taking /ineet, lok in the dark. lok was not

and few others '(o)s employees into confidence, and keeping

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even told that P", had lodged a complaint against him, and he continued with his daily activities in his territory.

't was !! pm in the night in ugust $%%&, when lok received a call from Prabhar on his mobile. Prabhar was in a very bad mood and lambasted '(o, and lok for treating him shabbily and not

giving him his due respect. 2e was in no mood for listening. The half3hour call ended in a threat to lok to bear the conse;uences of having treated Prabhar, and P", with such disrespect and lok hung the phone and informed /ineet and Rajesh about it. 2e later lok almost forgot mong

not giving him his due.

went on his regular sales beat in his territory. Several weeks went by, and

about Prabhar)s phone call, that he received another phone callP it was /ineet on call.

other things, /ineet asked him to make a visit to #ew *elhi and meet him in person. 2e also asked him that he should make his return plans for the same day, and at his own cost.

Anne*ure I ro!th +rend o0 Indian Automotive Lubricants #ar$et 1ear 2334/32 / 2335/36 2335/36 / 7442/47 7442/47 / 7445/46 (ate $.:6 $.%6 ?.:6

$:

7448/49 / 7443/24 8.:6 7443/24 / 7428/29 ?.%6 %ensitivity Coe00icient :.%6 %ource: http:::!!!;indiastat;com

Anne*ure II Lubricants- Demand: Past < "uture =)stimated>

Demand of Lubricants(Past and Estimated)

2.5 2 "n "# 1.5 1 0.5 0

1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 199 -99 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 200 -09 2009-10 2014-15 1999-00 1997-9 2007-0

!ears %ource: http:::!!!;indiastat;com Anne*ure III Indian Automotive Lubricants Industry ? Application o0 Porter-s "ive "orces #odel
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 ca ital investment ! the ma"or com onents of costs are base oil cost# marketing# sales# and distribution costs$ Moderate Industry average rofitability rovides the entry threats

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The threat of e%isting layers ! having strong distribution system# brand loyalty

4argaining 'ower of &u liers

4argaining ower of su liers mainly de ends u on the availability distribution network# brand image# ricing# erformance and technology based roduct innovation$ Large number of su liers have a lesser bargaining ower 'rice of the roduct is very com etitive in nature

)ivalry *mong E%isting +irms

,ut(throat ,om etition *bout -- big . small layers with more than /0 lubricant brands '&1s hold about 20% market share . rivate firm ,astrol is the market leader 'roduct differentiation through innovation# new roducts# 3uality# services# erformance# ricing and branding$

4argaining 'ower of 4uyers

Number of business buyers relative to seller is too high but still the bargaining ower of buyer is high due to intensified com etition 4uyers have a more interest on margin of rofitability rather than roduct 3uality 'rice erformance and value ro osition of different brands makes informed decision of buyers

Threat of &ubstitute 'roducts

No roduct substitute 'ossible threat of demand(side substitute such as synthetic motor oils in the foreseeable future Threat of su ly side substitutability in future

%ource: Compiled by the case !riters

Anne*ure I@ 'rie0 Overvie! o0 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 gearbo=es, compressors, turbines or hydraulic systems and more applications has re;uired for special type of tailored made lubricants. $>

bout :,%%% to !%,%%% different lubricant formulations have been necessary to satisfy more than -%6 of all lubricant applications. 9or the manufacturing of lubricants, generally it contains about -86 of base oils 0mineral oil1, >6 chemical additives and fewer other components. There has been re;uired a specific applications and application methods to develop a various types of lubricants. 9or the production of simple lubricants normally involves blending processes but specialties often re;uire the use of chemical such as saponification 0 in the case of greases1, esterification 0when manufacturing ester base oils or additives1 or amidation 0when manufacturing components for metalworking lubricants1. 9or further manufacturing processes include drying, filtration, homogeni(ing, dispersion or distillation.

The 'ndian automotive lube firms have been manufacturing various types of lubes with different viscosity grade such as :Q3$%, !%Q38%, !:Q3?%, :Q38%, !%Q3?%, $%Q3?%, etc. The viscosity grade describes the oilBs thickness, where OQ) 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 ,ompression 'gnition 0,'1 engines and Spark 'gnition 0S'1 engines re;uires a specific type of lubricants. 'n ,' engines, diesel is used a fuel while in S' engines, petrol or gasoline is used as fuel. *iesel engines are heavy engines and lesser speedsP on the other hand petrol engines are lightweight and achieve higher speed.

