In March 2014, the VP of marketing for the automotive division of Aveline Corporation, Aaron Jonnerson, was in plans for launching a new product, which is an eco-friendly motor oil called Eco7. This move was because of the steady and significant growth in consumer interests in green and eco-friendly automotive products. This case focuses on the dilemma faced by Aaron of choosing the correct pricing strategy and distribution channel for effective market penetration of Eco-7.
John A. Quelch and Sunru Yong
Harvard Business Review (916507-PDF-ENG)
September 15, 2015
Case questions answered:
- What pricing strategy should Eco7 adopt?
- What distribution channel should Aveline Corporation opt for?
- Conduct a market analysis for the launch of Eco7.
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Case answers for Eco7: Launching a New Motor Oil
This case solution includes an Excel file with calculations.
EXECUTIVE SUMMARY – Eco7: Launching a New Motor Oil:
In March 2014, the VP of marketing for the automotive division of Aveline Corporation, Aaron Jonnerson, was in plans for launching a new product, which is an eco-friendly motor oil called Eco-7. This move was because of the steady and significant growth in consumer interests in green and eco-friendly automotive products.
Jonnerson believed that Eco-7 offered better performance and cost leadership over its only rival in this segment viz. Sevoline with the product ServoGreen. ServoGreen’s initial promise in the industry despite the market research showing otherwise was a motivator for Jonnerson to stand by Eco7.
This case focuses on the dilemma faced by Aaron of choosing the correct pricing strategy and distribution channel for effective market penetration of Eco-7.
A demand for eco-friendly and fuel-efficient vehicles increased in the market, as shown by surveys in 2012, and customers were ready to pay a premium price for eco-friendly products in the market. Eco7’s development was an outcome of this increase in demand. It was a new kind of motor oil developed by Avellin, which was made fro recycled products.
The distribution networks available to Avellin were:
- Avellin Auto, a fast lube chain accounting for 7% of overall sales
- 6000 independent fast lubes and 6500 oil change plus accounting for 66% of sales.
- National retailers are attracting the DIY segment accounting for 9% of sales.
The Passenger Car Motor Oil (PCMO) market was worth $10.5bn and had reached the maturity phase in its life cycle. Therefore, the need for innovation became a necessity to penetrate this market. This fact is why products like Servoline started to show promise in the market, which was a new kind.
The marketing mix refers to all the strategies that a company uses to promote its brand or product in the market. The 4P’s that make up a typical marketing mix are Product, Price, Place, and Promotion.
The key features of the product that distinguish it from the other products can be given as:
- It was a complete, environmentally, and friendly motor oil.
- It was manufactured mostly from recycled materials.
- It used 45% less energy for application.
- It is made of 65% recycled motor oil.
- It is packaged as a part of PCMO services.
- It gave better driving performance and required changes only after 7,500 miles.
- It could withstand higher temperatures compared to other products.
- It could be recycled multiple times for various other uses.
There were two prices suggested by the wholesale retailers and distributors.
Pricing at $5.25
- The margin would be too tight, and it would become difficult to squeeze the margins.
- It would lead to the devaluing of the innovation.
- It would also lead to undermining the efforts to market Eco7 as it was a premium product.
- It would make the product very easy to sell.
- Approximately expected sales were 4.5 per day.
Pricing at $6.75:
- This price is nearly as high as a full synthetic product.
- It is difficult to sell independently.
- It requires an installer to understand the product well enough to explain it to the customer. Hence, this price would be high to carry out the whole process.
- The competitor is selling at $7.5; hence this would be close to that product.
- Approximately expected sales are 3.5 per day.
Hence, any price range in between these two ranges would be ideal for the product so that at an average sales of 4 units can be done at other retail stores, and at the AvellinAuto stores, they could expect sales on six units at an average.
- These included fast lubes, oil change, plus stores and repair shops.
- To build loyalty, the company promoted the Aventage program among these channels.
- There were 6000 independent fast lube and 6500 motor oil change plus stores and repair shops.
- 4,400 of these were in the Aventage program.
- These sell hybrid and electric cars.
- They provided predetermined maintenance checks.
- One-stop shop for all maintenance activities to be performed.
- The oil change would be performed under the manufacturer’s recommendation of the vehicles.
- Avellin sold via its own Avellin Auto stores.
- These were located near the distribution center and away from other independent DIFM.
- Margin in these stores is higher than in other stores.
- These stores generated 7% of the PCMO sales.
Avellin had three different channels of distribution that target various types of customers, and these channels are through the independent DIFM and the National Dealers. Aventage program was undertaken as a loyalty program by the independent DIFM, whereas the large mass merchandisers accounted for a total of 9% of Avellin sales.
According to the new market trend, the customers who valued eco-friendly motor oil products was very high in number. Avellin came up with two strategies for their promotion, that is:
This program was launched among the independent DIFM to strengthen brand awareness and improve the perception. The main motto behind this was to communicate to the customer. Customers need to be provided with the best value in terms of quality and value of money.
This program was launched among the various car dealers to create a new market segment. Also, this would support the value given by the green product. Similarly, there was an emphasis on the green factor with providing the best value in terms of quality and value of money.
Founded as an oil refiner in 1936, Avellin operated in two divisions since 1995. These were the Industrial Materials [Resins & Adhesive Technology] and Automotive [Lubricants & Other automotive care products]. The automotive division accounted for about 40% of the firm’s profit.
The company was experiencing sluggish growth, and due to a takeover bid, the company was in significant debt. In 2013, its net income was just 4% of the total industry revenue. It had its own fast-lube chain called AvellinAuto but could not push for its motor oil…