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Castrol India Limited: An

Innovative Distribution Channel
– Case Solution
In January 2006, the general manager of sales at Castrol India Limited
was worried due to the declining sales of Castrol motorcycle oil for
four-stroke engines. It was lesser than it should be despite the increase
in the number of motorcycles in India each year. People who have
their motorcycle oil changed avail of the services in franchised
workshops while still in the warranty period. Outside of the said
period, they avail of this service in non-franchised workshops. The
general manager plans to target both workshops in its strategy to
increase the sales of Castrol oil. Thus, the general manager must come
up with a better distribution strategy which distributors would grab
and avail of to increase the sale of Castrol Oil.

RENUKA KAMATH
HARVARD BUSINESS REVIEW (W16643-PDF-ENG)
SEPTEMBER 22, 2016

Case questions answered:

1. How do consumers buy MCOs? Discuss the existing consumer segments.
2. What is the specific challenge for Rai and his team?
3. What are Castrol’s options for expanding its distribution? Discuss the advantages
and disadvantages of each option.
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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.

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