,ompiled by the case writers fromD a1 Theo +ang, @Lubricants and their +arketC, httpDEEwww.wiley3 vch.deEbooksEsampleE8:$>8!?->%Fc%!.pdf, $%%>

$.

b1 2aresh Hhemani @,omparison of Spark 'gnition 0S'1 and ,ompression 'gnition 0,'1 <nginesC, httpDEEwww.brighthub.comEengineeringEmechanicalEarticlesE!:8>.asp=Ti=((%QLi%HyR*, #ovember :th $%%.

Anne*ure @ Aet Pro0it =Annual Interim> o0 Leading Indian Lubricants Companies

%ource: BCrisil, Angel researchC, http:::birlaa;com:!p/0ile&:%avita;pd0, August 7Dth 7446

Anne*ure @I Indian Domestic Automotive Lubricants #ar$et =In (s; Crores, 24 millionE2 crore>

$-

%ource: Compiled by the case !riters based on C#I) data

Company Aame 'harat Petroleum Corpn; Ltd; Castrol India Ltd; ul0 Oil Corpn; Ltd; Hindustan Petroleum Corpn; Ltd; I ' P Co; Ltd; I#ergedJ Indian Oil Corpn; Ltd; +ide Water Oil Co; =India> Ltd;

#ar/4G !$:% !:$.-$ !:.8$ !:8>.8 & .>.>: &!!?.. -.--

#ar/48 !&-?.& !8>.8. $$.-! !-%8.? $!?.&& >%%?.. $ >.&>

#ar/49 -&:.. !$>.?& $%.%8 !$>>.8 8 :...> ?.-!.8 . >.8?

#ar/45 $-!.& !?&..! $$.>?%:.&8 !$.?? ?-!:.! $ >.:8

#ar/46 !.%:.: !:?.?$8.%! !:>!.! > >?--.? > ..->

#ar/4D !:.%.: & $!..? $:.!8 !!8?.. . &-&$.: . $8.!.

#ar/43 >8:.$&$.8 $-.%? :>?.-.

$-?-.:: $>.::

Prabhar Oil Company, and Distribution Challenges in the Indian Lubricants Industry: +eaching Aote

+eaching ObFectives

8%

The case study has written to understand the current scenario of 'ndian 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 'ndia. "ur recommendation is to discuss the case in retail marketingEretailing or strategic marketingEmarketing 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 'ndian automotive lubricants industry and further more concentrated towards retailing and distribution challenges in 'ndian automotive lubricants market which was faced by one of the leading +#, oil giant '(o 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 organi(ational goals and objectives to gain a competitive advantage. +ore specifically, the case illustrate the implementation of marketing strategies of 'ndian automotive lubricants players into a practice through giving a importance of branding, market segmentation, market positioning, product G pricing strategies, customer relationship management, creation of strong distribution network for retailing a lubricants products. '(o)s failure of continuing P",)s dealership and fired of talented manpower from sales team would be the key discussion point, which creates the relentless debate in the class.

Pedagogical ObFectives

The case study enables the students to understand and analyseD

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To understand the current business environment of 'ndian automotive lubricants market The dynamics of emerging 'ndian automotive lubricants market The critical success factor for doing business in 'ndian automotive lubricants market To analyse the opportunities and challenges in 'ndian automotive lubricants market To understand the distribution G retailing is one the biggest challenge for automotive lubricant players in 'ndia

'(o)s growth and e=pansion strategy in 'ndia To analyse the factors that responsible for cancellation of P", as distributor and termination of lok)s employment from '(o.

To understand '(o)s sales management system To understand the customer relationship management 0,R+1 system at '(o and its impact.

