Castrol India Limited
An Innovative Distribution Channel Analysis
Introduction
Castrol India Bikes added: 5 mn pa Products in India:
subsidiary of Castrol Ltd UK, Bikes on road: 42 mn (’04) Automotive:
Leading manufr. & Tech. leader estimated @82 mn (‘10) Engine Oils,
71 % is owned by BP MCO-4T mkt growth: Gear Oils,
Existence since 1910 ~ 18 mn lpa @ 20% p.a. vs Lub Mkt Transmission Fluids,
growth @ 3% p.a. Greases,
Brands ‘Castrol’ and ‘BP’ Coolant and Brake Fluids
Products | Automotive & Market Leader:
Industrial sectors 2T | PSU Industrial:
Network strength 270 Distrb. 4T | Level Playing field Metal Working Oils,
& ~ 70k retail outlets. High-Perform. Lubes.
5 manufacturing plants Lub. Distribution Channel Corrosion Preventives,
Industrial Cleaning
Castrol Ltd UK Company Distributor Chem.
Leading lubricant specialist Hyd. Oils, Gear Oils,
Wholesaler, FW, Markets, Store,
Presence in 140 countries Turbine and General
Outlets NFW Lub. Oils
Products | above plus Marine .
Introduction
Case Highlights
Indian Economy: Fast Growing economy indicating towards a stable and market oriented
economy.
PSU, MNC and local manufacturers.
Competitions:
Castrol | Technological Innovative, leader in 4T category
Consumer Behavior: Shifting | from shop to workshop
FW, FC and After Market (Spare Part Outlet, Oil Shop, NFW)
Distribution Channels: Castrol | After Market channel using distributors and retailers;
Industry & dominated the retail lub. market | access > 70k retail outlets.
Castrol Stock and Sell mechanics, Mechanic Shop and Mechanics.
NFW classifications:
Stock and Sell, Carry on credit, Customer carry
NFW Buying Behavior
Challenges: 30 % market share in the MCO market in the next five years.
Analysis of the Case study:
1. What was the business macro environment in India and Its impact of this
environment on the lubricant market?
2. How do consumers buy MCOs? Discuss the existing consumer segments.
3. What is the specific challenge for Rai and his team?
4. What are Castrol’s options for expanding its distribution? Advantages and
disadvantages of each option- Discuss
5.How can Castrol implement its new distribution strategy?
Analysis of the Case study:
1. What was the business macro environment in India and Its
impact of this environment on the lubricant market?
2. How do consumers buy MCOs? Discuss the existing consumer segments.
3. What is the specific challenge for Rai and his team?
4. What are Castrol’s options for expanding its distribution? Advantages and
disadvantages of each option- Discuss
5.How can Castrol implement its new distribution strategy?
What was the business macro environment in India
Real GDP Growth and Inflation Fex Reserves ($ Bn) 142
12 150 136
10
10 8.5 8.1 107
7.2 7.5
8 100
5.8 73.2
6 4.3 3.8 6.5 4.7 54.1
4 5.5 50
3.6 3.4 Real GDP Growth
2 17
Inflation 2.2
0
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2007+ 0
1990-91 1995-96 2001-02 2002-03 2003-04 2004-05 2005-06
FY FY
Exc Rate (INR) 40
Custom Tariff Auto Component (%)
50 35
48.4 30
47.69 30 25
48
45.95 20
46 44.93 20 15
44.25 12.5
44 10
42
0
2001-02 2002-03 2003-04 2004-05 2005-06
2000 2001 2002 2003 2004 2005 2006 2007
FY Year
What was the business macro environment in India and its impact of this environment on
the lubricant market?
1. Fast Growing economy 11. Increase disposable income
2. Large and expanding middle class 12. Greater aspirations
3. Stable and market oriented economy 13. Demographic Factor
4. Easy financing
5. Growth in rural segment
6. Employment creation
7. Economic empowerment
8. Shift in Consumer behavior
9. Shift in Technology in 2W segment
10. 2W market (E) growth ~ 100% in ’04
‘10
What was the business macro environment in India and its impact of this environment on
the lubricant market?
1. 2W expected to jump to 80 mn units in 2010 from 42 mn in 2004.
2. Demand shift from Tier 1 to Tier 2 and Tier 3 with rural demand growth and related
jobs.
