Eco 7: Launching a New Motor Oil
ADV 388K
Integrated Communication Management
Group 6
Zachary Bodner (bodnerzd)
Alex Hart (amh6375)
Xing Liu (xl5525)
Darya Procopovich (dp28353)
Emma Szyller (es34345)
The University of Texas at Austin
1
Situation Analysis
Demographic Environment
The Do-It-Yourself (DIY) consumer segment is younger overall than the Do-It-For-Me
(DIFM) consumer segment and is more likely to live in smaller towns or rural areas. On average,
DIY consumers are slightly less affluent, favor trucks and SUV’s, and are more conscious when
it comes to automotive maintenance. They are more likely to purchase their motor oil from a
mass merchandiser, such as Walmart, or an automotive parts store, such as AutoZone or
Advance Auto Parts. They also tend to know more about their vehicles and have a better
understanding of the differences between motor oils.
The Do-It-For-Me (DIFM) consumer segment is usually older, has more education and a
higher income, and is more likely to live in a large metropolitan area. They tend to prefer foreign
cars and luxury vehicles, and are more likely to drive fuel-efficient diesel or hybrid cars. They
are less likely than DIY consumers to do any maintenance on vehicles themselves. They
typically rely on professionals for routine maintenance such as tire rotations, brake service, and
tune-ups. Additionally, most DIFM customers cannot explain the product classification and don’t
remember what brand of motor oil they last purchased.
DIY consumer segment
DIFM consumer segment
Age
Younger
Older
Geography
Smaller towns or rural areas
Large metropolitan areas
Income
Less affluent
Higher income
Education
Less
More
Type of car
Trucks and SUV’s
Foreign, luxury cars, and fuelefficient diesel or hybrid cars.
Motor oil purchase
location
Mass merchandiser (Walmart) or
automotive parts stores (AutoZone)
Rely on professional for routine
maintenance
Overall, most consumers are price sensitive and despite the fact that it is recommended
that regular drivers get an oil change every 3,000 miles or three months (whichever comes first),
customers typically only change their oil every 4,500 miles.
2
Economic Environment
The market for PCMO manufacturers in the U.S., excluding service revenues, is
approximately $10.5 billion in 2012. The industry is mature, and analysts expect annual growth
of no more than 2% through 2020. Manufacturers sell PCMO directly (25% of industry sales)
and through wholesale distributors (75% of industry sales).
Natural Environment
Used motor oil will harm soil and water if not disposed of properly. However, when
managed properly, used motor oil can be refined and reused. For instance, Eco7 is an
environmentally friendly motor oil because it is made of 65% recycled oil and 45% less energy
than is typically used to produce conventional oil.
Technological Environment
Overall, the performance of a PCMO is gauged by how well it provides lubrication under
different conditions. PCMO’s come in three basic categories: conventional, full synthetic, and
synthetic blend. Conventional motor oil meets performance specifications and costs less than
other types. Full synthetic motor oil uses petroleum as its base material, but is further refined and
modified and has more additives to boost performance. Synthetics offer greater longevity and
withstand high temperatures more effectively than conventional motor oils. They can be used in
any vehicle, but are often specified for higher performance vehicles that generate more engine
heat.
Competitive Environment
The PCMO industry is mature, and the market leaders are Baud and Motoline. Aveline
ranks third among PCMO manufacturers. However, although Avellin remains the number three
player in branded motor oil, its market share had fallen slightly, making Eco7 an important
product launch.
Baud and Motoline have invested heavily in expanding their fast-lube chains. The two
market leaders have made themselves the easy, obvious choice for consumers in the most
attractive metropolitan markets. Baud has the largest fast-lube chain in the country. Baud also
enjoys a strong presence in mass merchandisers and clubs, where it is the preferred brand for oil
changes at Walmart and is granted significant shelf space, which helps it capture DIY sales.