+eaching Plan

+otal Discussion +ime: .%3-% minutes

The following suggested teaching plan flow provides the comprehensive structure to the case discussion in the class. 2owever, the structure is not compulsory and the case discussion can be allowed to take any course. 't is true that good written management case study can be discussed in any disciplineP it may be in marketing, finance, human resource management, operations management or in general management. lthough, the following teaching plan helps instructors

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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 ;uestions like N

Qhat is lubricantM 2ow are lubricant manufacturedM Qhat are the different types of lubricants, and how are they sold in 'ndia M 2ow many automotive lubricants manufacturers in 'ndia and their market shareM 0<=plain the structure of 'ndian automotive lubricants 'ndustry1.

<=plain the role of consumer behaviour for buying automotive lubricants in 'ndia. Qhich are the key influencers that support consumers to buy a specific brand of lubricantsM

Qhat are the business challenges in 'ndian automotive lubricants marketM

There are number of ;uestions 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 'ndian automotive lubricants industry while discussing the Porters five force model for industry analysis 0 nne=ure ''' of the case study1. The key issues of the case study N the marketing E retail and distribution challenges must be discuss in detail as belowD

#ar$eting o0 Automotive Lubricants in the Changing Indian )conomy:

88

Qhat are marketing and promotional strategies adopted by different players in the 'ndian automotive lubricants market during the recession time and how is subse;uently changing during recent period of timeM 0Qhen economic slowdown is going to be over or on recovery pathM1 7nderstand the competition and strategies adopted by leading players like '",, 2P,L, 4P,L and ,astrol with their well3established brand like Servo, *urbo, /A0 and #astrol respectively to capture the market potential. 9ocus should be given to the marketing and promotional strategies adopted by these players in this changing behaviour of 'ndian consumers towards lubricant products. *iscuss 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. ,lassification of two major channel of distribution including original e;uipment manufacturers 0"<+s1 and retail segment discussed in detail and per <=hibit ' of the case study.

'n 'ndian automotive lubricants market, there was large number of suppliers competing on the same stage to grab the market opportunities. The PS7s having an advantage of their wider distribution network of retail outletsEpetrol pumps. To fight with PS7s, private players adopted the ba(aar trade and concentrated towards tie3up with "<+s for retailing of lubricants. #ow again with the entry of PS7s in the ba(aar trade, the retailing becomes more difficult for private manufacturers. 2ighlight the advantages of well3established retail chain of petrol station by PS7s and the challenges faced by private sector players in ba(aar trade for retailing their lube brands.

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"rame!or$ 0or Developing < Implementing #ar$eting %trategies in Indian Automotive Lubricants #ar$et, %pecial Concern to I&o-s %trategy;

2ere the instructor turns the discussion towards the '(o)s growth and e=pansion strategy for 'ndian market. 4rief the '(o)s history in 'ndian and its 73turn towards 'ndian market to regain the opportunities as it ac;uired globally. lso re;uired to highlight the growth drivers and

demand factors of 'ndian automotive lubricants market which attracted +#, oil giant like '(o. 't is necessary to understand the first mover advantage taken by the state owned PS7s and few private sector players who have already established strong distribution network across the country and gained a si(able market share in the lubricants sector. Qhich is indirectly became a disadvantage for the late entrance like '(o, who is still facing a tough competition and challenges to build a retail chain distribution network across 'ndia.

The following important point is necessary to discuss during the case analysisD

Managing Customer Relationship 7nderstand the term ,R+ and its importance in 'ndian automotive lubricants market. The importance of ,R+ at corporate level 0for "<+s1 and retail level is essential. +anaging relationship with end user customers as well as the relationship with wholesalerEdistributors or mechanics is must for continuous e=pansion of sales volume. The role of sales team E sale person is very crucial for managing long3lasting relationship with the customers in this sector. '(o has recruited young and dynamic sales professionals like lok to build a strong retail chain distribution network

across the country and to create a long3term relationship with its customers.

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4ut the sales person 0 lok1 was very eager to complete his annual sales target and failed to understand the attitude of one of its distributor P", and terminated the dealership from '(o products with prior permission from higher authority. To give counter reply to informed '(o company officials and field bribe case against failed to managing proper ,R+ as well as its sales team too. lok, P",

lok. 9inally, the '(o has been

Market Positioning, Target Marketing and Positioning To understand the target market and market positioning strategy of different automotive lubricants players in 'ndia. '(o)s strategy is to position at high ;uality lubricants brand with targeting at all level of automotive lubricants re;uirement. '(o)s target is pan 'ndia by appointing new distributors at all important locations.