3. Technological Shift leading to shift in lub category 2T 4T
4. Change in consumption pattern of 4T oil
5. MCO 4T mkt growing at 17 to 18 MLPA
6. Channel of Sales of Lub changed from FC to After Market
7. MC added each year 5mn
8. 4T oil is expected to grow by 176% by 2010 from 76 mlpa in 2005.
9. Overall Lub mkt @ 3%
Access Castrol’s position in terms of growth opportunities in the MCO 4S segment
1. Large shift towards middle class ~ 44% (2015E)
2. 2W Sales 120 MU (2015E)
3. MCO 4T market | 210 ML (2010E) | [17 to 18 MLPA] [CAGR 23%]
4. Castrol’s | 2.5 MLPA (avg.) (1/7)
5. Castrol’s | 63 MLPA (2010E)
6. Access to 70000 retails outlets
7. Market Potential 210 MCO 4T (2010E)
8. Brand awareness, channel advocacy, and distribution
9. Large trade deals such as discounts and better credit terms
10. Tie up with OEM, forecourts
Analysis of the Case study:
1. What was the business macro environment in India and Its impact of this
environment on the lubricant market?
2. How do consumers buy MCOs? Discuss the existing
consumer segments.
3. What is the specific challenge for Rai and his team?
4. What are Castrol’s options for expanding its distribution? Advantages and
disadvantages of each option- Discuss
5.How can Castrol implement its new distribution strategy?
How do consumers buy MCOs?
Consumer Belief : Oil Change necessary part of Bike Maintenance||Better Performance
Under Warranty CAGR
Motorcycle Dealership 17%
Franchise workshop
Growing @
Out of warranty ( After Market)
Past: Buying Oil of Choice and take CAGR
it to preferred mechanic 30%
Present: Shop to Workshop ( NFW)
Non Franchise Workshop Classification
Market Share USTAD Oil Charge
10% Stock and Sell Stock and
20%
Mechanics 30% Sell
Ex Franchise Mechanics
50%
Mechanics Ex
40%
Apprentice Franchise
50%
Mechanics Mechanics
Existing Consumer Segments
• Minimalist Appreciator Enthusiasts
Inspire Freedom Getting most out of the engine
Do the Right Things
and
Confidence
Value for Money Optimism
Bike is Lifeline
and Association with best
Partner in Pursuits
Reassurance Vehicle for Dreams
Can’t Afford Breakdown
Ready to Pay Premium
Analysis of the Case study:
1. What was the business macro environment in India and Its impact of this
environment on the lubricant market?
2. How do consumers buy MCOs? Discuss the existing consumer segments.
3. What is the specific challenge for Rai and his team?
4. What are Castrol’s options for expanding its distribution? Advantages and
disadvantages of each option- Discuss
5.How can Castrol implement its new distribution strategy?
What is the specific challenge for Rai and his team?
Serve the NFW segment in an effective and cost neutral manner
Reluctance of distributor in servicing the small mechanics due to their unauthorized
existence
MCO being a small part of distributor portfolio i.e. around 10-20%
Scattered and remotely presence of workshop
Benchmarking 6 year old brand along with a 20 year old market ruling brand CRB
Capturing 30% market share upto 2010 wherein 6% contribution should be leveraged
from NCW
Analysis of the Case study:
1. What was the business macro environment in India and Its impact of this
environment on the lubricant market?
2. How do consumers buy MCOs? Discuss the existing consumer segments.
3. What is the specific challenge for Rai and his team?
4. What are Castrol’s options for expanding its distribution?
Advantages and disadvantages of each option
5.How can Castrol implement its new distribution strategy?
Understanding the channels of distribution for Lubrication:
CASTROL
Direct Channels Indirect Channels
(Through Retail distributors)
Tie up with Fore Courts: Petrol
pumps and gasoline stations Accessories and Spare parts outlets
FWs (Franchised workshops):
Authorized workshops Pure Lubricants outlets: stores that
sells lubes of all companies
NFWs (Non Franchised workshops)
Others (eg: Wholesellers, Agri- stores,
Cooperative stores etc.)
CASTROL’s distribution channel evaluation- Current vs Future Shares
4 stroke oil sales Channel share Projected Projected
Channel in % in 4 stroke oil sales Channel share
2005 2005 in 2010 % in 2010
Direct Channels:
Franchised W/S 3.54 million lts 29.8% 11 million lts. 17.5%
Indirect Channels (After Market):
Spare parts outlet 3.6 million lts 30.3% 24 million lts 38.1%
Pure Lubes Outlet 3.9 million lts 32.8% 13 million lts 20.6%
Non Franchised 0.85 million lts 7.1% 15 million lts 23.8%
W/S
Total 11.89 million lts 100% 63 million lts 100%
What are Castrol’s options for expanding its distribution? Advantages and disadvantages of
each option
Advantages and disadvantages of Direct channels:
Advantages:
1. One of the most reliable and critical distribution method. An association with original equipment
manufacturer reinforces approval and usage of a particular brand.