Motoline has more than 1,200 stores in its fast-lube chain and long-term relationships with major
chains for brakes and mufflers, as well as national tire dealers.
To date, only Sevoline, a competitor to Avellin and ranked 5th in the market, has
introduced a ‘green’ motor oil, SevoGreen, which was introduced in 2011. Like Eco7,
SevoGreen is manufactured with recycled motor oil. It performs on par with other conventional
oils, although, at $7.50 per quart, it costs nearly twice as much. Sevogreen has generated
significant buzz within the industry and initial sales penetration of channel partners has shown
promise, but the green motor oil market is clearly in its infancy.
3
Despite the fact that Eco7 is a “green” motor oil, it still has to compete with other
“regular” motor oils (conventional, full synthetic and synthetic blend). One of the advantages is
that although Eco7 is a conventional motor oil, it also has the same characteristics as a synthetic
blend. However, Eco7 will be priced higher than conventional oils. It is also important to note
that customers are rarely loyal to PMCO brands, and private-label motor oils have lower prices
while also generating high gross margins for DIFM installers. Taken together, this leads to
private-label motor oils having 32% of the market share, which continues to increase.
Product Environment
Many consumers view motor oil as a commodity product (pg. 1). That being said,
consumer interest in “green” automobile technology, such as hybrids and electric vehicles, has
still increased steadily. Most research and development focuses on improving fuel efficiency,
alternative energy sources, and reducing emissions. However, there has been little innovation in
the motor oil used to maintain engines.
The most widely used products are those within the conventional motor oil category,
because they meet performance specifications and, at $2.50 to $4.00 per quart, they are the most
affordable motor oil. Synthetic motor oil accounts for less than 20% of industry sales because of
its high price point ($5.50 to $9.00 per quart), despite the fact that is has greater longevity and
can withstand high temperatures more effectively.
Company Analysis
Avellin has experienced sluggish growth since 2005. This is partly due to a takeover bid
that Avellin was forced to fight in 2007. While the resulting management buyout kept Avellin
independent, the whole ordeal saddled the company with significant debt and interest payments.
In 2013, Avellin’s net income was only 4% of total industry revenues of $2.2 billion. In 2014,
Avellin operated ten lubricant blending and packaging plants in the U.S. and seven regional
distribution centers.
Like its competitors, Avellin has its own fast-lube chain, AvellinAuto. However, Avellin
cannot aggressively advertise its motor oil through AvellinAuto because it competes with the
company’s other DIFM customers.
Overall, Avellin has two divisions: Industrial Materials and Automotive. Approximately
60% of Avellin’s revenues and 40% of its profit come from the automotive division. And
although Avellin remains the number 3 player in branded motor oil, its market share has fallen
slightly, making Eco7 an important product launch.
4
SWOT Analysis
Strengths
Weaknesses
Competition
Company
● Avellin remains the number 3 player
● Avellin’s market share has fallen
in branded motor oil.
slightly (pg.1)
● Avellin is the leading PCMO brand
● Avellin has experienced sluggish
among independent DIFM customers
growth since 2005.
(pg.6)
● Avellin is saddled with significant debt
● Avellin remains a well-respected,
and interest payments.
innovative company that consumers
● In 2013, Avellin’s net income was only
trust (pg.1)
4% on total industry revenues of $2.2
● Approximately 60% of Avellin’s
billion.
revenues, and 40% of its profits come
from the automotive division; making Avellin Programs & Stores
● Avellin has been less aggressive than
this product launch a key move in the
its competitors in expanding its fastcompany’s ability to grow.
lube chain (pg.6)
● Jonnerson believes that Eco7 offers
performance and cost advantages over
SevoGreen and can help grow
Avellin’s business in the passengercar motor oil (PCMO) market (pg. 1)
● Avellin has historically been favored
by independent fast-lube stores, oil
change-plus stores, and repair shops
(pg.5)
Technology
● Eco7 is an environmentally friendly
motor oil.