Product Strategy *iscuss the different product strategy adopted by the key players like '",L, 4P,L, 2P,L, ,astrol and some new entrance like Shell, +obil, <==on, ,alte=, <sso, <lf, Penn(oil, 5ulf "il and 4P to cater the all segments of lubricant products. '(o have competitive products to fight with his rivals.

Brand Value & Brand Recall 2ighlight should be given the already established brands like ,astrol, Servo, + H, Turbo, +obil, 5ulf, etc with their brand value and brand recall in the 'ndian automotive lube market. *ue to late entry and stiff competition, '(o have been facing a problem for creation of strong brand image and getting lower brand recall with its low market penetration.

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Product Pricing The competitive pricing strategy must be discussed according to the product innovation, ;uality and performance of different lube brands available in the market. The pricing of '(o)s lube product is 8%6 higher than that of its competing brand.

Distri ution, Retailing and Supply Chain Management This is the key discussion point in the class. 7nderstand the distribution and retailing of auto lube in 'ndian lubricants market with the different retail and distribution segments including "<+s, Petrol Pumps, 4a(aar trade, etc. 2ighlight the distribution, retailing and supply chain management strategy adopted by different auto lube players in 'ndia. '(o have been eager to e=pand their distribution network across the country with appointing new distributors at important locations to cater whole gamut of the market.

!ntegrated Marketing Communications 7nderstand 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 'ndian auto lube industry.

Integrated #ar$eting Communication ? +he Promotional )lements

Advertising Print 4roadcast 'nteractive "utdoor Indian Auto Lube Industry: 8> 'ntegrated +arketing ,ommunication

Public (elations Publicity Press Release #ewsletters 4roadcast

Personnel %elling ccount +anagement Prospecting Retail Sales

%ales Promotion ,onsumer Promotion Trade Promotion

*iscuss the promotional elements of integrated marketing communication in detail with respect to 'ndian auto lube industry. promotional elements. lso point out the '(o)s strategy towards these

'n personnel selling, '(o have been trying hard for establishment of strong retail chain for creation of good retail sales prospects. 7nderstand the issues behind '(o)s sales professional namely lok, who was failed to managing the relationship with P", and

finally both 0 lok G P",1 were terminated from '(o. 2ighlights should be given in respect of '(o)s sales team management system, 2R+ including training, motivation, promotions, etc.

lok was failed to convince P", in terms of sales promotion, where P", was appealing to e=tend credit to retailers, which was difficult for lok as per the company)s policy. The

instructor may also lead class to discuss the profit margin of the distributors where '(o is

8.

offering lesser margin to its distributors than that of its rivals, which directly impacts on sales volume of the company.

+he Conclusion %tage:

The facilitator re;uires turning the discussions towards the final issues of the case study, which is distribution and retail challenges of '(o. The few ;uestion must be understand like N

's there lack of management system at '(o in between company officials 0i.e. top management1, sales professionals and distributorsM

Should '(o support

lok as their loyal employee or should they side with Prabhar "il

,ompany to safeguard their reputation in the market, even at the cost of betrayal of the psychological contract between lok and '(oM QhyM 2ow should the sales management processes tackle the issues of distributor performance managementM Qhat sales management controls if present, may have prevented getting into this situationM The discussion will bring out the formulation and implementation of new management strategy in terms of marketing, promotions, branding, positioning, 2R+, distribution G retailing for 'ndian auto lube companies. lok and '(o from

"e! %uggested Assignment Kuestions and Ans!ers 0or %tudents

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"#plain the current usiness en$ironment o% !ndian automoti$e lu ricants industry&

7sing P<ST<L analysis tool, we can analyse the current business environment of 'ndian auto lube industry which helps the new entrance lubricant players to identify their relevant business environment in their growth and e=pansion strategy.

Political "n$ironment Political environment is an important factor particularly in a mi=ed economy like 'ndia, 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 liberali(ation of 'ndian auto lube market but still the 'ndian political environment has been more supportive to the domestic players, especially the PS7s, rather than private players and new +#, entrants. Qith a current stable 'ndian government, the industry players hoping some more positive moves for private and new entrance.

