Eco7 case analysis - Case submission 1 - 26/30 PDF

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Case submission 1 - 26/30...

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I.

Summary

Avellin Corporation was set up as an oil refiner in the US in 1936. The company had diversified its product line into petroleum division and dropped out the oil refining and marketing fuel, in which it experienced poor economies of scale within competition. Avellin then shifted its focus towards Industrial Materials and Automotive. Like its competitors, it incorporated its own fast-lube chain namely AvellinAuto and PCMO was its most significant market. The company was ranked number three player in branded motor oil, behind Baud and Motoline – two market leaders within PCMO market. Both Baud and Motoline placed emphasis on building their fast-lube chains targeting at the DIFM segment. Nevertheless, Avellin had only one competitor – Sevoline introducing a motor oil SevoGreen, when launched Eco7. There were two key segments within PCMO market including DIY and DIFM. On the one hand, DIY consumers were less affluent than that of DIFM, and were more cost-conscious of automotive maintenance. Thus, they tended to buy PCMO from mass merchandisers, convenience stores and changed their own motor oil. On the other hand, DIFM consumers preferred professional service providers for their routine maintenance. Typically, they had higher education, higher income, drove foreign and luxury cars, and were likely to purchase fuel-efficient vehicles or hybrid cars. Due to the increasing trend towards more fuel-efficient and eco-friendly vehicles that would result in consumers’ willing to pay a premium price for the green, Avellin released a new motor oil Eco7 manufactured from 65% recycled oil and 45% using less energy than existing products. Additionally, Eco7 was given a longevity and performance that made it superior to conventional oil. In comparison with SevoGreen, Eco7 offered and sustained performance and cost advantages over the competitor. Eco7’s price point fell between Avellin’s synthetic blend price and full synthetic price, nearly as expensive as Avellin’s full synthetic oil. The product was advertised on local television and newspapers, along with the campaign slogan “You have the green light”, with the aim to promote its superior performance and environmental friendliness. However, there was a consumer shift from DIY to DIFM segment with preference of convenience and lower cost. This change had raised the concern for the launch of Eco7, whose prices were generally high. II.

Analysis

A noticeable problem can be seen from the case is that Avellin was struggling to determine its positioning, pricing strategy and distribution channels for the new release product – eco-friendly motor oil Eco7. According to the case, there are two main segments within the PCMO market, including DIY and DIFM. While DIY contains another two sub-

segments such as cost-conscious people preferred conventional motor oil and people thinking about having the best quality product that could match their expectation – full synthetic category, DIFM group are those people who are more educated, more affluent, seeking convenience but having zero knowledge and expertise regarding to the kind of oil they have. The level of brand loyalty differs between two key groups. Specifically, DIY is more loyal than DIFM because, as shown in the case, 83% of consumers in DIFM are not apparently loyal as they seek and follow the recommendations from the installers. Furthermore, Exhibit 4 suggests that 67% of consumers will be most influential by the professional service providers when making the decision of buying an environmentally friendly motor oil. This is because installers have an ability to communicate the product performance as well as its benefits with consumers. For these two reasons, installers or professional service providers should be added into the third segmentation that Avellin could directly target with the aim of reaching indirectly the DIFM consumers. In terms of positioning, Avellin also faced the problem of the new product and its original brand positioning complex. Specifically, Avellin is renowned for its conventional motor oil, which has the cheapest price in the market. This implies that Avellin could be positioned as a value-based brand. Nevertheless, the company was preferring the premium product when they decided to launch the Eco7. Thus, the positioning of Eco7 was far away from the company’s original brand positioning. In contrast, its competitor in the ‘green’ motor oil market – Sevoline – had launched SevoGreen and this product was an extension of the brand so that consumer would know it belongs to Sevoline. However, Eco7 would not be diluted by the Avellin’s original status and the synthetic blend motor oil would be a baseline for comparable in certain environmental benefits of Eco7. Moreover, the full synthetic motor oil cannot be dropped, otherwise, the price reference is gone and consumers cannot how cheaper but more eco-friendly Eco7 is in comparison with the full synthetic. Regarding to pricing strategy and distribution channels, Avellin was wondering whether Eco7 should be fully priced or at discounted price. On the one hand, Exhibit 5 shows that gross margin for Eco7 full price was higher than that for Eco7 discounted price, which was 12.5% and 10% respectively. On the other hand, according to Exhibit 6, Eco7 discounted price would generate higher percentage of market penetration in Aventage stores and other independent stores, compared to Eco7 full price. If Avellin released Eco7 at the discounted price, in theory, the company would experience post-promotional shortfall as part of the profit margin is gone. In terms of distribution strategy, the company was considering which distribution option would be the most suitable and effective for Eco7 to achieve momentum, between distribution through the AvellinAuto stores and independent DIFM customers in the Aventage program, and offering to DIFM customer base and AvellinAuto stores.

While the former will give Eco7 95% market penetration within Aventage stores, the latter will give Eco7 wider chain of distributors. III.

Remedies

What Avellin could do is to see installers as promising opportunity and add it into the third segment. As if Avellin does have the installers outside, installers would communicate Eco7’s ‘green’ performance and benefits with consumers as well as recommend the product, thus, DIFM consumers would normally follow the advice. In addition, Eco7 should be filled in Avellin’s product line since it would not be diluted by the company’s original status. In relation to pricing, Eco7 should be fully priced because wholesalers will be able to earn higher income as its gross margin is greater than that of discounted price. In terms of distribution strategy, Avellin should distribute Eco7 only to AvellinAuto stores and independent DIFM customers in the Aventage program as the market penetration of this option is forecast to grow 95% within Aventage stores. For this reason, launching Eco7 at the full price of $6.75 and distributing it through Aventage program would result in improving customer loyalty. Additionally, to promote Eco7 benefits, Avellin should apply in-store promotions in northern states in which liberals tend to be more eco-friendly than conservatives are....