● Avellin’s refining process and
additives give Eco7 a longevity and
performance comparable to a
synthetic blend, making it superior to
conventional oil (pg.7)
● Eco7 is made of 65% recycled oil and
uses 45% less energy than is typically
used to produce conventional oil (pg.
7)
5
Avellin Programs & Stores
● Avellin’s Aventage program provides
customers with dedicated sales
managers, management of in-store
displays, provision of consumer
education and support, and bulk
discounts (pg.6)
● AvellinAuto stores are serviced
directly through the company’s
regional distribution centers, rather
than through wholesalers, and the
effective manufacturer's gross profit is
about $0.75 higher per five quarts
(pg.6)
Opportunities
Threats
Market
Market
● The market for PCMO manufacturers
● The industry of PCMO is mature, and
in the United States, excluding service
analysts expect annual growth of no
revenues, was approximately $10.5
more than 2% through 2020 (pg. 2)
billion in 2012 (pg.1)
● The “fast-lube” channel - comprised of
service outlets focused on quick oil
Competition
changes - has peaked. This is a concern
● There is only one competitor
for Avellin, who has a strong customer
(Sevoline) that produces a recycled
base among independent fast-lube
oil.
stores. Only the national fast-lube
chains have seen meaningful revenue
Consumer Insights
growth.
● Most vehicle owners understand the
● Oil changes in mass merchandisers and
importance of regular oil changes and
clubs are priced very competitively and
know the leading PCMO brands.
generate little profit for the retailers,
● Customers appreciate having a “onebut drive customers to these stores
stop shop” for all maintenance, such
(pg.4)
as oil changes (pg.4)
● Repair shops’ share of automotive
● 83% of consumers are willing to
maintenance services has declined in
accept a professional installer’s
favor of lower-cost, higher-volume
recommended PCMO brand if it
outlets (pg.4)
meets their price expectations and the
vehicle manufacturer’s requirements.
6
Technology
● There has been little innovation in the
motor oil used to maintain engines.
● The green motor oil market is still in
its infancy, thus there is a large
opportunity for significant growth.
● SevoGreen performs on par with other
conventional oils, although at $7.50
per quart, it costs nearly twice as
much as current conventional oil
options (pg. 7), and would cost a
dollar more than the highest proposed
price option for Eco7.
Environment/Green Technologies
● Surveys indicate that an increasing
number of consumers value
environmentally friendly options and
would pay a premium to be green
(pg.6)
● Consumer interest in “green”
automobile technology, such as
hybrids or electric vehicles, has
increased steadily (pg. 1)
DIY
● During the past decade, the DIY
segment has shrunk dramatically as
more customers are beginning to use
professional oil-change services
(pg.1)
● Sales to DIY consumers are modest,
as Sevoline invests little in national
marketing campaigns that could build
awareness (pg.7)
Consumer Insights
● Consumers are not excited by motor
oil, and building momentum for Eco7
will be difficult.
● Most PCMO consumers view oil
changes as a nuisance that costs them
time and money (pg.3)
● Many consumers view motor oil as a
commodity product (pg. 1)
● Some customers may not understand
that Eco7 is not only an
environmentally friendly product, but
also provides better driving
performance (pg.7)
● Aventage customers have begun to
demand their own private-label product
that can give them good margins and a
low price to compete against the lowcost oil changes at mass merchandisers
and clubs (pg.6)
Technology
● Most innovations offer only modest
improvements to existing products and
typically are unnoticed by consumers
(pg. 2)
● New cars can be driven much farther
before requiring an oil change; in
2013, the average consumer drove
nearly 4,500 miles before getting an oil
change (up from the traditionally
recommended 3,000 miles between oil
changes).
DIY
● A consumer might be unwilling to pay
DIFM
full price for a branded synthetic, but
● Most distributors and independent
could be upsold from conventional
DIFM outlets only carry a few brands,
motor oil to a private-label synthetic
thus if Eco7 can find a way into these
oil.