2. Customers trust on the use of oils at the direct channels since their vehicles are under warranty.
3. The company does not have to bother to market their product on retail level. An association
with the franchised workshop would link them directly to their customers.
Disadvantages:
1. Restricted access due to limited tie-ups with OEMs
2. Low coverage of Franchised workshops in tier 2 and tier 3 towns- shrinking customer base
3. Restricted entry in forecourts (petrol pumps) due to competition from govt. owned PSU like
IOCL, BPCL and HPCL.
4. Competition faced from “genuine oils”- e.g. Hero Honda 4T- packaged engine oil sold by Hero
Honda.
What are Castrol’s options for expanding its distribution? Advantages and disadvantages of
each option
Advantages and disadvantages of Indirect channels:
Advantages:
1. 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 consumer did not have a choice in Franchised Workshop on
choice of oils, which they can easily decide in Non Franchised Workshop segment.
2. Castrol is the fastest moving brand and preferred choice of consumers in 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.
3. 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 segment, Castrol finds a large untapped segment of retail
marketing.
What are Castrol’s options for expanding its distribution? Advantages and disadvantages of
each option
Advantages and disadvantages of Indirect channels:
Disadvantages:
1. Buying pattern of Non Franchised Workshops- consumption pattern is very erratic, and hence
market- growth parameters are not stable.
2. Poor funding of Non franchised mechanics- NFW mechanics are short of funds, could not invest
in Oil based inventories, and lack basic understanding of business operations.
3. Motor cycle oils (MCO) itself is small part of Castrol overall business (covering only 10-20%), so
Castrol cannot invest in the local serving, or increasing the distributor sales representative to
cater the gap of NFWs share in the marketing channel.
Analysis of the Case study:
1. What was the business macro environment in India and Its impact of this
environment on the lubricant market?
2. How do consumers buy MCOs? Discuss the existing consumer segments.
3. What is the specific challenge for Rai and his team?
4. What are Castrol’s options for expanding its distribution? Advantages and
disadvantages of each option- Discuss
5.How can Castrol implement its new distribution strategy?
How can Castrol implement its new distribution strategy and what resources and
support (marketing & sales) will be required ?
Castrol needs to focus on the following to help implement its new distribution
strategy:
1. Strategic Marketing Planning
2. OEM tie ups of major lubricant players and creating a Distribution Architecture
3. Technological competence
4. Prioritising segments
5. Customer Value Analysis.
Marketing and Sales is required to augment the new distribution strategies implemented by
Castrol for rural/ tier 2 and 3 cities.
This involves engagement with distributors, dealers, retailers, mechanics, drivers, and customers.
Lubricant companies offer discounts, schemes, branding programs, and other rewards to all the
stakeholders in the chain
Distributors, dealers, retailers: Cash discount and volume discount, gift coupons, rewards like
incentives, holidays, free offers, recognition for surplus sales etc
Drivers and customers: Car rally, organising tour on Adventure expedition, Cashbacks,
discounts, free offers, gifts etc.
Mechanics: Training and skill development, workshops, OEM plant visits, rewards, conversion
of garages into exclusive centres. Mechanic skill contest; Rewarding key dealers
CONCLUSION
Capturing customer value by:
Guaranteeing long drain interval (i.e. replacement cycle).
Guaranteeing quality products with buy backs in case of failures
Tie ups with OEM to use their brand correlation
with Castrol brand
Move the existing spent on advertisement towards
awareness marketing towards rural, t2, t3 towns
Credit vouchers to NFWs on use of their
products.
CONCLUSION
Cutting the margin in 5% in these rural sectors
which would be carried out by increase in volumes
Prominent display and shelfing of the product for
proper display.
Pass on the benefits of reduced price to customers/
retailers.
Awareness program on use of fake and counterfeit
oils.
OUR TEAM
Blesson Varghese Jeevan Utpreti Manish Verma
Roll 10 Roll 19 Roll 22
Prashant Sinha Shreya Arora
Roll 29 Roll 41