"conomical "n$ironment The economical environment of emerging economy like 'ndia is very strong, which provide greater opportunities for growth and e=piations. *ue to global economic slowdown, 'ndia reported a 5*P growth rate of &.>6 in 9A $%%.3%-, but economy is hoping to achieve a double digit growth rate in ne=t fiscal years through some key strategic move of disinvestments. Though, 'ndia provides economical viable business opportunities for auto lube players in the country.

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Socio'cultural "n$ironment 7nderstanding the social and cultural environment would be the key factor for each auto lube player in 'ndia. The key points of socio3cultural environment are as followD

5enerally in 'ndia, consumers have little knowledge about pricing, performance and ;uality of different auto lube brands. 4ut the scenario has been changing and consumers becoming more towards brand conscious, demanding branded, ;ualitative and price competitive lubricant products.

The disposable income of 'ndian consumers is growing, though demanding more automotive vehicles, which ultimately resulted into an increase in auto lube demands.

The living standard of 'ndian consumers have been changing towards a lu=uries life style, demanding lu=uries automotive vehiclesEcars, which re;uires a technology based specific G innovative lubricants.

'n 'ndia, the local consumers generally prefer local language for communication, posing significant barriers for foreign players.

Locali(ation is must for lubricants business in 'ndia because consumer has been giving more preferences to the local vendorsEmechanics, which is the key influencer in auto lube sales. Qord3of3mouth by these key influencers plays an important role in the sales of auto lube rather than price, performance, ;uality and brand of lubricant products.

round >%6 of the 'ndian population depends on agriculture sector, living in rural area, which is still not fully taped by the e=isting market players.

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Technological "n$ironment The manufacturing of auto lube depends upon the technology of automotive vehicles. 'n this competitive arena, the technology of automotive vehicles is changing day3by3day 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 'ndian auto lube manufacturer having a competing technology, which they have been getting from 'ndia itself or ac;uiring from the other developed countries. Some 'ndian companies have adopted mergers G ac;uisitions and strategic alliance to access a technology. The new entreats would re;uire a huge capital investment for deploying a competitive technology.

"n$ironmental (actor 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 re;uirements of the lubricants industry. 0<.g. Pandit *een *ayal Petroleum 7niversity, 5andhinagar1 There is cut3thought 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. 4ecause the building a strong distribution would be one the biggest challenge for e=isting players.

)egal and Regulatory The 'ndian petroleum sector have been managed by the ministry of petroleum, government of 'ndia. ll the PS7s are protected by the government regulations. The

new domestic and foreign entrants would have to fulfill the government stipulations.

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)ist out the

usiness challenges %aced

y the !ndian auto lu e players& *hy

distri utions and retailing

ecomes a key challenge %or !ndian auto lu e players,

especially %or the pri$ate companies+

The following are the key challenges faced by the 'ndian auto lube players.

Severe competition +arketing challenges ,hallenges of branding and brand recall +arket positioning +arket penetration 4uilding strong relationship with distributors and customers ,hallenge to capture a si(able market share To understand the behaviour of 'ndian consumers ,hallenges for getting a skilled manpower Retailing and *istribution challenges

"ut of the above challenges, retail and distribution challenges becomes a key challenges for the auto lube players in 'ndia, especially for the private players due to N

PS7s having an advantage of well3established petrol retail outlets to sale their auto lube products. #ow the private players can also sale their auto lube at PS7s petrol retail stations through a strategic tie3up but, generally PS7s are trying to sale more of ?8

their lube brands rather to sale a lube brands of private sector firms at petrol retail stations. The new entered private sector firms in 'ndia are generally from outside the country, having a little knowledge about the 'ndian 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. 9or retailing of auto lubes, the private sector firms adopted a 4a(aar trade to sale their lube brands but PS7s are also entered in the ba(aar trade, therefore retailing became a more difficult for private sector firms. 9or "<+s tie3up re;uires a strategic planning and talented manpower to capture the larger market opportunities. 4ut getting and retaining a talented manpower, especially in sales team 0i.e. sales professionals1 has becoming a tough task for lubricants players. *istributorsEwholesalers or retailersEmechanics have a more interest in profit margins rather than price, ;uality and performance of auto lube products. Therefore those companies offering lesser profit margins to distributorsEwholesalers or

retailersEmechanics are facing a stiff competition for e=pansion of their sales volume.