7
outlets, they will have prime territory
● Nearly 70% of DIY consumers report
because of the lack of competition
purchasing one PCMO product
within each individual outlet.
consistently because of trust and
● DIFM service providers will steer
familiarity with the brand.
their customers to a preferred brand;
DIFM
if Avellin can convince service
● Most DIFM consumers could not
providers that Eco7 is a superior
explain the product classifications and
option, then it should follow that they
could not recall what brand of motor
will recommend it to customers.
oil they had last purchased.
● One-third of Sevoline’s DIFM
● For the DIFM installers, private label
customers have agreed to carry
offers lower prices while generating
SevoGreen, but few are motivated or
high gross margins (pg.5)
trained to promote it (pg.7); thus
● Major retailers that offered DIFM
Avellin can try to gain market share in
services, such as Walmart, usually
the green motor oil segment by
promoted their own private label,
resolving this issue and teaching
Baud, or Motoline (pg.6)
DIFM customers of the superior
qualities of Eco7.
Price
● The price of an oil change at a fastlube outlet is 15%-20% higher than it
is at repair shops, dealers, and mass
merchandisers. (pg.4)
● The varying retail prices of Eco7 at
different store locations can create
complaints about lower price at other
stores (pg.8)
8
Problem Statement
What distribution channel and pricing strategy should Avellin choose for launching its new
“green” motor oil?
Critical Factors
1. Distribution channels - the company has three key distribution channels through which it
sells its products to different types of customers. Each channel provides Avellin and it’s
retailers with different margins, which are important to consider when analyzing the
feasibility of each solution.
2. Price - customers are sensitive to a price, and the company has more price-focused
consumers than quality-focused consumers.
3. Competition - Avellin’s Eco7 will compete not only with other “green” oils such as
Sevoline, but also with other types of oils (conventional, synthetic and blend synthetic).
4. Target audience - do-it-yourself (DIY) and do-it-for-me (DIFM) are two disparate
segments. The DIY segment is younger and more likely to live in smaller towns or rural
areas, and more loyal to their brand of choice. The DIFM consumers are older, and have
higher income, however they are less brand loyal.
5. Market trends - An increasing number of consumers value environmentally friendly
options and will pay a premium for products that align with the idea of being greener.
Eco7 is a product that Avellin is pushing to be more environmentally friendly.
6. Product - Eco7 is made of 65% recycled oil, and requires 45% less energy than is
typically needed when producing conventional PCMO. In addition, the product provides
a longevity and performance level comparable to a synthetic blend of oil, making it
superior to conventional oil on a number of fronts.
9
Solution 1: Distribution through the independent DIFM customer base and
AvellinAuto stores
This solution includes offering Eco7 exclusively through the independent DIFM
customer base and AvellinAuto stores while keeping it out of the national mass merchandisers,
clubs, and major auto-parts chains.
Distribution channels
Independent DIFM
Independent DIFM customers are the key feature in Avellin’s distribution channels, and
they bring 68% of the company’s revenue. More than 70% of them join the Aventage loyalty
program. Fast lubes, oil change-plus stores and repair stores generate 53% of DIFM purchases
(pg. 9, Exhibit 1; combined Fast lube - 32%, Oil change-plus - 12% and Repair shop - 9%), and
by selling Eco7 through a wide chain of distributors, the company will reach more final
customers and will have higher revenue (Appendix A).
Moreover, the fast-lube model helps to drive the consumer shift from DIY to DIFM,
often being the first place DIY customers choose among other DIFM installers. Avellin might
attract new customers of the growing DIFM segment by offering Eco7 in these stores.
AvellinAuto stores
With 436 stores open as of 2014, the AvellinAuto chain generated approximately 7% of
PMCO sales. Due to the fact that they are serviced directly through the company’s regional
distribution centers, AvellinAuto stores bring higher gross profit than DIFM, who are serviced
through wholesalers. The result is an additional $0.75 per five quarts. Penetration of Eco7 will be
100% through these stores, but the company still has to be careful and perform less aggressively
due to fear of competing with other DIFM chains.
