Case answers for Castrol India Limited: An

Innovative Distribution Channel

Synopsis
The case talks about Mohit Rai, who is the general manager of sales for
Castrol India Limited, who while coming back from the annual sales
conference in January 2006 realises that the market potential sales of
Castrol MCO 4T were not making sense, even though every year 5
million bikes were added on road and also that at 3.5 ltr per bike per
year, the market for MCO 4T was growing by 17 million to 18 million
litres per year. The average being added was too less than the demand
suggested i.e. only 2.5 million litres of MCO 4T per year.

The case also talks about the threat it gets from the genuine oils, its
competitors in the market and how technological innovations helped it
maintain its leadership in the four stroke category and what the main
consumer segments are i.e. minimalists, appreciators and enthusiasts.
Even though there was a price premium of 15-18 percent over the
competition, results were not matching so a project team was formed by
Rai in order to conduct a gap analysis of MCO distribution. The analysis
helped in the classification of Non-Franchised Workshops.

The main challenge was to come up with a distribution network where

maximum areas are covered including spare parts and oil shops. This can
be done through trade promotions, sales incentives plan and marketing
support so as to reach 24 percent of market share. The main issue is how
to achieve the remaining 6 percent as the goal was to reach 30 percent in
the next five years.

How do consumers buy MCOs? Discuss the existing

consumer segments.
Answer: The trend for the consumption pattern was seen from the
consumers who saw oil change as an important part of their bikes
maintenance. They use to take their bikes to Motorcycle dealers or
franchised workshops (FW), for service frequently when in warranty,
for warranty benefits provided by the dealer. After the warranty is over
they have to take their bikes to Non- franchised workshops (NFW), But
in a study with the NFW, it was found that the consumers’ lubricant
consumption pattern was erratic, at times there were very few requests
and sometimes there was a sudden rush in the consumption by the
consumers seeking service.

Based on the market research on needs and insights, Castrol has

identified 3 distinct consumer segments:

1. Minimalists:- Need for them was to do the thing right, with the
insights of valuing money, with reassurance from a credible brand.
2. Appreciators:- Need for them was to inspire freedom and
confidence. With the insight that bike was a means of transport for
them, and they needed assurance that it remain reliable, and were
also ready to pay a slight premium to avoid breakdowns.
3. Enthusiasts:- Need for them was to get the most out of their
bike’s engine. Insight for them was that, they wanted to be
associated with the best, as bike was their vehicle for dreams
through which they would uncover new opportunities.

What is the specific challenge for Rai and his team?

The challenge faced by Rai and his team was how to get Non Franchise
Workshops (NFWs) and spare parts shops to stock, display and sell
Castrol.

Out of the targeted 30% market share in the aftermarket , while 24%
could be achieved through trade promotions, sales incentive plans and
marketing support, the remaining 6% potentially could be achieved
through servicing NFWs and spare part shops.

But there were a few concerns for the distributors regarding the buying
behavior of these outlets such as:
1. They were hesitant in supplying to the mechanics of these outlets as
the latter lacked a rudimentary understanding of cash flows and payment
cycles.

2. The erratic consumption pattern of the consumers also was a concern

as the demand for oil changes used to fluctuate violently. While stock
and sell used to be supplied fairly regularly by distributors of either
Castrol or its competitors, there was a chunk of NFWs which did not
want to stock oil products as they were concerned that their customers
would ask for credit for the cost of the Castrol motorcycle oil.

3. Also, distributors were cautious in investing in extra employees or

delivery units to gain access to these workshops as each Distributor Sales
Rep (DSR) would cost more than Rs.12000 a month. Moreover, the DSR
would not be able to manage the activity from an area which is at a great
distance from the base station as if credit was demanded by
the respective workshop, the payment had to be completed by the end of
the day. Furthermore, DSR were hesitant to visit these workshops for
social reasons as well as for the fear of exposing their lack of technical
knowledge for bikes and parts.

4. Rai also had to make sure that any distribution route-to-market plan
that he makes had to be a cost-neutral exercise as Castrol would not
increase its distribution or trade margins to fund the proposed
expansion. Delivery costs were bound to hit the roof as these outlets
were highly scattered as well.

What are Castrol’s options for expanding its

distribution? Discuss the advantages and
disadvantages of each option?
There are two options that Castrol has for expanding its distribution and
their advantages and disadvantages are in the following ways:

1. After Market Channel:

Spare parts outlets, non-franchised workshops and oil shops come under
the after-market channel. On total, there are about 77000 outlets out of
which Castrol has grabbed 12578. They have the market share of about
16.4% in Spare part outlets, 30.4% in Oil shops and 6.3% in Non-
Franchised workshops. By coming with a strategy like educating them
about the technology and the benefits of the product through
advertisements and campaigns and converting more outlets in this
channel, Castrol can achieve a greater number of sales.

Advantages

 After the warranty period, almost all vehicles are coming to non-
franchised workshops for servicing. Through this they can also
convert the old vehicle users as their customers.
 The long foot print and the good will in the market, they can boost
their sales and convert many more customers.
 They can effectively convert all the “enthusiast” as customers of
Castrol when it is easily available in the market.

Disadvantages

 The conflicts between the distributors of spare parts outlets and oil
shops as a part of their customers will be taken away from them.
 As most of the non- franchised workshops are located in remote
locations, on time supply and delivery might also be difficult.
 As many of the mechanics can’t afford for maintaining the stock,
credit system should be implemented and it will be difficult for the
company as they have to employ a person for follow up and they
need to spend much more for the expansion.

2. Franchised Workshops
There are 4500 outlets and Castrol has captured 665 out of them. In
terms of percentage, it holds 14.8% of the total market share. By
increasing more number of outlets, Castrol can potentially increase their
market share and this will result in direct increase in their sales.

Advantages
  In order not to void the warranty, the owners prefer giving their
vehicles to authorized service station during the warranty period
and thus all the new vehicles will be exposed to Castrol.
 Since the authorized service station uses Castrol, the trust on
customers to buy Castrol from outside market will also increase.

Disadvantages

 It will be difficult to convince the franchised workshop dealers as

the OEM also supplies their own oil under their packaging.
 Castrol might be forced to reduce their profit margin to attract the
authorized dealers in buying and using their product.