*hat are the critical success %actors %or doing usiness in !ndian lu e market %or !,o and other ne- entrants in !ndia+

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The key success factor for industry competitors in the current and future environment are as follow N

Brand !mage 'n the 'ndian automotive lube business, brand image and brand e;uity is a critical factor for success, given the nature of the auto lube products and consumer buying behaviour. 4ut building a strong lube brand is not an easy task for the industry players, where almost 8: brands were already e=ist.

"#tensi$e Marketing & Promotional Strategies +arketing plays a critical role for capturing a wider market share. <=tensive advertisement with a popular brand ambassador and promotional strategies would helps to attract a larger target audience.

Talented Manpo-er

c;uiring and retaining a talented manpower would be another critical

success factor 'ndian auto lube sector. The re;uired level of skilled persons is necessary at all level. The dynamic manpower is must in the sales team of the company.

*ider Distri ution .et-ork 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.

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/uality 4rand recall of any products generally depends upon the ;uality and performance of the products. Though, the ;uality of auto lube products is re;uired to be a good, with an e=tensive performance will be succeed in the market.

'n addition to the above mentioned factors, other factors for success in 'ndian auto lube market include good financial strength to support e=tended credit facilities, technology and RG* backup, and distributed manufacturing facilities are the key factors for '(o and other new entrance in 'ndia.

*hat sales management controls i% present, may ha$e pre$ented 0lok and !,o %rom getting into trou le+

The following are the suggested alternatives solutions for '(o)s sale management, to prevent lok and '(o from getting into a trouble.

ll the new and fresh recruited sales person like

lok first re;uires 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 '(o. '(o)s sale management has to re3organi(e the territory of sales persons as per their market familiarity, past e=perience and relationship with customers. '.e. Rajesh re;uired to assigned lok)s territory and vice3versa because Rajesh has previously worked with this

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territory and familiar with P",)s working style and knowing very3well about how to handle P",. s the working style of P", is different than that of other distributors of the same territory, interested more towards the profitabilityP though '(o have to give more profit margins to the P", in special case and also think on P",)s appeal to e=tend credit to retailers. '(o does also need to think on pricing of products, which is almost 8%6 higher than that of competing brands. '(o has to charge somewhat lower price of its product from P",, which is now granted to +",. '(o has to think about the revision of sales target of sales persons in a specific territory like in +u(affarnagar district, lok is facing a trouble to e=pand sales volume from its

distributors like P",. To achieve a sales target is must for lok to stay with '(o. '(o)s sales management has no standard style for business communication. "fficially, '(o has not given a single notice to P", about its poor performance. <ven after terminating the P",)s dealership from '(o, company has not done any official communication with P",. Though, '(o need to follow a standard business communication system. '(o has been facing a problem of sales management control in its sale management process. 4ecause Rajesh has given the detailed information to the P", that, lok was the key decision maker for terminating its dealership. 'f Rajesh was silent at this point, than there would be no any trouble in between P",, lok and '(o. gain '(o has not informed lok, that P", has filed a bribery case against him and not lok,

given a sufficient time to prove himself an ethical person. 4efore terminating management has to check in detail whether really a bribe.

lok is loyal employee of the company or

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 To prevent such kind of issues in future '(o have to focus more on establishment of organisational competencies using stakeholders of the company.

1o- sales management practices should e aligned -ith distri ution le$el challenges %or seamless marketing in saturated market such as lu es&

The sales management practices of any company are used to e=pand the sales volume and achieve an overall goal of the organisation. 't is necessary that information flows move from guarded secrecy to open, honest, and fre;uent communications. +ost importantly, the points of contact in the relationship e=pand from one3on3one at the salesperson3buyer level to multiple interfaces at all levels and in all functional area of each firm. The objective of sales management practice is to synergi(e 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. 'n the seamless marketing in saturated markets such as 'ndian automotive lubricants market, '(o have been facing same distribution level challenges due to lack of appropriate sales management practices. There is also a conflict between salespersons 0 lok13buyer 0P",1 G '(o)s sales department 0company officials1, due to lack of transparency in the company including sharing of information. '(o has also committed few marketing mistakes in terms of pricing, branding, and market reach to fight with its rivals.

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