Pricing strategy
Because the market is sensitive to price, and 17% of Avellin’s consumers are priceoriented, penetration and sales performance of the new motor oil is dependant on price point.
The company estimated different levels of adoption and number of sales for each type of
distributor (pg. 11, exhibit 6). Also, because Eco7 is a conventional motor oil, it is estimated that
consumers of this type of oil would be the first to switch.
By choosing to price Eco 7 at $6.75 per quart, the company would have a fewer number
of oil changes and lower level of penetration, than it would have by pricing Eco7 at $5.50. Also a
lower price might provide independent DIFM customers with a higher margin. Because of these
facts, monthly revenue of selling Eco7 at $5.50 is predicted to be $21.8M versus $18.2M selling
it at $6.75 (Appendix A).
However, these customers would be upsold from Avellin’s conventional motor oil, and
the company would sell less conventional oil. The difference in Avellin's revenue selling Eco7
10
instead of Avellin Conventional would be higher for $6.75 despite lower number of changes and
lower level of adoption.
Target audience
The DIFM consumer segment who typically use professional service providers to assist
in the routine maintenance of their vehicles. Overall, these customers are more affluent and have
less interest in the specifics of their car maintenance routines. Moreover, the typical DIFM
consumer is more likely to drive fuel-efficient diesel or hybrid cars and thus may be more
interested in paying a higher price to receive an environmentally friendly motor oil alternative.
Competition
Compete with large national brands: Baud and Motoline. In addition, they would compete
with the first major “green” motor oil manufacturer, Sevoline, because both companies have
similar product offerings and positioning strategies.
Pros:
● Avellin is the leading PCMO brand among independent DIFM customers (pg.6).
● Wider chain of distributors compared to only AvellinAuto stores and Aventage loyalty
program (Solution 2).
● Independent DIFM bring 68% of revenue, and ignoring them would prevent Avellin from
reaching a significant portion of the market.
● The company may focus on distributing through independent DIFM customers, which
have big market share, and AvellinAuto stores would have lower priority. The level of
competition between Independent DIFM and AvellinAuto would be lower.
Cons:
● Keeping out of the national mass merchandisers, clubs, and major auto-part chains would
affect the sales of Avellin because National retailers accounted for 9% of Avellin’s
PCMO sales.
● The company will not be able to aggressively advertise its services and oil through
AvellinAuto.
● Price of an oil change in independent DIFM store will be higher than in AvellinAuto
store, and selling more through independent DIFM customers, the company will have to
use lower price.
● Recently, Aventage customers have begun to demand their own private-label product that
could give them good margins and a low price to compete against the low-cost oil
changes at mass merchandisers and clubs.
11
Solution 2: Distribution through the AvellinAuto stores and independent
DIFM customers in the Aventage program
This solution involves selling Eco7 only through AvellinAuto stores and independent DIFM
customers in the Aventage program.
Distribution channels
Aventage Program Stores
One of the main advantages of distributing through the Aventage Program is building and
bolstering customer loyalty. Selling Eco7 only through 4,400 Aventage program stores (73% of
all independent DIFM stores that sell Avellin’s motor oil) ignoring other 1,600 independent
DIFM stores, will result in higher adoption of the new motor oil (95% vs. 75% by choosing full
price and approximately 100% vs. 90% by choosing discounted price).
This is mainly achieved through in-store sales managers, bulk discounts, administration
of consumer education and support, and management of in-store sales displays. The sales
managers further provide Avellin with consumer insights and trends, and ensure that wholesale
distributors serve the DIFM customers effectively. Selling the new Eco7 only through Aventage
program stores, Avellin would make other companies want to join this program.
