Castrol India Limited: An Innovative Distribution Channel - Case Study

Q1.What was the business macro environment in India ?

 India is the fastest growing economy with a large and expanding middle class
 The growth indicator for India’s future pointed towards stable and market oriented
economy
 Increase disposable income , greater aspiration to own a motorized vehicle , availability
of easy financing and demographic are the factors for increase in demand of two
wheelers.
 Growth in rural segment
 Employment creation
 Economic empowerment
 Shift in consumer behavior and shift in technology in two wheeler segment and market

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growth

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Q2. What was the impact of this environment on the lubricant market?

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 Two wheeler expected to jump to 80mn units in 2010 from 42mn in 2004

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 Demand shift from tier 1 to tier 2 and tier 3 with rural demand growth and related jobs
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 Technological shift leading to shift in lubricant category 2T to 4T
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 Change in consumption pattern of 4T oil
 MCO 4T market growing at 17 to 18 MLPA
 Channel of sales of lubricant changed from FC to after market
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 Mc added each year 5mn

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 4T oil is expected to grow by 176% by 2010 from 76 mlpa in 2005

 Overall lubricant mkt @3%
Q3. Assess Castrol’s position in terms of growth opportunities in the mco four stroke
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market
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 Large shift towards middle class – 44%

 2W sales 120MU
 MCO 4T market | 210 ml | (17 to 18 MLPA) (CAGR 23%)
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 Castrol’s | 2.5 MLPA

 Castrol’s 63 MLPA
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 Access to 70000 retail outlets

 Market potential | 210 MCO 4T
 Brand awareness , channel advocacy and distribution
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 Large trade deals such as discount and better credit terms

 Tie up with OEM, forecourts.

Q4. How do consumers buy MCO’s? Discuss the existing consumer segments.

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 ● After studying the buying habits of consumer’s lubricant consumption pattern, the team
found that it was inconsistent. The MCO’s are mainly sold indirectly to the consumers.
● Earlier, to claim the benefits in the warranty period, they used to go to the franchised
workshops where Castrol was used and as soon as the warranty period ends, they switch
to the Non Franchised Workshops.
● At the NFW, either the consumer brings his own oil or asks a mechanic to get one.
● Then the mechanic goes to the nearest shop and buys the oil which is most of the time
Castrol. If Castrol, Mechanic gets it in three to five rupees less and that becomes his
earnings of the day with the service charge and the consumer’s vehicle gets ready after
the service and in this way the consumers buy MCOs indirectly.

● Based on market research on needs and insights, Castrol has identified three distinct
consumer segments:

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1. Minimalists: They believe in doing the right thing. They seek the value for money with

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the reassurance from the credible brand.

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2. Appreciators: They believe in inspiring freedom and confidence. They consider their

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bike as a means of transportation for them and they are ready to pay a slight premium and

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can’t afford its breakdown.
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3. Enthusiasts: They believe in getting the most out of their bike’s engine. They want to be
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associated with the best and consider their bike as a vehicle for dreams that would
uncover new opportunities for them.
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Q5. What is the specific challenge for Rai and his team?

 Out of the total 30% of the market share, 24% could be achieved by by focusing on trade
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promotions, sales incentives plan and marketing support whereas the remaining 6% could
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be achieved through the NFW and the spare part shops

 However, the main challenge here was how to get NFW’s to stock, sell and display
Castrol since consumer behavior was seen to be shifting from shop to workshop, but
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there were few concerns regarding the distributors:

 Unlike regular shopkeepers, the NFW mechanics lacked basics understanding of
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transactions
 Also the distributors were hesitant to visit the mechanic shops for fear of exposing their
poor technical knowledge and were also cautious in investing extra employees or delivery
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units since each distributor sales representative(DSR) would cost more than 12000 a
month.
 Moreover the DSR would not be able to manage activities from a location far away from
the base stations since the payment had to be done by the end of the day

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  Furthermore, Rai was also concerned about the route-to-market distribution plan to be
cost-neutral since Castrol was not ready to increase its distribution to fund the
recommended expansion.

Q6. What are Castrol's options for expanding its distribution? Discuss the advantages and
disadvantages of each option.

Castrol has two options for expanding its distribution

Direct Channel -
1. Tie up with Fore courts : Petrol pumps and gasoline stations
2. FWs (Franchised workshops) : Authorised workshops
Indirect Channels -

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1. Accessories and spare parts outlets
2. Pure lubricants outlets : store that sells lubricants of all companies

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3. Non franchised workshops
4. Other (eg : Wholesalers , Agri-stores,Cooperative stores etc)

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Advantages and Disadvantages of Direct Distribution channel :
Advantages :
 One of the most reliable and critical distribution method .An association with original
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equipment manufacturer reinforces approval and usage of a particular brand

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 Customer trust one of the use of oils at the direct channels since their vehicles are under
warranty.
 The company does not have to bother to market their products on retail level because
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association with FW would link them directly to their customers.

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Disadvantages :
 Restricted access due to limited tie ups with OEMs
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 Restricted entry in petrol pumps due to competition from govt owned PSU ,like
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IOCl,BPCL,and HPCL.
 Low coverage of FW in tier 2 and tier 3 towns - shrinking customer base
 Competition faced from ‘genuine oils” -eg. Hero Honda 4T - packaged engine oil sold by
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hero honda

Advantages and Disadvantages of Indirect Distribution channel :

Advantages :

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  Castrol is the fastest moving brand and preferred choice of consumers in the Indirect
channel segment (around 23%). Due to this reason, Castrol products are ranked high in
the Stock and sell mechanic segment catering for 30% oil change in the market cap.

 Understanding and tapping the sentiment of younger demographic market, and focusing
on technological advancement in launch of new products eg. Multi grade oils, dedicated 4
stroke oils Grand Prix, Activ 4T. Young consumers did not have a choice in Franchised
Workshop on choice of oils, which they can easily decide in the Non Franchised
Workshop segment.

 Most of the after market sales, when warranty coverage is over, customers stick to their
OEM approved products, and Castrol retains their customer base. Further, due to less
penetration of govt. owned PSU oil companies in rural segments, Castrol finds a large
untapped segment of retail marketing.

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Disadvantages:-

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 Motorcycle oils (MCO) itself is a small part of Castrol overall business (covering only
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10-20%), so Castrol can not invest in the local serving, or increasing the distributor sales
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representative to cater the gap of NFWs share in the marketing channel.

 Poor funding of Non franchised mechanics NFW mechanics are short of funds, could not
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invest in Oil based inventories, and lack basic understanding of business operations.
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 The Buying pattern of Non Franchised Workshops consumption pattern is very erratic ,
and hence market growth parameters are not stable.
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Q7 . How can Castrol implement its new distribution strategy? What resources and
support(marketing and sales) will be required?
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 Strategic marketing planning

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 OEM tie-ups of major lubricant players and creating a distribution architecture

 Technological competence
 Prioritizing segments
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 Customer Value Analysis

Marketing and Sales is required to augment new distribution strategies strategies
implemented for rural areas which involves:

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  Distributors, retailers, dealers: Cash and volume discounts, gift coupons, rewards like
incentives, holidays, free offers
 Drivers and Customers: Car rally, cash backs, discounts
 Mechanics: Training and skill development, workshops, rewards, conversion of garages
into exclusive centers, mechanic skill contest

Team Members:
Arpita
Bhavi Tank
Prapti Shetty
Rahul Sharma
Vaishnavi Dandekar

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