AvellinAuto stores
AvellinAuto stores bring higher gross profit than DIFM stores, and by incorporating
Eco7 into its own chain of stores and giving them opportunity to grow, Avellin would take a step
toward maximizing its profit in the future as other manufacturers have done. Additionally, the
AvellinAuto stores generate approximately 7% of PCMO sales and are located in places where
other independent DIFM stores have a lack of presence. However, AvellinAuto still has to ensure
that they do not perform too aggressively out of fear of competing with other DIFM chains,
which sell other types of Avellin’s oil.
Pricing strategy
By selling the new motor oil only through Aventage program and AvellinAuto stores, the
company can demonstrate that it is an exclusive motor oil with advantageous benefits over the
competition. The higher price (compared to conventional motor oil) might be an indicator of that.
By choosing to price Eco7 at $6.75 per quart, Avellin would have a lower revenue
because of the lower percentage of adoption and a lower number of oil changes (Appendix B).
However, because of converting more customers from conventional oil to Eco7, to total revenue
would be higher for this price, and it will result in bigger gross margin for installers
(approximately 55% of final price).
By choosing to price Eco7 at $5.50 per quart, the company would provide Aventage
program stores with a huge benefit by giving them the freedom to price the new motor oil at a
higher price (and to have gross margin higher than 55%) and in turn, allow these stores the
12
ability to pull in higher margins. Overall, this would increase loyalty and limit the encroachment
of private labels.
Target audience
The DIFM consumer segment who typically use professional service providers to assist
in the routine maintenance of their vehicles; but this strategy will put more emphasis on
customers who are already loyal to the Avellin’s Aventage program. Because this customer base
is already loyal to the Avellin brand, and are more interested in purchasing products that are
environmentally friendly, the jump from them purchasing the standard Avellin products to now
purchasing the Eco7 product should be an easy hurdle for Avellin to tackle.
Competition
Aside from the obvious competition of large national brands (Baud and Motoline), and
the first major green motor oil manufacturer, SevoGreen, the new Eco7 will create competition
between Aventage program stores and other independent DIFM stores because it will give the
Aventage program stores additional advantages.
Pros:
The company will get higher gross profit selling through AvellinAuto only
The team projects this approach would grow 95% among Aventage stores
● Independent DIFM bring 68% of revenue, and ignoring them would prevent Avellin from
reaching a significant portion of the market.
● The likelihood that the Eco7 launch will be executed effectively will increase by working
with fewer, but more engaged, stores already in the Aventage program.
● Avellin is the leading PCMO brand among independent DIFM customers (pg.6).
●
●
Cons:
Competition between AvellinAuto and Independent DIFM distributors will be more tense
and that may lead to termination of relationship between the company and customers
● AvellinAuto doesn’t have many stores, and they are not situated at key locations.
● The company may cause anger of independent DIFM customers who sell regular motor
oil, but not allowed to sell “green” motor oil.
●
13
Recommendation
Solution 2: Distribution through the AvellinAuto stores and independent DIFM customers
in the Aventage program
We recommend Avellin distribute the new environmentally friendly motor oil, Eco7,
through the AvellinAuto stores and independent DIFM customer in the Aventage program, while
keeping it out of the national mass merchandisers, clubs, and major auto-parts chains. This
distribution plan will reach the DIFM customer base and since independent DIFM generate a
large percentage of revenue, they are key to reaching a significant portion of the market.
Additionally, Avellin is already the leading PCMO brand among independent DIFM customers,
so this target audience is more likely to be receptive to a new product from a brand they already
trust.
Based on prior experience, the penetration with this approach is expected to grow to 95%
among Aventage stores. Distributing through the Aventage Program will increase and strengthen
customer loyalty. Working with fewer, but more engaged, stores already in the Aventage
program will improve the odds that the launch of Eco7 will be executed effectively.
Additionally, there is only one other “green” motor oil in the market right now
(SevoGreen), and the opportunity of selling it should be a reason to join Aventage program. If
Avellin additionally signs 8% of current customers and reaches 4,750 stores in the program, the
revenue of selling Eco7 will be $18.2M, and difference in Avellin's revenue selling Eco7 instead
of Avellin Conventional will reach the same difference in selling through all independent DIFM
customers ($9,436,219).
Furthermore, because AvellinAuto stores produce higher gross profit than DIFM stores,
introducing Eco7 in AvellinAuto stores will allow Avellin to maximize its profit in the future as
other manufacturers have done. AvellinAuto stores being located in places where other
independent DIFM stores have no presence, is another advantage of this distribution plan, but to
ensure low competition between Independent DIFM and AvellinAuto, we need to focus on the
distribution through independent DIFM customers first and AvellinAuto stores second.
Introducing Eco7 at $6.75 per quart would provide Aventage program stores with higher
margin. Overall, this would increase loyalty and limit the encroachment of private labels.
We decided it would not be beneficial for Avellin to focus their efforts on the DIY
consumer segment for a number of reasons. First, DIY consumers are more cost-conscious when
it comes to automotive maintenance, thus, convincing DIY customers of the value proposition of
this new product would be a significant hurdle to overcome. Second, the marketing and
advertising costs to do so would also be significant and less fruitful than offering the product
primarily to DIFM customers, who, on average are more affluent. Third, DIY consumers are
more involved in the regular maintenance of their vehicles and thus might be more critical of the
performance benefits of this new, more expensive product offering. Fourth, competition for this
segment will be fierce because the national retailers come into play with their cheaper price of
14
motor oil and quick oil change service. Because of the lower price point, there is a risk of
customers wanting to switch from the independent DIFM stores to the national retailers, which
would create a rift between the distributors and Avellin. Additionally, customers in the Avellin
Aventage programs will likely demand changing to private motor oils, which would further hurt
Avellins’ sales landscape. Finally, if Avellin decided to distribute Eco7 through national
wholesalers, the company would need to spend a significant amount of money on in-store
displays and other advertising efforts to ensure that potential customers understand the value
proposition of this new product. The cost of these efforts combined with the lower product price
necessary to compete with the more competitive pricing within these stores would plague
Avellin with significant losses.
However, it is also important to note that by largely ignoring the DIY consumers, Avellin
will miss targeting 9% of Avellin’s PCMO sales. If Avellin did want to target this small subset of
customers, they would need to offer Eco7 at a cheaper price point, which, in turn, would anger
other DIFM stores and would poach customers from those stores to national retailers. Given the
need to offer the product at lower prices for wholesalers, Avellin’s missing out on this
percentage of customers would not cause a significant loss. Another point to note is that DIY
consumers are more aware of the brands they buy and have a high level of brand awareness. By
ignoring the DIY customers Avellin may potentially hurt their chances of building the brand and
customer loyalty in the future.
To summarize, we decided not to include National retailers in our distribution channel
strategy because such a decision would drive current Avellin customers to those retailers because
of the more competitive pricing. This, in turn would reduce the sales from DIFM and
AvellinAuto stores. Overall, the cons of targeting DIY customers outweigh the pros and thus we
think Avellin’s focus for Eco7 should revolve around the Aventage program customers and their
own AvellinAuto stores.
15
Appendix A
Solution #1: Distribution through the independent DIFM customer base and AvellinAuto stores
Independent DIFM
Fast lubes
Oil change-plus AvellinAuto
and Repair
Other stores
stores
Aventage
stores
Number of stores
Total
4,400
1,600
6,500
436
12,936
- full price
75%
45%
30%
100%
- discounted
90%
60%
40%
100%
- full price
3,300
720
1,950
436
6,406
- discounted
3,960
960
2,600
436
7,956
- full price
105
105
26
150
- discounted
135
135
34
180
- full price
346,500
75,600
51,188
65,400
538,688
- discounted
534,600
129,600
87,750
78,480
830,430
- full price
$6.75
$6.75
$6.75
$6.75
- discounted
$5.25
$5.25
$5.25
$5.25
5
5
5
5
- full price
$11,694,375
$2,551,500
$1,727,578
$2,207,250
$18,180,703
- discounted
$14,033,250
$3,402,000
$2,303,438
$2,060,100
$21,798,788
$3.25
$3.25
$3.25
$3.25
- full price
$6,063,750
$1,323,000
$895,781
$1,144,500
$9,427,031
- discounted
$5,346,000
$1,296,000
$877,500
$784,800
$8,304,300
Adoption of Eco7, %
Adoption of Eco7, stores
Retail sales of Eco7, per store
Retail sales of Eco7, total
Price of Eco7 per quart
Amount of quarts for an oil
change
Revenue of selling Eco7
Price of Avellin Conventional
Difference in Avellin's revenue
selling Eco7 instead of Avellin
Conventional
16
Appendix B
Solution #2: Distribution through the AvellinAuto stores and independent DIFM customers in the
Aventage program
Independent DIFM
Oil change-plus
and Repair
Aventage stores Other stores
stores
Fast lubes
Number of stores
AvellinAuto
Total
4,400
0
0
436
4,836
95%
0%
0%
100%
100%
0%
0%
100%
0
- full price
4,180
0
0
436
4,616
- discounted
4,400
0
0
436
4,836
- full price
105
0
0
150
- discounted
135
0
0
180
- full price
438,900
0
0
65,400
504,300
- discounted
594,000
0
0
78,480
672,480
- full price
$6.75
$6.75
$6.75
$6.75
- discounted
$5.25
$5.25
$5.25
$5.25
5
5
5
5
- full price
$14,812,875
$0
$0
$2,207,250
$17,020,125
- discounted
$15,592,500
$0
$0
$2,060,100
$17,652,600
$3.25
$3.25
$3.25
$3.25
- full price
$7,680,750
$0
$0
$1,144,500
$8,825,250
- discounted
$5,940,000
$0
$0
$784,800
$6,724,800
Adoption of Eco7, %
- full price
- discounted
Adoption of Eco7, stores
Retail sales of Eco7, per store
Retail sales of Eco7, total
Price of Eco7 per quart
Amount of quarts for an oil
change
Revenue of selling Eco7
Price of Avellin Conventional
Difference in Avellin's
revenue selling Eco7 instead
of Avellin Conventional
17
Appendix C
Solution #2: Distribution through the AvellinAuto stores and independent DIFM customers in the
Aventage program
Growth prediction
Independent DIFM
Fast lubes
Oil changeplus and Repair
Other stores
stores
Aventage
stores
Number of stores
AvellinAuto
Total
4,750
0
0
436
5,186
95%
0%
0%
100%
100%
0%
0%
100%
0
- full price
4,513
0
0
436
4,949
- discounted
4,750
0
0
436
5,186
- full price
105
0
0
150
- discounted
135
0
0
180
- full price
473,813
0
0
65,400
539,213
- discounted
641,250
0
0
78,480
719,730
- full price
$6.75
$6.75
$6.75
$6.75
- discounted
$5.25
$5.25
$5.25
$5.25
5
5
5
5
- full price
$15,991,172
$0
$0
$2,207,250
$18,198,422
- discounted
$16,832,813
$0
$0
$2,060,100
$18,892,913
$3.25
$3.25
$3.25
$3.25
- full price
$8,291,719
$0
$0
$1,144,500
$9,436,219
- discounted
$6,412,500
$0
$0
$784,800
$7,197,300
Adoption of Eco7, %
- full price
- discounted
Adoption of Eco7, stores
Retail sales of Eco7, per store
Retail sales of Eco7, total
Price of Eco7 per quart
Amount of quarts for an oil change
Revenue of selling Eco7
Price of Avellin Conventional
Difference in Avellin's revenue
selling Eco7 instead of Avellin
Conventional